Bitcoin has once again captured the attention of the public by staging another one of its lightning rallies, surging to more than $40,000 in January before receeding to about $35,000. Growing pools of institutional money are gaining exposure to bitcoin, and even some corporates have started to allocate part of their cash reserves to bitcoin. Bitcoin miners, who support the whole network, have been as busy as ever, including London-based Bitfury. With proprietary mining centres in Georgia, Norway and Canada, Bitfury is one of the world’s biggest bitcoin miners and blockchain companies. Founder and CEO, Latvian-born Valery Vavilov, discusses the ongoing shift in the market, with miners moving out of China and favouring alternative locations for their stability, but also the availability of renewable energy sources.
Q: How can bitcoin facilitate international trade and investment?
A: The use of Bitcoin for international trade and investment is in its infancy but has big potential down the road. We are seeing some uptake in the international trade space and very early innovation in the international investment space. Bitcoin and blockchain can have transformational impact on both international trade and investments as the current structures are very complicated and riddled with bureaucracy, which will ultimately drive the need for trade transparency. Bitcoin and blockchain have the potential to add trust to every transaction and level of trading, and as a result simplify trade processes, workflows and exchanges, making them more efficient, less costly and much faster.
Q: What use cases do you envision for bitcoin?
A: The immediate and most potent use case for bitcoin is its store of value. Mark Cuban did not get this right a few years back: bitcoin is not “more religion”, it is a solution to a very real problem. The world is backed by gold today, and gold is not very user-friendly, not any more anyway, as the world becomes flatter and as central currencies become increasingly unwieldy. Bitcoin shares a lot of gold’s attributes to become the potential global standard for store of value. Here’s why. First off, it is limited in supply – there are 21 million bitcoins and this amount is not going to change. This means bitcoin is shielded from inflation compared with other currency options. It is very secure and is backed by tremendous computational power. It is logic- or algorithm-based, which enables its transactional value. And it is fully transparent: you can track any bitcoin transaction in real time. All of these characteristics make it a prime candidate for transforming not only global trade and investments, but global payments too.
This means bitcoin can give rise to new payment instruments. Even though the currency is volatile, there is no real other global alternative, especially for the unbanked, who represent 31% of the global population per the Global Index database, with 55 million in the US alone, per Federal Reserve estimates. Bitcoin has the potential to democratise access to financial systems around the world. Such access doesn’t exist today. Imagine the potential when everyone has access to such systems and when the world becomes a flatter place for all: individuals, start-ups and innovative businesses. It can be truly game-changing and this prediction is no longer far-fetched and can no longer be pegged simply as a religion without practical application.
Last but definitely not least, bitcoin can increase trust in institutions globally, and lead to the persistent reduction of financial crime from money-laundering to double dipping, which is pervasive across industries, and especially in international trade, estimated to be worth between $800bn to $2tn every year.
Q: The head of the ECB, Christine Lagarde, and the former head of the Fed, Janet Yellen, have recently stated the opposite, claiming that bitcoin actually channels illicit money flows. What do you see that they can’t?
A: Illicit money flows, including money-laundering activity, is a global systemic issue and bitcoin is not immune to it. However, bitcoin transactions are by their nature fully open and transparent: this is the strength of the bitcoin blockchain over other systems. Every operation, every transaction that takes place in it leaves a trace, which can not be hidden, changed or erased. This is the fundamental basis of blockchain.
On the other hand, the existing banking and centralised payment systems do have the possibility to conceal all traces of fraudulent transactions: they can be dismissed from the system, or the whole database can be swept to cover up the crime. Bitcoin has the inherent advantage of real-time, open transaction reporting and tracking, and therefore the ability to catch illicit activities as they happen. As bitcoin is recorded in the public blockchain, not only can you see these transactions in real time, but the moment you try to cash out these transactions, you are subject to the same know-your-customer rules that govern all current banking transactions.
The other advantage of bitcoin over cash or fiat money is the growing community of publicly available sources reporting stolen digital wallets as they get discovered. What this real-time reporting enables is the ability for financial institutions and law enforcement agencies to mine this data and catch criminals in the act. The Bitfury Crystal Blockchain software solution does just that: it helps banks and law enforcement agencies mine these publicly available records and risk score transactions. As bitcoin analytics solutions such as Crystal Blockchain become more accepted and vetted by banks and financial institutions around the globe, they will increasingly ease the fears and uncertainty associated with bitcoin, and will make it more acceptable and less of a criminal myth for all.
For years, world leaders have been debating the virtues of balancing privacy with transparency. Bitcoin blockchain technology is about to put an end to the debate. Bitcoin was brilliantly designed to combine transparency and privacy.
Q: What does bitcoin’s rise mean for bitcoin miners, the value chain, and the geographies trying to attract investment into mining operations?
A: For miners, all of this means more business. This bull market creates a virtuous cycle: as bitcoin rises in value, it attracts more investors, which in turn boost the mining networks. As activities continue to grow, they attract larger institutions, which are increasingly looking into bitcoin and blockchain as new viable technology solutions, mining included. It is not that far-fetched that major institutions will start adding mining to their infrastructure as they get more engaged and entrenched with cryptocurrencies, blockchains and distributed ledgers and systems.
Long-term, the mining infrastructure winners will be those who have (1) the most efficient equipment, (2) access to low-cost energy, and (3) excellence and experience in mining datacentre operations. As a matter of fact, innovation in mining is starting to have a real impact on the green energy front: advanced mining solutions are giving rise to mobile mining datacentres, which capture trapped energy and redistribute it. Imagine if you could build or resurrect a hydro dam in a remote region, where high-voltage lines are not available. You can deploy these mobile mining datacentres to capture this energy and redistribute its output, giving rise to new regional developments, which are off limits for hard-to-reach regions or regions in developing countries. Bitcoin mining can be deployed in sites with less than 1MW of power, at the size of a shipping container, and the equipment could adapt its consumption to a variable power supply. Bitcoin mining equipment requires significantly less initial investment, less ongoing maintenance, and is simpler to deploy and operate, which makes it attractive even for small power plants.
Bitcoin mining speeds up the adoption of renewable energies too, in ways that previous technological innovations have not. The economic benefits this creates are incalculable, even before you consider the impending costs of climate change. Renewable energy is cheaper and abundant, and bitcoin mining companies like Bitfury are building datacentres in countries that offer it, such as Norway. The more bitcoin mining increases, the more economic incentive there will be for energy producers to augment or even replace their grids with renewable energy sources.
Q: Can you give us an example of any operations that ‘captured trapped energy and redistributed it’ or sped the adoption of renewable energies?
A: Bitfury has two trapped energy projects under way, which we are not at liberty to discuss at this point. What we can point to is our energy grid-balancing operations in Alberta, Canada, which are reducing mining operations during peak energy consumption times to support the grid.
Q: Is it an element of concern that a majority of bitcoin mining capacity is concentrated in China?
A: Bitfury has increasingly diversified its mining operations and we have expanded significantly around the world, including into new regions such as Canada and the Nordic region. China attracted a lot of mining operations in the past as three of the four main mining equipment producers are Chinese companies, with wide support of local capital and suppliers, so it was natural to place their mining infrastructure in China. Since then, the bitcoin mining industry has received significant Western institutional capital, which favours Western jurisdictions for assets allocation. Because of that, today we see a much more balanced distribution of mining operations across the globe, including fast growth of bitcoin mining datacentres in the US and Canada.
Valery Vavilov is founder and CEO of Bitfury.
This article first appeared in the February/March print edition of fDi Intelligence. View a digital edition of the magazine here.