1. Business
January 14, 2022

Chips off the new Block: Jack Dorsey’s fintech launches bitcoin mining project

By Eric Johansson

Twitter founder Jack Dorsey’s company Block says it will make bitcoin mining more accessible, just months after the US became the top destination for creating the cryptocurrency.

However, the announcement shouldn’t surprise anyone as Block founding CEO Dorsey has made no secret of his enthusiasm for cryptocurrencies. In December he even went so far as to suggest that bitcoin would replace the dollar. He has also frequented cryptocurrency conferences in the past.

No wonder then that Block has launched several initiatives to get into the space. For instance, back in 2018, when Block was still named Square, the company introduced a crypto trading service on its Cash app. An October report in Bitcoin Magazine said the company held nearly 8,027 bitcoins, worth roughly $495m a the time.

When Block announced the acquisition of music-streaming platform TIDAL in early 2021, many believed it would only be a matter of time before the business would introduce non-fungible tokens (NFT) to make it easier for artists to get paid for their music.

In October 2021, Dorsey tweeted that Block was considering creating a way for other cryptocurrency enthusiasts to start mining bitcoin. Bitcoin mining refers to the process of creating new bitcoins on the blockchain, which is done by miners solving a complex cryptographic puzzle in what is effectively an open competition for the right to create a block and are rewarded when they do.

A blockchain is a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain, meaning that it is extremely difficult to enter fake records and thus to “forge” blockchain-based tokens or coins. The technology is also used for things like smart contracts and supply chain management.

Now it seems that Dorsey’s mining plans are about to be realised. Block’s general manager Thomas Templeton made the announcement via a string of tweets on Thursday.

“We want to make mining more distributed and efficient in every way, from buying, to set up, to maintenance, to mining,” Templeton wrote. “We’re interested because mining goes far beyond creating new bitcoin. We see it as a long-term need for a future that is fully decentralized and permissionless.”

Block’s bitcoin mining initiatives

So, Block wants to democratise bitcoin – and arguably make a big profit doing it. In order to do that, the company is looking into ways to lower the barriers of entry into the market. For instance, Templeton said Block is open to developing an ASIC, a specialised computing chip, which can be optimised to mine for bitcoin.

Block is also looking into how it can make it easier to buy reliable mining rigs that don’t consume too much power and can still generate high hash rates, the number of calculations that can be performed per second and thus how many bitcoins can be mined.

“For most people, mining rigs are hard to find,” Templeton said. “Once you’ve managed to track them down, they’re expensive and delivery can be unpredictable.”

The project will be incubated within Block’s hardware team and the company is building a core engineering team of system, ASIC and software designers led by Afshin Rezayee, Block’s bitcoin mining lead.

Block is not alone in getting on the bitcoin train

The cryptocurrency community seems to have welcomed Block’s bitcoin mining announcement with open arms, celebrating more competition in the ASIC space.

Several other big companies have already entered the cryptocurrency market to some extent. Chipmaker Nvidia has developed graphics processing units especially designed for bitcoin mining. A wave of bitcoin mining startups has also launched over the past few years in order to get a slice of what many see as a digital gold rush.

Tech giants like Amazon, Accenture and IBM have all launched or supported different blockchain initiatives over the years.

Recent research from GlobalData estimates that the global blockchain software and services market will be worth $198.6bn in 2030, up from $3.6bn in 2020. Much of this, however, will not be related to cryptocurrencies but to other uses of blockchain tech.

The US has become the top destination for cryptocurrency mining

Clearly, there is a business case for Block to develop bitcoin mining tools. This opportunity has arguably grown bigger in the US over the past year after the nation officially overtook China as the most popular location for bitcoin mining following a prolonged cryptocurrency crackdown by Beijing.

Market stakeholders are optimistic about the country remaining a bitcoin mining hotbed. Their bullishness is due to a combination of the availability of reasonably cheap and renewable energy sources as well as several state politicians being pro-cryptocurrencies.

“If you’re looking to relocate hundreds of millions of dollars of miners out of China, you want to make sure you have geographic, political, and jurisdictional stability,” Darin Feinstein, co-founder of cryptocurrency mining operator Core Scientific, told CNBC. “You also want to make sure there are private property rights protections for the assets that you are relocating.”

There is perhaps another parallel between the 1840s California gold rush and today’s charge into US bitcoin mining. In the 19th century, the real fortunes were made not so much by the gold miners as by the businessmen who sold them their equipment, tools and supplies. Block, looking to supply mining rigs and ASICs to the bitcoin miners of today, may be seeking to put itself in a similar position.