Peter Thiel-backed Layer1 begins mining bitcoin at its West Texas facility

Layer1 Technology, a Peter Thiel-backed bitcoin mining startup, has officially launched its operation in West Texas, four months after the firm announced its plans. 

The San Francisco-based firm has brought online several mining containers, each has 2.5-megawatt (MW) capacity and deploys the liquid cooling technology to combat high temperatures in the region. 

Although the firm declined to disclose the exact capacity of its current mining site, it expects to scale the mining facility up to 100 MW within the next few months, capturing more than 2% of the total Bitcoin network hashrate, per a statement shared with The Block. 

Notably, Layer1 CEO Alexander Liegl said they hope to eventually encompass 30% of the total Bitcoin hashrate by the end of 2021 with the existing site and several others that they have acquired. This number, if realized, would overshadow the network hashrate shares of all Bitcoin mining pools, with the leading pools like F2Pool and Poolin currently providing around 18% of the total network hashpower, respectively. 

In 2014, mining pool GHash.io controlled over 50% of the network hashrate, which enabled it to potentially initiate a 51% attack – hence triggering widespread anxiety within the Bitcoin community. When asked whether one entity controlling around one-third of the total network hashrate could jeopardize the network security and stability, Liegl said:

“Bitcoin mining is a winner-takes-most industry. Getting to 30% means we will be able to guarantee stability and security for vastly longer periods than was previously possible. This is a significant boost for the network.”

Self-produced ASICs?  

Aiming at “repatriating U.S. Bitcoin mining,” Layer1 chose to locate its mining farm in Texas, in an attempt to counterbalance Chinese miners’ 65% control over the network. The firm also designed and manufactured its own mining equipment, instead of directly purchasing them from mining rig makers – most of which, such as Bitmain and MicroBT, are based in China as well. 

According to Liegl, the firm will use 10nm computer chips from Korea-based Samsung Foundry for its equipment, but these will be “as performing as TSMC’s 7nm,” he said. In general, the smaller the computer chips are, the more can be packed onto the same chipboard, boosting the overall computing power. 

However, Layer1’s custom mining equipment won’t be ready until mid-2020 and it is currently using third-party machines, according to Liegl. 

Halving and competition

As The Block previously reported, both existing miners and new investors are looking to scale their position in mining as the subsidy halving looms, when Bitcoin mining reward drops from 12.5 BTC to 6.25 BTC. The halving is expected to occur sometime in May.

Texas’s high temperature presents a challenge to maintaining mining machines, which generate substantial heat when in operation. Yet two other mining giants, Bitmain and Northern Data AG (formerly Northern Bitcoin), have also recently launched mining operations in the Lone Star State to take advantage of its cheap electricity. 

Bitmain launched a 50 MW mining site in Rockdale, Texas and expects to expand to more than 300MW. Meanwhile, Northern Data recently merged with Louisiana-based data center developer Whinstone to open a 1,000 MW mining site. 

If Layer1 were to make up 30% of the total network hash rate, its capacity will reach over 1,000 MW, exceeding its two competitors in Texas. It has raised $52.1 million in total funding from Digital Currency Group, Peter Thiel, Shasta Ventures, and others.

Like Layer1, many new miners are hoping to start mining as soon as possible to keep up total network hash power, which is expected to climb due to BTC's price upswing and the fact that many miners are upgrading their equipment in preparation of the halving.

However, the spread of coronavirus has forced some Chinese mining facilities to temporarily shut down, slowing down the recent network hashrate growth.