My interview with the 29-year-old phenom behind Genesis Mining, the world’s largest cloud cryptocurrency mining firm, and HIVE Blockchain Technologies (TSX.V:HIVE), a new publicly traded Blockchain infrastructure company.
By Tommy Humphreys, CEO.CA Founder
Read carefully the disclaimer at the conclusion of this communication
I’ve had the opportunity to meet with a lot of fascinating people since launching CEO.CA in 2012 – from Shark Tank’s Kevin O’Leary and legendary company builder Frank Giustra to Virgin Group founder Richard Branson and US presidential candidate Hillary Clinton. But, I’ve never met anyone quite like Marco Streng.
Streng has been described by Forbes as the man behind the “largest Bitcoin cloud mining company in the world.” As everyone reading this article likely knows, cryptocurrencies have exploded this year. Since January 1, the price of Bitcoin has increased over 200%, while Ethereum has hit the absolute stratosphere, rocketing over 2,000%.
Streng, a 29-year-old German mathematician, has been in the sweet spot to harness this incredible growth. He’s the co-founder and CEO of Genesis Mining, a privately-owned cloud mining company that launched in 2013. Crypto miners secure transactions on the blockchain and, in exchange for expending considerable computing resources to do so, are rewarded with newly minted cryptocoins. Genesis’ customers purchase contracts that secure the computer processing power used to create Bitcoins or other cryptocurrencies like Ethereum. This computing power is produced in data centres built in remote northern locations (to keep the computers cool), with access to cheap electricity and great web connectivity. The company’s first industrial data centre was constructed in Eastern Europe, with facilities soon added in places like Iceland and Sweden. Today they’re in the midst of a huge expansion around the globe.
The business model has proven to be a hit: Genesis has over 700,000 customers globally. Despite this amazing success, Streng realized something was missing - accessibility. Many people won’t purchase Bitcoins or buy a cloud mining contract because of complexities--both real and perceived, and yet these same individuals want to invest in what is fast becoming the future of banking and finance.
Streng met with Frank Giustra from the Fiore Group and the rest is now history. Genesis Mining and Fiore have partnered together to create HIVE Blockchain Technologies (TSX.V:HIVE), a brand-new company listed on the TSX Venture Exchange.
HIVE has purchased one data centre from Genesis in Iceland-- an ideal location to mine cryptocurrency because of its renewable energy, low temperatures, and reliable internet access. HIVE has an option to acquire at least four more in Iceland and/or Sweden. Genesis will run the facilities, while Fiore will provide experienced business and capital markets advice. Fiore is, after all, the same group responsible for building several multi-billion dollar companies from scratch – household names like Goldcorp, Wheaton Precious Metals, Uranium One and Lionsgate Films. Genesis is the company’s largest single shareholder, while proven executives like Frank Holmes (CEO/CIO, U.S. Global Investors) and Harry Pokrandt (former Managing Director, Macquarie Capital Markets) are assuming the Chairman and CEO/President roles, respectively.
I mentioned above that I’ve never met anyone quite like Streng, and I mean it. A couple of weeks ago I taped an interview with him while he was in Vancouver. Nothing could have prepared me for the dynamo I sat across from. I left the conversation wondering if I had just spent an hour with the next Steve Jobs. Yes, he really was that impressive.
Below is the transcript of the interview.
Tommy: How did you personally get into this Bitcoin and blockchain world?
Marco Streng: It actually started way back in the days when I first read about Bitcoin and the principles of blockchain in 2011. By that time I was actually doing my studies in mathematics, and I found it very interesting. The community consisted of a very small minority group of people that were exchanging their ideas in forums. I was reading, very interested in the whole topic. I wanted to do something, but I was so busy with my studies, and also the community was quite small, so I didn't catch on in 2011.
Then actually, one to two years later, I heard again about Bitcoin and by that time I saw that this community has already grown much bigger and a lot of things were happening by then. So I thought, “Wow, okay, so it's not only ideas and not only theoretical constructs, it's really happening. People are catching on. People are adopting the use of Bitcoin.” By that time I thought, "Wow, I need to focus more on these things."
Tommy: When did you mine your first Bitcoin? And when you did that, what was the emotion attached to that?
Marco Streng: Probably that was around 2012. The emotion attached to it was that you knew that you're really part of the system, that you're a fundamental part. There is no hierarchy in the system. Every miner is treated equal. I was doing it from my home in a small scale, but I knew I'm part of it. And that's how I got involved. From then on it was just a question of how can we scale it up and process more, and basically be more involved in the system.
Tommy: What was the reaction of your family and friends when you first started doing this?
Marco Streng: I think it was hard to for me to explain it to them. My parents were used to me dealing with things that weren’t too understandable, coming from a mathematical background. But I think they realized that there was something special happening, but I think they only began to really realize it when they saw me on TV!
Tommy: Why don't you describe for me the process of crypto mining. What is it?
Marco Streng: Simply put, mining is the process of validating transactions in the blockchain. Why do we need miners? Because you don't have this central authority that can just approve transactions that people need to trust, so you need to find a way to still validate the transactions, but in a central way. This why miners are there. Miners are approving and validating the transaction, and they are distributed throughout the globe, and that makes it decentralized and resilient to single points of failure in the system.
Tommy: You also mine cryptocurrencies. What is cryptocurrency mining?
Marco Streng: I said mining means validating transactions in the blockchain, but why do you receive, for example, crypto coins for doing that? The reason is because the system is set up in that way, so that miners who validate the transactions get incentivized by getting the underlying cryptocurrency when they find blocks, when they validate transactions. So for example, in Bitcoin every day there is 1,800 Bitcoins that are generated for all the miners around the world. If you have, for example, 10% of the computing power, you get 10% of these 1,800 Bitcoins every day on average. That's very critical. That system only works that way because you need to have an incentive to do the transaction, because of the very high electricity bill and the costs to run these massive data centers. This has become a massive industry comparable to steel, or the gold mining industry. In order to make an incentive to the miners, miners are earning these kinds of block rewards which are Bitcoin or Ethereum or whatever currency you are mining.
Tommy: Why don't you describe the beginnings of Genesis Mining?
Marco Streng: Sure. It all started by this gold rush. I mean, it was the digital gold rush. The price of Bitcoin increased further, the price of Litecoin increased further; all the cryptocurrencies at one point were booming and people saw the innovation behind blockchain and cryptocurrencies. By that time I had my home rigs and I was doing mining already. But I think I woke up and I just thought, "Wow. This is just unbelievable and we have to do something." I mean, I was basically very energetic and said, "Hey, we cannot wait here. There's so much money to be made; there's such a big opportunity right now." I called my colleagues and partners and it didn't take us long until we made the decision to make our first larger scale data center and started mining.
By the time we were doing that, all of our friends approached us and said, "Hey, I heard you're doing this thing. It's so fascinating, how can I participate? Is it possible for me to do something there? Can I give you some money?" We just said, "Well, okay, why not?" We basically made the data center bigger and let our friends participate. We just wanted to mine for ourselves, but we had so much interest from friends and partners, so we said, "Well, there are so many people out there that want to participate in mining, and it's getting more and more difficult due to the technological process of it. So why don't we let them all participate and make it easy for people to start mining in a highly efficient and competitive way, rather than letting them all run their rigs at home." So that's basically how Genesis finally started.
Tommy: Where was the first facility?
Marco Streng: The first facility was in Eastern Europe.
Tommy: Today you have facilities all over the world. What sort of response do you receive from policymakers and governments about what you're doing?
Marco Streng: I think it really depends. I always compare the space to the beginning of the internet, because everyone knows by now that this space has huge potential and it drives innovation, but we all cannot imagine how big it will be because a lot of things are still yet to be found. And that's why everyone is trying to position themselves in a way that they can leverage in the whole economy. And of course, governments and political institutions are positioning themselves and have to act in their interest and see what they can do. It's a very exciting field, and for us we're in the middle of that.
Tommy: Do you see government intervention at this stage in the development of cryptocurrencies as being helpful or potentially unhelpful?
Marco Streng: I think it's very important that the government is interacting here, because it's so fundamental. Governments see that it's a huge opportunity, and if they go and try to undermine it or try to stop it they might stop this whole new era and innovation. That is actually the reason why we're not seeing this kind of move from governments yet to stop it. So in my opinion, I think it's important that they should see and monitor, and they should get educated about it, should understand it, but they should not disturb or should not undermine the innovative potential of it. At least to my knowledge, I haven't seen anything like that.
So governments are quite aware of it, and actually you really have governments forming a kind of regulatory framework around cryptocurrencies and blockchain. That's, in my opinion, a very positive sign because a few years ago the number one question was: “How will regulators and authorities react to this?” And up until now we have really just seen a remarkable response, in my opinion - very positive.
Tommy: So changing gears here, companies like yours are using chartered Boeing 747s to ship the processors that do the mining operations from China directly to your facilities. Why not ship them by sea?
Marco Streng: Well, because time is critical in this whole gold rush. I mean, you really have to understand, it’s not that it's like, "Oh let's wait a few days or so." Every hour counts because the moment you plug the machines in, you're validating the transactions and you're mining. If you're doing that one day later, you're losing one whole day of mining. I think the pace of this economy is non-comparable to anything else. If I'm talking to friends who are in other businesses, none of them are comparable to how much time matters in the mining space. People are not sleeping and every minute counts. And that involves, of course, a lot of logistical expertise as well.
It's very remarkable when people hear about how important time is. There are very interesting ideas about how we can further optimize it. We were thinking about actually mining on a ship. On a big carrier we would basically run an intermediary farm, and then deploy the processors at the end destination. But in the end we figured out that just renting whole airplanes and then flying them directly as quickly as possible to the site was most efficient. Of course it costs a lot, but it's justified based on the time advantage you're getting.
Tommy: What role do you think miners will play as blockchain technologies evolve? What does the future look like?
Marco Streng: Well, mining is the backbone of the whole blockchain world. I mean, there's other consensus systems like, for example, proof of stake. There's a lot of different things that are all experimental and people who have, of course, a lot of ideas. But the only proven one so far is proof of work, which is mining. Bitcoin is now eight years old and there is more than $50 billion at stake at this moment for the Bitcoin network. Everyone, hackers and all kind of people - the incentive is huge for them to break the system and they haven't done it. The reason is because Bitcoin has proven to be stable and highly secure. The encryption that is used for Bitcoin is really the top level. It's much more secure than a lot of other standards that we know based on elliptic curve cryptography, and the mining process itself has proven to work.
I think mining will always be essential for blockchain. Look for example the early stage of the internet and how it emerged. We are still using the HTTP protocol. This was the first protocol but everyone uses it now, it’s the standard for the internet. There are more efficient protocols out there by now. The fact that HTTP is working and it fulfils the purpose of the internet and it was there first, it has become the standard. Cryptocurrencies, we see that, Bitcoin was the first one, it’s now more than $50 billion dollars, and it’s existed for more than 8 years and it’s based on proof of work, and it’s working, is really a strong argument for it to sustain. Maybe there will be other technologies will come up… And maybe some will be popular and exist in parallel. But I think it will always play the fundamental role in cryptocurrency. This was also the idea of Satoshi Nakamoto, that’s how he made it.
Tommy: You love this stuff, don't you?
Marco Streng: I love it.
Tommy: You can't stop.
Marco Streng: That's my life. Blockchain is my life. We were there from the beginning on. It's getting more and more clear that we're now in the space and it will play a significant role in all of our lives. When we started that wasn't too clear. We were convinced about it, but not everyone else was. And now we're seeing a lot of attention to it, and a lot of craziness also. A lot of people are investing in companies that are not always justified to be really as highly valued as they claim, because the excitement is very high.
I always compare it to the beginning of the internet, because people realized that this is something big and then it ended in the dot-com bubble, where it was completely insane and all those companies were overvalued. But we should never forget that from the ashes of the dot-com bubble the biggest companies in the world arose: Apple, Facebook, Microsoft. All of those giants came out of this. In the blockchain, in my opinion, I'm clearly seeing the analogy here. Genesis Mining, since we were there from the beginning on, has the potential to be one of these giants, and we want to leverage on that. And it's my life to make this happen.
Tommy: What is HIVE Blockchain Technologies? What are you doing?
Marco Streng: HIVE is a publicly traded company which offers people and professional investors and everyone the ability to leverage on the blockchain growth and in the blockchain market.
Tommy: Genesis has cash flow. You're a solid private company. Why go to the public markets?
Marco Streng: For us the strategy is to leverage our growth. By doing that we give investors the opportunity to leverage on the ecosystem. So it's a win-win. Genesis Mining is basically using the technological advancements that we have, the experience and all the know-how and the data center infrastructure and basically giving it to HIVE. HIVE is buying the data centers and using that to bring the opportunity to investors, to the public markets.
Tommy: What is Genesis’ role in this new company?
Marco Streng: Genesis Mining is the provider of the data centers and maintains the data centers for HIVE.
Tommy: Why the partnership with Fiore Group? You would probably have your choice of anyone in the world to work with on this type of project. Why Fiore?
Marco Streng: We met the team at Fiore and we realized that Fiore is very professional and has a very good track record of bringing opportunities to the public market, and they know how the markets work. Genesis Mining, coming from the crypto space, none of us is very knowledgeable about these markets. So the only thing we knew was that there was a lot of interest from the professional markets in leveraging on blockchain. So we came together and we realized, “Hey, let's open up this opportunity. Let's make it happen.”
Tommy: So working with somebody like Frank Giustra - what’s your impression of him?
Marco Streng: I was very positively surprised. I really realized that he has pioneered the gold space, he's very passionate about gold, and he had a vision. And I think he really did something great in his life. I really have a lot of sympathy with that. I realized some similarities between us, and I think this really makes me very passionate about the whole project, because he has a lot of experience in the gold space; he knows how that market works and how to really perform best in that space. Mining gold and mining cryptocurrency is very comparable. It's very similar, in a lot of ways.
Tommy: Can you give me some of those similarities?
Marco Streng: Yeah, of course. One very important key in mining is to have the highest efficiency in the mining facilities - and that is also the same for gold. If you want to mine gold, the most important thing is to have the cost of production as low as possible. You still want to be digging for gold when the gold price drops, and you do not want to get squeezed out by competitors. That's one effect.
Tommy: What are the opportunities that you see on the horizon for HIVE?
Marco Streng: I think first of all, getting the economy of scale even further. Controlling more of the whole infrastructure and the whole process of making the chips, to the data centers. But everything around it also - power plants and everything that you really need in order to have the opportunity to really scale very big. I think that's one. Of course, the other thing is there's so much potential in the blockchain cryptocurrency markets that can be really exploited by the right know-how and the right strategies. I mean, it's our home. We have been in this market since the beginning and we have, I think, a good sense of what has high potential and which direction is good to go. Genesis Mining wants to use its experience and its know-how in the market in order to make HIVE successful.
Tommy: Thanks so much. Is there anything else want to say about HIVE that I haven't touched on? We have certainly covered a lot.
Marco Streng: With HIVE we want to create a global brand. Genesis Mining has been very successful in the cryptocurrency and blockchain world and has grown to a size that none of us would have expected, especially in such a short amount of time. But we're operating in the limited cryptocurrency and blockchain world. Now, with HIVE we have the opportunity to expand the brand and enter the public and professional financial markets. This is very exciting for us.
This interview has been edited for brevity.
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