Miner vs. transaction processor—why one is a hobby, the other a business

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Blockchain infrastructure providers are being forced to reexamine how committed they are to powering the infrastructures of many public blockchains. On one end of the spectrum, you have crypto miners like Digital Farms hurt by recent market events as the BTC price drop has forced the BTC mining project to go on hiatus.

On March 18, investment firm DPW Holdings, the parent company of Digital Farms, filed an update with the U.S. Securities and Exchange Commission (SEC) announcing its mining business is being shuttered. “Digital Farms’ cryptocurrency mining operations have been suspended indefinitely, primarily due to the sharp decline in the market price for bitcoin,” the company wrote in its update.

Digital Farms, formerly Super Crypto Mining, was acquired by DPW in January 2018. Its mining operations generated $1.67 million in yearly revenue during its first year. According to DWP’s annual report filed with the SEC in 2019, the mining operation started by borrowing $5 million from two investors and purchasing a thousand of low-end Antminer S9 mining machine. They followed the purchase by buying a 617,000 square foot U.S.-based facility with access to 28 megawatts of power and infrastructure to support up to 300 megawatts.

This shutdown comes because of the company failing to figure out a sustainable profit model amid the digital currency’s price downturn. The company strategy was to mine the top 10 cryptocurrencies by market capitalization and offer cloud mining services. As they rapidly approach the block reward subsidy halving, the resulting impact could have been a reduction in quarterly earning too roughly 25% of its original value. 

The postmortem for Digital Farms will undoubtedly seek to answer several questions about why the project could not withstand a few bad weeks of market volatility. Chief among them is why the team invested so much capital in aging hardware operating on razor-thin margins.

Even more important is to understand why the “professional” team felt building blocks on multiple projects which offer no utility or reason for existence was a winning formula for success. The block reward subsidy was only intended to fund the initial bootstrapping stage of the network. The team’s ill-thought plan did not factor in the purpose behind Bitcoin nor a long-term roadmap for mass adoption.

Their strategy is not uncommon; it is the same blueprint used by hundreds of small mining outfits looking to earn passive income in their spare time. These types of hobbyists lack imagination and want an easy return on their investment. They are even willing to process empty blocks with no transactions if it increases their chances of earning the block subsidy reward. Their only purpose or mission is present-day profits.

The other end of the spectrum is companies like TAAL, which are focused on enterprise adoption. TAAL, under new CEO Jerry Chan, is redefining the purpose of a transaction processor to spur growth and align the business model with Satoshi Nakamoto’s original vision of Bitcoin. Chan recognizes that evolution is crucial to the success of the sector. Now that the full potential of Bitcoin has been unlocked, it’s time for professional organizations to evolve and become service companies to meet these new challenges, demands, and opportunities. 

Building and scaling a sustainable business is hard, and the difficulty is exacerbated when you stray so far from the platform creator’s outline. As Bitcoin BSV becomes the backbone for organizations, both large and small, block builders will begin to offer customized services and onboarding solutions to service corporate clients generating vast volumes of transactions.

This new source of income will help shield firms like TAAL from much of the price volatility and disruptions that large mining organizations supporting and securing the BTC network juggle with. As for the smaller outfits, bigger and well-prepared professional operations will absorb them as they too flee the market when they discover their luck has run out because BTC lacks utility and cannot scale.