SANTA MONICA, CA / FinancialPress / November 28, 2017 / Bitcoin, continuing its meteoric rise by crossing $8,200 for the first time on November 20, has the investment community looking at how to get exposure to the industry. Institutions that have remained largely hands-off since bitcoin emerged in 2008 are even getting in on the action, with futures trading in the cryptocurrency getting underway in the past month. Still, completing due diligence in an industry that is woefully understood by most can be a daunting task. Moreover, while bitcoin may be the headline, it is the blockchain technology that it is built upon that arguably commands more value and has greater potential to reshape the dynamic as to the way data is transferred.
That’s because – in an oversimplified description – when bitcoin transactions are broken down, they are little more than the exchange of data between so-called “miners” that are adding and verifying transactions to the public digital ledger (the blockchain) before any currency is released. Mining is a multi-billion-dollar and highly competitive business as miners work to solve cryptographic problems attached to blocks to prove their legitimacy and process bundled transactions.
Global Blockchain Technologies Corp. (BLOC) (BLKCF) (BWSP), or GBT as its shortened, was formed as an investment company run by industry pioneers providing investors access to a basket of companies in the blockchain space. In short, the Vancouver-based company does the fleshing-out of companies and technologies to determine which are worthy of being added to its portfolio. Leadership involved in making these decisions at GBT includes blockchain industry pioneers like Chairman Steven Nerayoff, Esq., a senior advisor to Ethereum and architect of its successful crowd sale, and President Shidan Gouran, another serial entrepreneur whose successes include founding Jinni, the company that developed the world’s first Android-based Smart TV platform, amongst other things.
GBT intends to make investments in various cryptocurrencies and develop its own tokens and cryptocurrencies, as well as take equity stakes in companies on the cutting edge of the burgeoning industry. Moreover, the company is now employing a “streaming” model, a first in the blockchain space, but a highly successful model in other industries, such as resource mining, where a company provides upfront capital and expertise in exchange for future resources at a fixed price and an equity stake.
A Pure Play Cryptocurrency Miner
November is the month that things have gotten rolling for the new public entity, with GBT, through its newly established subsidiary, Global Blockchain Mining Corp., taking a 49.9% interest in Coinstream Mining Corp. in exchange for 3.8 million shares of Global Blockchain. Coinstream is the world’s first cryptocurrency mining company utilizing the streaming model. Similar to how it works with miners, Coinstream makes strategic investments of upfront capital and additional payment upon delivery of cryptocurrency in select, proven operators and operations. In return, Coinstream is due a stream of cryptocurrency production in the future at a stated price.
In a statement on the Coinstream investment, Mr. Nerayoff said that, originally, they didn’t have any plans to go into mining, but they couldn’t pass by the opportunity, calling it “the result of a concatenation of events that we could not ignore.”
Coinstream has aggregated 10 megawatts of power in purpose-built data centers in Manitoba, Canada, where it keeps its power expenses beneath USD$.04 per kilowatt hour. The streaming agreements, once funded, will deliver over five years a total of 2,500 bitcoins annually at US$1,000 each. That is unless bitcoin starts trading over US$15,000, at which time, the fixed cost rises to US$1,500. Fixed costs will also be subject to upward adjustments if the network hashrate sustains over a pre-determined level.
Over the life of the contracts, Coinstream would receive 12,500 bitcoins, which at $8,250 each is an aggregate of $103.13 million.
For its part, Coinstream will provide US$10.0 million in capex-related costs and take 100% ownership of the underlying mining equipment until paid back in full, at which time the stake drops to 50%.
The situation is a win-win, with miners looking to scale getting a rapid cash infusion to do so and for Coinstream to scale itself while de-risking expansion through multiple assets in various locations. According to the company, “The response and inflow of interest in this form of capital have been tremendous.”
Interested parties may take note that GBT intends to spin-out Global Blockchain Mining Corp. as a separate public company, making it the first pure play cryptocurrency mining company in the public domain.
A Deeper Reach into Cryptocurrency Mining
While the GBT/Coinstream deal is being finalized, Coinstream agreed to take a 25% equity stake in blockchain software company Distributed Mining Inc. (DMI) by investing $1.5 million for one million common shares of DMI. Coinstream is also entitled to a board seat with the investment.
DMI is taking mining back to broader populations, where it originally started. Once done easily from desks at home, as complexity to bitcoin increased, so did the requisite computational power, effectively shifting the balance of control away from home miners and into high-power server farms. DMI software provides the ability for all devices, including gaming consoles and mobile phones, to participate in mining cryptocurrency. The company says that its distributed mining platform is particularly well suited for gaming consoles, which typically have more powerful processing power that average home computers.
“Distributed Mining represents a promising possibility of a new level of accessibility to the cryptocurrency world,” said GBT President Gouran in a news release detailing the agreement. “With over $10 billion dollars worth of digital tokens changing hands daily, the crypto mining world has been firmly in the domain of only those with powerful computing rigs designated specifically for cryptocurrency mining. Distributed Mining is an exciting opportunity because it opens up the mining world to the algebraically demonstrable power of numbers by enabling any individual with a connected device to participate in cryptocurrency mining,” he added.
Mr. Gouran concluded that he believes the software has the ability to “significantly alter the mining landscape.” The nascent industry is growing at lightning speed and transaction fees by dollar volume are only going to get larger, creating a tremendous market opportunity. Steering part of that market back to the public through a partnership with DMI would certainly have the potential to quickly generate momentum and indeed shift the paradigm, and GBT plans to be there when it happens.
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