How to Structure a Cryptocurrency Transaction [Podcast]

On this episode of Bracewell Crypto Bits, Jared Berg joins host Anne Termine for the first in a series of discussions on crypto mining. Jared and Anne discuss the basics of structuring and setting up a crypto mining operation. This episode will provide background information for future episodes that will delve into specific technical aspects of crypto mining transactions.

Strong points:

What exactly is crypto mining?

Crypto mining at its most basic level is actually computers specifically designed to run an algorithm that results in the generation of Bitcoin or another blockchain currency, all based on proof-of-work type blockchains.

Crypto mining has been a very hot topic for several months, ever since China banned crypto mining in the country and miners are looking for a new home all over the world. One of the places we’ve seen them start to settle down and serve their needs better is Texas. Why is Texas so desirable for crypto mining shops?

In addition to the generally favorable business environment, energy prices are low. When operating a mining operation, the most important cost of entry is undoubtedly energy. The other things that are also important for large-scale mining are land. Turns out Texas has a lot of land. So, cheap energy plus lots of land equals a good mining environment.

How do these operations work to find out who owns these facilities? How do they work on a daily basis?

We see everything from small operations trying to get up and get off the ground, to people kind of venturing into the mining space but trying to partner with large-scale mining rig makers or other large-scale miners trying to move their rigs from China to the United States. This was especially important last year.

Right after China instituted the ban, there was a heavy load of different groups trying to move the miners to a safer place where they weren’t going to be destroyed because, needless to say, these rigs mining is expensive – literally shipping containers full of these things to anywhere in the US, just to get them out of China. So the different types of clients that we see are all over the books, but we also see private investors or private investors who have backed a particular group or something like that, but really, it’s all over the place.

How are they configured differently? Will someone own the land and lease it, or will someone buy the land and bring in their own miners?

So the beauty of a mining operation is that it is very mobile. You can be as simple as setting up a container full of mining rigs, bringing it to the middle of the oil field and hooking it up to a flare, and having a generator on site there and just mining from this way. You can also have more solid setups, or permanent setups, where you build some sort of spec of a setup specifically designed for large-scale mining operations or general server hosting. The advantage of mining is that you don’t necessarily have the same access to data issues that you have with a standard farm setup. But you also see people renting a facility, an existing warehouse, and moving into a warehouse. We have seen deals where a group went to an old steel foundry. What’s interesting is that what you’re really looking for are big interconnections with the network. And if you can plug and play in a large warehouse, you can save a lot of cost, a lot of time. It all depends on how much power you’re going to use, and the interconnects are sized differently depending on how much power you’re using efficiently.

Does crypto require a traditional power supply, or are we seeing offerings that explore many different areas in terms of power?

Power sources, again, are all over the map. You’ve seen a lot of miners try what’s called the flare gas approach, where they set up a container full of mining rigs in place at an oil and gas well, and every oil and gas well produces both oil, but also natural gas, associated gas. In many areas, it is not commercial to put produced natural gas into a pipeline to be flared or rather burnt. So what you’ll see some of these oil and gas companies and some miners doing is getting together, hooking up a generator to this flare, and turning off the generator from the raw gas coming out of the ground. This generator produces the energy to operate the mining rigs.

So let’s talk about some of the things that are coming in the upcoming episodes. I know we’re going to talk about an episode about building the facility, location, and construction. And what are the highlights we’re going to hear in there?

We’ll talk a bit about the trends we’re seeing in Texas, particularly on the commercial real estate side. As I said earlier, things happen very quickly. There are a lot of businesses moving to Texas, so finding existing storage space is very difficult, especially in North Texas. Then we’ll talk about the very basics of what it looks like if you’re doing a ground lease, a long-term ground lease versus leasing a facility, versus building a facility. What does the build process look like? Who are you engaging with? Should a contract be concluded? The short answer is yes.

The opinions expressed in this podcast are those of the speakers and do not necessarily reflect the views of their institutions or clients.