With the growing power consumption of Russian industrial miners, the demand for the placement of mining equipment on provider's sites is increasing dramatically.
Denis Slabakov, founder and partner of New Mining Company, discusses how the market works and why data centers in Siberia are in demand from Russian and foreign investors.
As the CEO of one of the leading companies operating data centers for crypto mining, what have you achieved in the six years that New Mining Company has been on the market?
"New Mining Company operates 5 data centers-48 containers are under management, and in total, we have passed through 10,000 devices over the 6 years of our existence. We currently have facilities located in Siberia, Russia. Previously, New Mining Company also did business in Abkhazia and Norway.
In the near future, we plan to start creating mobile data centers in America, which are easy to move from place to place. The US has excellent conditions for this: there are roads, affordable internet, and unused gas and oil fields.
We also plan to develop capacity in the Irkutsk and Krasnoyarsk regions, launching an additional 80 MW as early as 2024. We will train 15 new engineers, which will help us to develop existing service centers and create new ones.
In addition to maintaining the equipment, we are developing software to manage it. Currently, there is no specialized infrastructure for crypto mining enterprises-many operate in Excel. We came to the conclusion that the process needs to be automated. We do not rule out the possibility of selling software for commercial use.
Another expertise of New Mining Company is trading. Cryptocurrency is a recent innovation; one that can be volatile, with gray areas in terms of regulation-just a few factors that make it easier to earn money over the traditional market."
How did you get involved in building data centers? After all, they are more difficult to maintain than conventional ones.
"I started by creating the first experimental data center in open land across from my office in Moscow, and eventually managed to get it up and running successfully. The operation of crypto mining equipment is very demanding on the cooling system. In traditional data centers, it can cost up to 20% of the price of the entire facility. You need something more cost-effective for crypto mining. Additionally, data centers are very noisy. New Mining Company has found technological solutions, including reducing noise on site by building a system of wood-panel corridors."
From working at Hewlett-Packard to owning your own software development company, how does your knowledge in hardware and software help you now?
"We supply, repair, and maintain IT equipment and develop our own software because there is simply no such product on the market. With my experience, I know how long it will take to supply equipment, what force majeure circumstances there may be, and what expertise is required. I have also worked in the field of development. This knowledge has proven to be useful, as the construction of data centers is a development in its own way. Business is like playing the piano-if you play the scales thousands of times, you will be able to reproduce them even after 10 years.
I have been interested in technology all my life, and I first heard about cryptocurrency in 2008. Even then, I was immediately interested in it. It seemed to me that it was something from the IT or scientific world. Then, I had a friend who invested in the Bitfury company. I watched how they were developing, and at some point I realized that cryptocurrency was worth paying closer attention to. At the same time, the clients to whom I was supplying hardware began asking about crypto mining themselves."
How did you look for your first investors? At that time, crypto mining was not yet widely known.
"There have always been a lot of people willing to invest in cryptocurrency. Even when the first crypto winter occurred, and the number of investors sharply decreased, we found a way to persuade them to place their equipment with us. We were able to negotiate favorable electricity tariffs with generating companies and agreed with equipment sellers on low hardware prices.
Some people are ready to invest in different companies-to take risks to earn money. You just have to look for them. Attracting investment is always laborious. It is technical task: packaging the product, preparing the documents, and presenting it correctly. And emotional: finding an investor who will believe in you. It can be a serious burden to convince them to prove and defend an idea.
I didn't become an investor myself until I was in my forties. I started attracting investments as early as 2003, from the moment I launched my first company. I managed to maintain more than $50 million for a real estate company, several hundred thousand dollars for a trading company, $1.5 million for a software development startup, and millions of dollars for a crypto mining business. If my business requires capital, I go to people and tell them about the project's prospects."
Who are your investor clients? What cryptocurrencies are they crypto mining?
"Mostly bitcoin. There is no classical profiling, but they are made up of both businesses and individuals. We have clients from Europe, India, China, and the US. We also have Russian clients but prefer to focus on foreign clients. They tend to be willing to invest more. In Russia, tens of thousands of dollars are considered small investments-abroad, it is closer to hundreds of thousands of dollars.
The equipment for crypto mining is produced by young companies that are only ten years old; they are on a different level than Hewlett-Packard or IBM. The quality of the hardware suffers. You have to buy a hundred miners at once to ensure the fault tolerance of the equipment because 20% of them can fail at once. It is important to minimize the number of operating devices that end their life cycle. We at New Mining Company pay great attention to the equipment itself and the contractors who supply it to us. By the way, this is one of the values that allows our company to move through difficult periods with dignity."
Is Russia an advantageous site for data centers?
"Russia has a good mix of different factors. Electricity in Russia is among the cheapest in the world. The Soviet Union invested a lot of money in generation facilities, which are now idle because companies have become more energy-efficient. Unsurprisingly, the Internet is full of offers like, 'Come to Siberia tomorrow and get 100 MW. Electricity and transformer stations are available.'
The bulk of generation in Russia is located in the Irkutsk Region and Krasnoyarsk Krai. Electricity is cheaper there than in the central part of the country; I know this from my own experience, as well as the experience of my partners and clients.
Until recently, there were American crypto-mining data centers operating in Russia. In 2022, they began to close down. The Chinese took their place-they are selling equipment, building, and operating data centers.
It is also important to note that the cryptocurrency sphere in Russia is still in a gray area, and it is rather good for business when there is some uncertainty. You buy electricity, and the state gets taxed for selling it to you. Since there is an oversupply of electricity in Russia, it is profitable. Electricity tariffs for households are subsidized by the state, and selling electricity for industrial use reduces the state's costs to compensate for these tariffs. Therefore, if Russia could sell even 3 GW of additional power tomorrow, it would positively affect the country's entire energy system. At the same time, authorities are fighting those who steal energy, especially since it is easy to track."
How does your company successfully compete with other players? What are your strengths?
"In general, business can be divided into large players who have access to electricity, and large clients who resell the service. Large companies that build their data centers close to generation can work directly with large clients and resellers.
They usually have expertise in the construction of facilities, but when it comes to the sales and operations of equipment, they need help with the sales and operations of equipment. They want to avoid immersing themselves in it. On the other hand, we have already developed expertise in sales and operations over the years.
We do not compete with large companies; we are in partnership relations. We negotiate with them, rent equipment, and invest in their sites. It's all transparent for clients. We always have direct access to the site and we service the equipment ourselves. We are a big enough player in this respect to call these sites our own, although we do not own all the sites and do not hide it. I do not know of any companies that are not part of large financial groups and have their own non-leased data centers."
What trends in the industry do you see on the rise?
"The US is actively discussing the harmonization of Exchange Traded Fund for bitcoin and ether. An ETF is an exchange-traded fund that collects securities based on an index, sector, commodity, or other asset. Instead of dealing with cryptocurrency exchanges and wallets on their own, an investor can buy bitcoin-ETF shares through regular brokerage accounts.This will allow funds from private US investors to flow into the investment portfolios of ordinary investors. Many analysts expect that the bitcoin and ether exchange rate may rise.
In addition, in the middle of 2024 the industry will see bitcoin halving. It will be the fourth time in history-this is a planned reduction in the number of newly issued bitcoins; it reduces the inflow of new coins into circulation by half, which usually leads to an increase in the cryptocurrency's exchange rate. The block reward will be reduced to 3.125 BTC, reducing Bitcoin's annual inflation rate from 1.7% to 0.8%. "
