Australian Financial Review: Aussie bitcoin miner says Merge confirms bitcoin’s superiority

Australian bitcoin miner Iris Energy has bucked the low crypto prices and high power bills to launch its third bitcoin mine in Canada while securing a $100 million credit facility to withstand market volatility.

By Jessica Sier, The Australian Financial Review

Australian bitcoin miner Iris Energy has bucked the low crypto prices and high power bills to launch its third bitcoin mine in Canada while securing a $100 million credit facility to withstand market volatility.

Founder and CEO Daniel Roberts said ethereum’s recent switch away from a mining-based security model had solidified bitcoin’s proof-of-work network as the superior decentralised platform.

Iris Energy, which listed on the Nasdaq in November last year and whose shares trade about $US4.13, has added 1.4 exahash of raw computing power to its stable through the opening of its Prince George facility in British Columbia last week, bringing its total planned power capacity to 4.7 exahash by the end of the year. Exahash is a measure of computing “horsepower”.

To top off the 2021-22 financial year, Iris Energy has mined and sold 1398 bitcoins, generated $US26.2 million ($40.9 million) in adjusted earnings before interest, taxes, depreciation and amortisation and widened the EBITDA margin to 44 per cent from 18 per cent the year before.

Thanks to its strategy of building plants next to marginal cost renewable energy, Iris has shrugged off global ructions in oil and energy prices and has benefited from a strengthening US dollar.

Over the past quarter it cost Iris Energy $US7900 to mine each bitcoin, which is now fetching about $US19,305 after reaching a height of $US67,000 in November last year.

The volatility of bitcoin prices prompted Mr Roberts to secure a deal with investment bank B. Riley that gives the miner the right, but not the obligation, to sell up to $US100 million in equity that could potentially give the broker a 31 per cent stake.

But Mr Roberts, who still owns 25 per cent of the business alongside his brother and co-founder Will Roberts and other management, said the deal gave Iris a quick way to access money should fast-moving opportunities emerge.

“We all know how quickly bitcoin can run and move, so having that facility as an option that can sit in the background is very valuable,” he said.

Prince George marks Iris’ third operating bitcoin mine, following the launch of one at Canal Flats and another up the road at Mackenzie in British Columbia. A third mine at Mackenzie is under construction along with one at Childress in Texas.

The plan is to bring six exahash online within the next 12 months.

Daniel Roberts, co-founder and CEO of bitcoin miner Iris Energy, says bitcoin’s security is more powerful than that of ethereum. Jamie Barrett

Ethereum merge

While Iris Energy continues to pour resources into expanding its bitcoin mining operations, ethereum miners have been turfed out of the crypto economy following a global change in the underlying security layer nicknamed “the Merge”.

Rather than rely on miners to unscramble and verify ethereum transaction blocks, ethereum is now maintained by a proof-of-stake method whereby holders of the cryptocurrency “pledge” their assets and verify transactions with the risk of losing their money should they falsify any records.

“I think that’s finally put the nail in the coffin for anyone that wants to suggest that ethereum can compete with bitcoin,” Mr Roberts said.

He points to the cap of 21 million on possible bitcoins in circulation, adding that the ability to instantly send value around the world very cheaply without interference by any third parties as a core cryptographic value that ethereum has now undermined.

“If there is no real world cost, there’s no real world security,” he said.

“I think the whole argument around energy consumption is flawed because it’s the consumption of energy that delivers those immutable characteristics to a blockchain.”

Mr Roberts said the ethereum move to a proof-of-stake model, where those who own the coins verify and permit the transfer and ownership of other coins, elevates the importance of cryptocurrency exchanges.

“Not only does [proof-of-stake] sound a bit like the current financial system but all of a sudden the exchanges now control the blockchains and are subject to regulatory capture and oversight by the traditional financial system.

“I think this move has shifted ethereum back into the traditional financial system and cemented bitcoin as the decentralised cryptocurrency.”

Mr Roberts pushed back on the idea that ethereum’s base layer smart contract functionality allowed the development and execution of new technologies and networks, such as those promoted by decentralised finance, or DeFi, businesses.

“That’s certainly a narrative, but bitcoin has these capabilities too. It’s just been a slow and steady race,” he says.

“Protecting the scarcity and immutability is something not worth compromising on. Whereas a lot of cryptocurrencies are trying to find the next edge use case and fast track that innovation, but in my mind, if you haven’t got a strong foundation, there’s no point building it.”

While bitcoin mining is easily the most profitable venture for Iris Energy at present, Mr Roberts is clear he is ultimately in the business of providing raw computing power.

Iris signed a memorandum of understanding 2½ years ago with Dell Computing with the aim of bringing customers and hardware onto the site at Canal Flats.

Traditional data centre businesses such as ASX-listed NextDC are established in major capital cities and are optimised for real-time cloud computing, shared drives, really low latency, high reliability and high security

“Obviously, that’s an important role, but equally we’re seeing the emergence of all these other computing applications that don’t require all the bells and whistles,” Mr Roberts said.

He sees a world where demand for computing power that runs data analytics, machine learning, rendering for augmented reality, oil and gas reservoir analysis.

“We would cost one-tenth of a hyperscale data centre,” he said. “And they don’t need this high-spec, ultra-low latency. They just require raw computing power.”

But while the opportunity looms large, Iris Energy cannot get past the attraction of mining bitcoin.

“It’s just too profitable.”