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Get Think Tanked Distilled with Chad Harris

Bitcoin mining has gotten a lot of attention lately, both for its financial opportunities and its impact on the environment. Riot Blockchain, which happens to operate the largest Bitcoin mining facility in Texas, is going all-in to become the industry’s leader. Chad Harris of Riot joins the ETF Think Tank to explain how the facility works and where he sees the business and the industry heading.

Riot’s story is very much one of “rise and grind”. When Harris was looking to get into this space, he knew that he needed to build the foundation of a great company first. At first, it was about building relationships and he made it a priority to deliver what these partners expected in order to make them feel comfortable. That applied to meetings, payments, information, etc. and they would actually pay people before they even got an invoice. Harris feels that this mindset helped the company get ahead and that they’re the most forward-facing company in the industry.

The question of where the power comes from for these facilities gets a lot of attention because they’re so energy-intensive. Right now, it derives about 41% of its energy from renewables, primarily battery and solar. Harris notes that a lot of people do not understand how this component of the business works when they ask why solar is not used more. The company is certainly cognizant of the drive towards renewables, but it is not simply a matter of stacking up batteries. One benefit for Riot is that during times when the power grid comes under stress, it has the opportunity to be an energy provider. That can be an important revenue source to support the business.

Is Bitcoin mining a growth or cyclical industry? Harris believes it’s a growth industry, but with energy prices going up, capital costs going up and crypto prices going down, it can feel a lot like a cyclical industry. Putting Bitcoin off to the side, this is about business efficiency. The only strategy that works is where you control the miners, the software, and the supply chains. Riot works at operating efficiently and that can be cost-intensive, but that is where the growth focus comes into play.

Where does Harris feel that he has the advantage? He notes that Tesla is at least partially successful because it locked up the supply chains. Riot takes a similar approach. They buy transformers in bulk and $20-30 million in wires at a time. He says the real advantage comes from being excellent at infrastructure construction. They took the time to build out a whole team. They focused on infrastructure first and things, such as software, later. Other companies will have trouble getting their facilities finished in this environment. Because their facility is already built out, Riot is mining while others are building. Harris believes that competitors are about three years behind.

Other key takeaways

  • Companies need to understand everything outside of just Bitcoin mining, such as mechanics. For example, they use a complex system of fans and oils to cool the machines and keep them operating at high efficiency.
  • Would a facility in a cold weather environment be advantageous? There is a potential benefit, but it could present some opposite risks. In places like Iceland, for example, they have to shut down when things get too cold.
  • What happens if the grid goes down? Harris says he would be far more concerned about supporting people and they’re survival than Bitcoin mining. Our contract allows us to support people, but if the grid goes down, a lot of businesses won’t be doing anything.
  • Would Riot consider buying a competitor? Acquisitions could play a role, but Harris views things from a perspective of infrastructure. He would want their facility to bring some sort of advantage to the table, but he feels they can do a lot of things better themselves already.

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