A few years ago, I got off a plane and set foot in Baotou, a city in Inner Mongolia, an autonomous region of China. I was there to visit what was then one of the world’s largest single facilities dedicated to mining Bitcoin.
It was a media trip — although not exactly a junket — arranged by a company called Bitmain, a behemoth in the mining world, to shed light on one of the more mysterious activities in cryptocurrencies.
After an hour-long drive, and a rather baroque lunch in a traditional Mongolian yurt, we arrived at a compound in an industrial park just outside Ordos, a major city in Inner Mongolia. There sat several low-slung warehouses with light blue roofs. Their external walls were covered in cardboard, perennially wet with moisture and rigged to keep them as cool as possible. Giant fans pierced the walls, circulating air out of the rooms.
Inside were 25,000 mining rigs — all built by Bitmain — resembling little more than metal bricks with a power supply and a fan attached. They whirred away, performing the relatively simple computation needed to win the reward — at the time, 25 Bitcoin every few minutes — that was offered to miners who helped secure the blockchain.
The key ingredient in the mining machines was its silicon chip, expressly designed to perform the calculation required by Bitcoin’s software. These chips were forged by TSMC, one of the world’s largest independent fabricators of silicon.
The machines were located in Ordos because of the city's cheap electricity. A boom and bust had driven up power capacity and driven down prices, leaving it an overbuilt “ghost city.” Few industries found it profitable to operate in such a remote location. For the Bitcoin miners who required only an internet connection and cheap electricity, it was perfect.
Fifty workers lived at the facility, mostly young men local to the area. They carried a laptop to run diagnostics on the machines, and unplugged the machines and cleaned them when they broke down. In the evenings they entertained themselves playing basketball on the concrete court outside their dormitory.
The entire edifice — the remote location, dozens of staff on-site, special machines and customized buildings — demonstrate why it’s so difficult for the average person to mine Bitcoin profitably. It's a departure from Bitcoin’s ethos of decentralization and self sovereignty.
A quirk of the system also means that Bitcoin mining has been dominated by a handful of mining pools (groups that aggregate processing power) in order to improve their chances of gaining a block reward.
While Bitcoin’s creator Satoshi Nakamoto envisioned thousands of individual computers mining the cryptocurrency, ensuring it remained outside centralized control, it was only true in the earliest days of the Bitcoin network. Over time, the market forces unleashed by the cryptocurrency’ s skyrocketing price, meaning Bitcoin mining would remain in the grip of a few large firms.
Mining pools dominate the hash rate, while a handful of manufacturers create the special machines required to mine competitively. Even fewer foundries exist to create the custom silicon needed in each machine.
These obstacles make it difficult for an individual to get involved in Bitcoin mining profitably. This is where a new company, Compass, comes in. Its co-founder and chief operating officer Thomas Heller called it “AirBnB for mining” when he was discussing the idea with me last year, before it launched.
Compass wants to remove the bottlenecks that prevent individuals from mining Bitcoin at a profit. It has a marketplace to help would-be miners procure the specialized machines used or new; and another marketplace of data centers that can host your machine for you. It’ll take care of the logistics in between and handle any payments and extra technical work.
Compass’ interface has the flavor of a social network. You can browse data centers in Iceland’s southern region or Pavlodar in Kazakhstan, Colorado in the United States or Newfoundland and Labrador in Canada. Each data center comes with a profile containing photos of the facility, whether it has video surveillance, on-site security and other measures. Most importantly, the price of electricity per kilowatt hour is listed. Heller says a miner has to be paying five to six cents per kilowatt hour to have a shot at making a profit.
Business is booming at Compass. Heller says the firm has booked $20 million in revenues last month — even though it announced its first funding round just three weeks ago. Bitcoin miners in aggregate made a record-breaking $1.4 billion in revenue last month, thanks to the cryptocurrency’s soaring price.
This new cadre of individual miners, enabled by Compass, are motivated by more than a profit motive. Heller says the top question his customers ask is whether a data center uses renewable energy. “A lot of them strongly prefer mining farms with renewable power,” he says, listing facilities in Siberia, Canada and some parts of China as candidates.
Heller’s customers also seem to be motivated by something closer to ideological fervor when it comes to mining. When the Bitcoin price is surging, miners can reap outsized returns. But as more machines are plugged into the network, the difficulty rate spikes, meaning it’s harder for miners to find a new block and win the financial reward. Their outlay of tens of thousands on mining rigs and service fees would only be repaid over years.
It’s far easier to profit from Bitcoin by just buying the thing instead of going to the trouble of mining, Heller admits. “It’s a more passive way, but it’s an easier way. Just stack [Bitcoin],” he says. So why do his customers do it?
“Our miners are not purely profit driven. Just about every miner needs to make money to cover their costs, but this ideological side always comes up,” he explains.
Mining pools and the locations and ownership of mining machines are still a little too centralized, Heller explains. "We believe it’s important that decentralization increases because we believe that Bitcoin is more powerful when it’s owned by more people, and no entities can collude to harm the network.”
For Compass and its small-time Bitcoin miners, it’s not complex mathematics or cryptography that keeps the Bitcoin network free from central control. Instead, it’s about making sure their itinerary includes the most comfortable data center to bed down their mining rigs, while browsing exotic locales. A profit is preferred, but the experience of contributing to Bitcoin’s decentralization is plenty—a little like traveling on a shoestring while renting from strangers on the internet.