With customers increasingly choosing to buy contracts for cloud-based Bitcoin mining rather than buying and deploying mining hardware, Bitcoin mining technology vendor CoinTerra has begun to offer flexible funding options.
Mining is the method used to earn newly issued bitcoins through computing processes rather than buying existing bitcoins from exchanges. It involves deploying systems with ASIC processors that use mathematical formulas to authenticate blocks of Bitcoin trades. The "miners" who are first to authenticate the transactions in a block on the Bitcoin blockchain are rewarded with a new issuance of Bitcoin. The system, set up by the anonymous Bitcoin creator, was established because, as Bitcoin is a decentralized and open payment system, a network of users was needed to authenticate trades.
"The Bitcoin inventor's idea was that you have this blockchain, but you need a huge network to authenticate transactions," says Ravi Iyengar, CoinTerra CEO. "How do you incentivize people to invest the effort, capital and the servers required to secure the network? There had to be some incentive and the incentive was whoever successfully validates the transaction gets the reward of bitcoin."
Bitcoin mining is currently paying 25 bitcoin per block authenticated. The amount of newly issued Bitcoin paid out will gradually reduce according to a present formula until all Bitcoin have been issued. However, as the amount of newly issued Bitcoin draws down, Bitcoin miners will earn an increasing amount of money through transaction fees, allowing Bitcoin mining to continue to offer lucrative incentives. (Customers generally get more Bitcoin for their investment though mining than through direct purchases, Iyengar says, and they don't risk impacting the price of Bitcoin as they might if they bought Bitcoin directly.)
When CoinTerra opened for business one year ago, it primarily sold its Bitcoin mining product, called TerraMiner, to customers who deployed the technology themselves. In just one year's time, the model has changed to one in which the majority of customers would rather contract for hosted Bitcoin mining services than deploy the technology directly.
"Everything is going into the cloud, nobody is keeping software applications in their servers at home," Iyengar says. "Even with the concept of Bitcoin mining, in the early days customers used to buy hardware and keep it at home. While some customers still do that, more and more customers are interested in buying a certain capacity of the hashing power in the cloud."
With the move to cloud-based mining, CoinTerra is introducing flexible funding to allow customers the option of buying more Bitcoin mining capacity with less money down. Customers can buy 12-month or 24-month contracts, and they can either pay up front or they can pay half the contract cost up front and have the remainder deducted from the weekly Bitcoin mining payouts they earn during the duration of the contract.
"It allows people to make a smaller upfront investment and buy more processing capacity," Iyengar said.
For CoinTerra, the majority of its revenues come from neither the sale or hardware nor the sale of Bitcoin mining contracts, but from the Bitcoin mining proceeds it generates for its own accounts through its mining processors at its six data centers.
"Our own mining revenue comes over a period of time, whereas when we sell mining contracts we collect payment upfront for a duration of time, so it's a hedge" Iyengar says. Besides, selling capacity in their systems fulfills the Bitcoin business model of a distributed system, he adds.
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July 15, 2014 at 12:36PM
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