If knowledge of the BitFury brand was confined to the bitcoin ecosystem prior to this year, the Amsterdam, Riga and San Francisco-based company has done its best in 2014 to change this, raising $40m through two funding rounds and adding executives with experience at Samsung and VeriFone to its newly created strategic advisory board.
BitFury has dominated VC funding in the bitcoin mining vertical in what has so far proved to be a year shaped by big fundraising announcements. At press time, BitFury accounts for 65% of all investments made in mining companies so far this year, and over 10% of the funding raised publicly by all bitcoin companies, a figure equalled only by bitcoin services provider Xapo.
Speaking to CoinDesk, CEO Valery Vavilov discussed BitFury’s larger strategy in the bitcoin market, while emphasizing that he sees the company as one that can extend its reach beyond the industrial mining and business-to-business (B2B) hardware markets.
“We’re a technology company, but we’re focused on bitcoin now. Our vision in the next three to five years is to move into different areas where computing power is valuable. We plan to expand into other fields of knowledge where humanity needs a lot of computing power.”
Vavilov went on to suggest that he sees BitFury today as a company that first and foremost processes transactions on the bitcoin network. However, he distanced the company from some of the more familiar terms that have long been associated with its operations as well as those of its competitors.
“We are not a mining company, I don’t like the word mining,” he added.
The remarks come as part of an extensive interview that finds the CEO of one of bitcoin’s most secretive companies opening up about its broader goals, the structure of its operations and its role in the bitcoin ecosystem.
A new generation of energy
Throughout much of the conversation, Vavilov emphasized the future, seeking to define his company’s objectives in terms of larger, global movements toward peer-to-peer (P2P) technology and the Internet of Things. Key to this strategy, he said, will be BitFury’s reinvestment of profits in the bitcoin ecosystem through its VC arm, BitFury Capital.
Launched this summer, BitFury Capital has so far invested in three bitcoin companies, BitGo, GoCoin and an unnamed wallet provider the company revealed to be Xapo, two of which were all-bitcoin investments.
Despite this fast pace, Vavilov suggested BitFury has been ready to invest its profits more aggressively, but has yet to find suitable opportunities.
“We looked at approximately 60 projects, and for us, we’re ready to invest in very, very early stage projects but we didn’t find any to invest in,” he said.
Vavilov indicated that these investments may, however, serve a strategic purpose, stressing that BitFury is looking to provide not only money but expertise to the bitcoin ecosystem as it works to align its industry with macro market movements.
As for BitFury specifically, he noted the company’s interest in innovations in renewable energy, developments that no doubt are of interest given the footprint of its three data centres.
“Every 10 years, humanity consumes two times more electricity,” he said. “Now we are going to the era of electric cars. We’ll need a new generation of energy.”
In house, full custom
Vavilov also answered questions about the structure of the company’s operations, noting that BitFury employs 70 people in a team distributed across the world. BitFury, he added, sells hardware only to the business market, stating that any online product offered to consumers is being resold by one of its buyers.
The reason for this expansive set of personnel, he explained, is BitFury’s choice to limit the number of third parties it relies on for its operations. Vavilov stressed that the company strives to keep all of its operations in house due to the speed at which the bitcoin market moves.
“We are making everything full custom and everything in house, we don’t have any outsourcing companies,” Vavilov explained. “We’re doing our own silicon, everything in house, full custom; we’re doing our own servers, in house, full custom; and we’re building our own data centers, also in house and full custom.”
Though this attention to detail may seem extreme, Vavilov used the example of BitFury’s data centres as evidence that this approach is necessary. For instance, he said that when seeking to build his company’s latest 20 megawatt data centre in the Republic of Georgia, he traveled the world to speak to suppliers, but wasn’t satisfied with the work estimates he received.
“If you don’t deliver, you lose a lot, and when I communicated with everyone, the fastest one was five months. When we met with our head of construction, I asked, ‘How much time do you need to build the data centre?'” he said, adding:
“He said, ‘I can do it in three months’. I asked if he could do it in three weeks. We were working 24/7 and we did it in one month’s time.”
BitFury said it now employs an R&D team that designs its servers and data centres, with the head of its construction department owning his own firm in Georgia.
Sidestepping the consumer market
Another subject broached was the company’s emphasis on the B2B market, a decision that has proved advantageous for BitFury, as it has largely avoided the negative public scrutiny given to its competitors.
Though he credits the move only to a “feeling” about the market, Vavilov is more specific about the problems BitFury has avoided with this decision.
“We decided to not deal with small clients, because it’s a headache. We would need a big support team to support all these clients. When you’re dealing with big clients, he’s paying hundreds of thousands of dollars, but the headache you’re getting from small clients can be much bigger, because for him $5 is like the last money.”
Vavilov said that when looking at this scenario, he determined it would be better to spend energy on developing strong equipment instead of customer service. In addition, he cited the lack of awareness among consumers of the full risks of their investment.
“It is much easier to work with larger clients with whom you have established a win-win relationship,” he added.
A native of Latvia and a long-time resident of Ukraine, Vavilov said that BitFury began making chips 2012, but that before this, he and his team had only experimented with CPUs and video cards. The chip won reviews from the bitcoin community, even as the company drew notice for then being run by unknown individuals.
“It’s still the most efficient chip in the market, if we’re talking about six-year-old technology,” he boasted.
Global regulation warming
Vavilov also discussed the topic of global bitcoin regulation, noting that he has been particularly pleased with developments from the US government. Citing last year’s US Senate hearing, as well as this year’s IRS ruling and the USMS auction of 30,000 BTC, he said “I have never seen so many positive signs”.
As for BitFury, he said, the company is particularly conscious of potential regulation in Iceland, an area that has proved to be attractive to the bitcoin mining industry as it seeks low-cost and natural cooling methods for its hardware.
More specifically, he voiced his belief that regulation in the US will not adversely affect BitFury as it does not perform the functions of a traditional financial services provider, instead only mining bitcoin and selling computer hardware for such operations.
Rather, he suggested BitFury is indirectly influenced by regulation, to the extent that it affects the bitcoin industry.
“If you are processing bitcoin transactions you should be a transparent and open company,” he said. “All this regulation and corporate governance makes your company more transparent, this is good not only for our company but for our industry.”
Transparency in global mining
Vavilov also discussed BitFury’s place in the global bitcoin mining market, addressing what he called the lack of transparency in regards to how the sector operates.
“We need to create transparency in who holds how much of the hashing power, I think it will be good for everyone,” he said, suggesting that some bitcoin mining companies, particularly those based in Asia, have been reluctant to offer this information publicly.
“I don’t know what’s happening in China. Companies that process bitcoin transactions should be transparent, otherwise people will not trust such a company,” he stated. “In China, I see some kind of black box.”
Vavilov said he believes mining companies should make certain data public, including how much hashing power the company generates. When asked more broadly about transparency and what consumers should expect from mining firms, he added details such as how many data centres they operate and how much power they consume.
Vavilov went on to suggest BitFury would support a self-regulatory organisation (SRO) for the sector, monitored by a third-party such as the Bitcoin Foundation. He said the company has also reached out to other players in the industry about solutions that promote transparency.
“The companies which disclose their hashing power could be awarded a ‘Trusted Transparency’ sign, the quality and transparency award, so to speak. This will help recognize the companies that openly disclose their numbers and will alleviate the 51% threat,” he said.
Notably, major China-based bitcoin mining companies have levied a similar call to action in the media recently.
The biggest currency in the world
Finally, Vavilov discussed BitFury’s planned initial public offering (IPO), which suggested he would like the company to complete as soon as possible.
While still in its early stages, Vavilov suggested that the process of opening up the company to the capital markets could be delayed depending on the outlook for the bitcoin market.
“It will depend on if market is ready,” he said. “Bitcoin adoption will need to have enough speed and institutional investors will need to understand bitcoin. If the capital markets don’t understand bitcoin, you won’t be able to have a successful IPO.”
Still, despite these obstacles, Vavilov remains confident that his company’s public entrance to the market will be as impactful as Google’s in 2001 and Facebook’s in 2006.
“Transaction fees coming off blockchain will be massive and we have every intention to capitalize on this,” he added.
Vavilov suggested that BitFury will be keen to monitor public sentiment on bitcoin as it looks to go public, implying there are some forms of value that he sees as being even more in-demand than bitcoin.
“For us, reputation is very important,” he said. “Reputation is everything and sometimes the biggest currency in the world is trust.”
Correction: An earlier version of this article stated that BitFury was based solely in San Francisco.
Images via BitFury