Bitcoin mining operation BitFury announced Thursday it has raised $20 million in its third venture capital round, with participating investors including DRW Venture Capital, iTech Capital, and Georgian Co-Investment Fund.
DRW Venture Capital founder Don Wilson said in a press release that his firm’s investment in BitFury “is an acknowledgment of the impressive work [BitFury CEO] Valery Vavilov and the team has done to become a leader in the business of securing the blockchain. By supporting BitFury’s efforts in this regard, and by providing liquidity in bitcoin via its wholly owned subsidiary, Cumberland, DRW aims to facilitate the widespread adoption of the distributed ledger technology.”
Gleb Davidyuk, managing partner of iTech Capital, said in the release, “Blockchain is one of the most promising and disruptive technologies we’ve seen in the FinTech industry for the past 15 years. We’ve kept an eye on Blockchain since its inception and are confident in its global recognition and following success. For a professional investor it is always a welcoming opportunity to recognize the early trends and to support a recognized leader within the industry. BitFury’s team has unique set of corporate and technical skills enabling it to maintain its lead in the long term and continuing success.”
Since its founding in 2011, the company has raised $60 million, reported the Wall Street Journal. The newspaper said BitFury did not disclose its valuation.
BitFury, which has management offices in San Francisco, Washington, D.C., and Amsterdam, said it will use the funds to support its accelerating growth as well as its technology and business expansion. The company recently introduced an energy efficient 28 nanometer chip, acquired an immersion cooling technology startup called Allied Control, and plans to further expand into the Republic of Georgia by constructing a Techno Park that will host BitFury’s new 100 MW data center.
George Kikvadze, BitFury’s vice chairman, told the Wall Street Journal that although the company is profitable, the funds are necessary due to the high costs of mining and the intense competition in the industry. Operating the data centers and acquiring more and more powerful chips is a seriously expensive endeavor.
“You need access to capital, as well as execution on silicon,” said Kikvadze. “That’s super important. If you don’t come up with the chip in time, and develop your data centers on time, you’ll be squeezed out.”
The Wall Street Journal noted that in the past year there has been a shake-up in the Bitcoin mining industry, as the costs of competition, as well as missteps in a burgeoning sector, have crumbled several players such as Butterfly Labs and CoinTerra. Kikvadze estimated that a year ago, he had approximately 20 competitors; today, “it’s BitFury versus the Chinese pools.”
The mining industry has gotten progressively more competitive over the years, with the prevalent form of computing power increasing from desktops to graphic cards to mainframes to dedicated semiconductor chips of increasingly smaller and more powerful designs, said the Wall Street Journal. The newspaper reported that since releasing its 28 nanometer chip several weeks ago, BitFury has seen its share of the rise from about six percent to 16 percent, making it currently the biggest private miner.
Other miners, such as KnCMiner, also have 28 nanometer chips (that company also has 20 nanometer chips), and the competition is taking that down very close to what most consider the limits for chips. “Until we get to 16 nanometers, this race is going to go on,” said Kikvadze to the Wall Street Journal.
Once you have the chip, you need the rest of the operation, said the newspaper. BitFury recently closed a data center in Finland that was not cost effective. In addition to building another center in Georgia, the company has one in Iceland, and plans to build a fourth center in either Canada or the United States.
The Wall Street Journal said the other big issue in the mining sector is the debate over the blocksize limit. Some are proposing to raise the limit past the current one megabyte, but doing so affects the economics of mining, and increasing the limit to eight or 20 megabytes, not to mention even greater sizes should Bitcoin keep growing, would be likely to weed out even more competition.
That puts an enterprise such as BitFury in an unusual spot, said the newspaper. As a private, for-profit company, less competition is a good thing. However, the Bitcoin industry has a philosophical stance over centralization. The fact that increasing the blocksize would centralize mining into even fewer hands is one of the key arguments of those against raising the limit.
BitFury supports increasing the blocksize, but only at a gradual pace, reported the Wall Street Journal. “We’re willing to sacrifice short-term gain for the long-term sustainability of the industry,” said Kikvadze.