In a perfect world where mining difficulty was lower, bitcoin prices were higher and a warehouse full of mining rigs could be run by one man, Dave Carlson, the owner of North America’s largest bitcoin mining operation, could be earning $8m a month.
With the mainstream media continuing to paint bitcoin as a modern-day gold rush, Carlson’s rags-to-riches story has been of particular interest, even if it hasn’t always been put in the proper context.
To be fair, though, estimates of his potential earnings don’t seem unlikely when you consider he went from driving a $300 Honda to presiding over a million-dollar company in just under a year, and that bitcoin mining is still widely misunderstood.
Still, when the facts are examined, Carlson’s business is no less impressive.
To get to the truth of his story, CoinDesk spoke to Carlson about the increased attention his Washington-based warehouse operation (he won’t reveal the exact location) is receiving, how he built the company and how it earned $8m a month when bitcoin prices were near their peak.
Carlson summed up his transition, saying:
“I used to spend long hours connecting cables, assembling rigs and configuring servers. I now have a core technical team that covers facilities, assembly, deployment, optimization and management. I spend most of my time working on the larger picture issues the company faces regarding future growth and operations.”
Of course, that explanation doesn’t tell the whole story.
Carlson said he first got involved with bitcoin mining when he started an online mining supply company MegaBigPower “like most bitcoin miners”, from his basement. From there, he said his ambitions evolved with his interest.
Carlson credited his current operation’s success to the bitcoin mining community, who tipped him off that he lived near some of the cheapest power in the country and helped guide him toward large-scale industrial mining.
BusinessWeek indicates that his warehouse is now powered by an array of Bitfury-designed rigs. Bitfury, an influential and still largely anonymous chip designer, was a key early supporter of Carlson as well.
However, while technology played a role, Carlson also needed capital, which he would receive in part from Leszek Rychlewski, of Poland-based scientific research center BioInfoBank, who he credits as integral to his success.
“[Rychlewski] has provided incredible guidance as well as funding along the way. If it weren’t for his bold risk taking and generosity, I wouldn’t have had the chance to take this concept into reality.”
Constructing the warehouse
Though Carlson now has a successful business to his name, this wasn’t always the case. He recalls that when he first began his mining operation he had to share an office with 30 GPU rigs for mining litecoin – not exactly an ideal scenario given their heating and cooling needs.
Now, Carlson looks back on this test of will as his research and development stage.
“LTC was $2 and I was selling it all to pay rent, but I needed to work in a real world setting to test my math around power and cooling requirements. I learned enough to know I needed to move to a different setting.”
Soon, he upgraded to a 2,000-square-foot warehouse space powered by 30 tons of air conditioning. In his current space (which he estimates is 10 times larger) Carson upgraded to fans in order to pull air out of the building, citing problems with AC units. He now estimates these fans move 150,000 cubic feet per minute.
In case you’re not familiar with the terminology, Carlson has an anecdote that paints the picture of this type of fan power.
“Before we added more intakes, you could barely open the door, and the insulation was literally being sucked off the ceiling,” he said.
Managing structure and supervision
Carlson indicated that his operation also thrives on a network of partners, including investors BioInfoBank and PicoStocks, which manufacture the chips and boards. Explained Carlson:
“My business model is to do construction and hosting, so I take very little risk up front in return for a revenue share. I sell shovels basically.”
He is also helped by large internal tech team that has optimized his warehouse topography, an important factor given that servers can easily become overloaded. Further, he uses Linux and open-source monitoring software to keep his eye on key processes that could indicate systemic problems.
Said Carlson: “My biggest fear has always been having a silent, slow and undetected leak that could result in a large loss over time.”
Another tip Carlson revealed is his use of simple board design to keep production costs low. For example, his rigs do not require liquid cooling, and he doesn’t use fans on the boards, stating that everything is cooled by air movement.
“Due to these factors we expect to remain competitive and be able to mass-deploy until the market pushes margin-per-chip down closer to a few dollars. This could happen faster than we would like, so of course we work on a better chip.”
Carlson estimates that the operation costs more than $1m, and now involves 15 people. The end result was 1 petahash of mining power that is fully paid off.
Of course, with interest in bitcoin on the rise, Carlson knows he needs to keep his operation sharp to maximize profit, though he sees less competition and more collaboration.
For his part, this is an initiative that Carlson is willing to lead:
“I’m not well connected to the other big miners out there, but I hope to establish an industrial mining consortium this year that will seek to educate and set agenda, especially with respect to regulatory efforts.”
As for repeating his model for another alternative currency, Carlson isn’t convinced there’s a clear market leader.
“Until another coin is created that has its own unique value proposition, the alts will remain as transfer mechanisms for mining bitcoin. If any of the alts really start to pop, you can expect we’ll be building a mine for it.”
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