Crypto Mining Invest in The Blockwise Advantage

  

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The information contained in this document does not constitute an offer to any person or a general offer to the public of, or the general solicitation from the public of, offers to subscribe or purchase any of the securities of Blockwise. Distribution of this information and the offer and sale of our securities in certain jurisdictions may be restricted by law. Persons into whose possession this information comes must inform themselves about and observe any such restrictions.

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“development,” “anticipate,” “continues,” “estimate,” “expect,” “may,” “project,” “should,” “believe,” and similar expressions are intended to identify uncertainties. We believe the expectations reflected in those forward-looking statements are reasonable. However, we can give no assurance that the expectations will prove to be correct. Actual results could differ materially from those anticipated in these forward-looking statements as a result of any of the following factors: the availability of required regulatory approvals, uncertainty regarding future changes in applicable law or implementation of existing law, dependence on key personnel and suppliers and financial market conditions and the availability of financing on acceptable terms. These factors are not intended to represent a complete list of the general or specific factors that could affect us. Subject to the requirements of applicable law, we undertake no obligation to update forward-looking statements.

Investors and others should not assume that any forecasts in this presentation represent management’s

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Mobile Data Centers

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The Blockwise Investment Offering

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Blockwise is a new limited liability company formed to own and operate distributed infrastructure that supports Blockchain, Artificial Intelligence and other power-intensive computing applications. The initial application will be cryptocurrency mining, which is expected to pay for the distributed network in less than two years, after which the compute capacity can be repurposed to maximize long-term returns.

Cryptocurrency Mining

Cryptocurrency mining, in the simplest terms, is a process that generates cryptocurrencies, such as bitcoin and ether, using powerful computers. Miners connect computing hardware to a network that manages a specific cryptocurrency and run specialized software to perform highly complex computations. By doing this, they process and validate transactions for the network and maintain its integrity. In return, the crypto network pays miners for their services in cryptocurrency.

Cryptocurrency mining is more lucrative than purchasing and trading coins on an exchange, but mining requires time, energy and constant attention. Blockwise will build a cloud that is able to maximize returns from cryptocurrency mining because the deployment model is low-cost, energy-efficient and flexible. Blockwise also provides an opportunity for retail investors to inexpensively add bitcoin, ether or other cryptocurrencies to their investment portfolios from mine to wallet, without dealing with the complexities of owning and operating mining hardware.

The Challenges of Mining

Bitcoin was the first cryptocurrency and continues to be the most popular. It is a decentralized payment system that runs on millions of computers. Miners receive bitcoin as a reward for dedicating computing power to support the network, and miners that perform the calculations fastest receive the largest allocation. Casual mining on a laptop is no longer profitable and professional mining is becoming a highly specialized business.

Among the challenges:

  • High energy consumption – Low-cost electric energy is essential for profitable mining. With increasing competition, miners located in high-cost energy markets will be squeezed out.
  •  Component failure risk – Mining hardware operates at 100% capacity and electronic components are prone to failure.
  •  Heat and noise – Miners produce a lot of heat and are extremely noisy, reducing the feasibility of operating in many data centers.

The Blockwise Advantage

Running a profitable mine means operating in a cutthroat competitive environment on a global scale. To remain competitive, Blockwise will focus on reducing costs using a combination of next-generation cooling infrastructure, a flexible, modular configuration, and preferential negotiated tariffs with energy providers.

   

Industry-Leading Infrastructure

All Blockwise hardware will be liquid-cooled using proprietary, industry-leading liquid immersion technology from Liquid Cool Solutions which provides several key benefits:

Extreme efficiency

Liquid is much more effective than air when it comes to transporting heat. Miners are incentivized to run their rigs at maximum power at all times, and liquid cooling will result in substantially lower energy consumption compared to air-cooled mining installations.

Maximum resiliency

Electronics never come into contact with the outside environment, and are therefore not affected by oxidation, dust and corrosion. The hardware operates significantly cooler and temperature fluctuations are dampened, resulting in increased reliability and less risk of failure.

Minimal facilities requirements

Liquid cooling obviates the need for expensive data center cooling infrastructure. Increased component density will allow for a dramatically reduced footprint.

A Modular Approach

Blockwise houses the mining hardware in prefabricated Blockwise Modules (BWMs) installed at power plant substations, a cost-effective strategy that takes advantage of low electric energy rates and reduces risk. BWMs have lower operating costs than data centers and greater reliability than jerry-rigged mining farms. The self-contained modules will be produced in a factory and delivered by truck.

Negotiation with Energy Providers

With 30 years of experience in the energy industry, Blockwise

will leverage pre-existing connections to partner with energy providers. BWMs will be located directly adjacent to power plant substations, allowing Blockwise to negotiate preferential rates principally due to reduced transmission costs.

The Economics of Blockwise Mining

A fully-outfitted 400-kilowatt BWM installed at a power plant is expected to cost $525,000 and have a useful life of 18 years. This translates to $1.5 million per megawatt, which is 80% lower than a conventional data center and comparable to a jerry-rigged building cooled with barn fans.

Mining in the BWMs is performed by off-the-shelf hardware and the cost varies with processing speed (Hashrate). There are two technologies:

· Application Specific Integrated Circuit (ASIC) devices manufactured by firms like Bitmain, and Graphics Processing Unit (GPU) devices manufactured by firms like Nvidea. A BWM is able to accommodate 360 ASIC miners. To ensure the most profitable mining equipment is purchased, decisions regarding mining hardware and crypto coins will be made when the BWMs are in fabrication. By way of example, Innosilicon manufactures the D9 DecredMaster, and at current prices 360 miners retrofitted for liquid cooling will cost $1,725,000. These miners are expected to last three years before they become economically obsolete. Therefore, the total cost of an operational BWM containing 360 liquid-cooled D9 DecredMasters would be about $1.7 million. Under the tax law that went into effect in January, the entire investment can be depreciated in one year, resulting in a cash recovery of $350,000.

Electric energy is the principal operating cost of a cryptocurrency mining operation. The BWM will be trucked to a location where electricity is relatively inexpensive. There also are administrative and maintenance fees, but the all-in operating charge is expected to be 8¢ per kilowatt-hour, one-third the hosting cost of a traditional data center. These miners produce decreds, coins that are easily converted to bitcoin or US dollars. If converted to bitcoin, at a price of $7,500 a BWM is expected to generate a net cashflow of $2.8 million and a tax saving of $350,000 the first year.

The Long-Term Plan

A BWM is a transportable, highly-flexible computing platform with a useful life of 18 years or more. Cryptocurrency mining, the initial application, is expected to generate sufficient revenue to pay for the BWM within three years. At that point Blockwise will decide what to do next based on market conditions:

· Repurpose some of the BWMs for Blockchain computing,

· Move the BWM to a research lab for Artificial Intelligence computing,

· Relocate some of the BWMs to the base of cell towers and install telco hardware, Repurpose and relocate some of the BWMs for GPU applications, or Install the next generation of ASIC hardware and continue cryptocurrency mining.

Secondary Revenue Source

A BWM can support six three-year investment cycles. The revenue model described above assumes that Blockwise will install mining equipment and derive sufficient revenue in the first three-year cycle from cryptocurrency mining and tax depreciation to fully pay for the BWM. Instead of using the entire hashrate in the BWM for its own account, however, Blockwise could sell contracts to small investors for a proportionate share of the hashrate, and recover the mining equipment investment sooner. The contracts these Mining Investors purchase would deliver a cryptocurrency deposit in their wallet every month, beginning when they invest and ending at the completion of the three-year funding cycle. The monthly disbursements can be retained by the Investors as crypto coin or converted to cash, at their discretion.

This would be a unique financial product, offering small investors an opportunity to add the most liquid coins to their wallet instead of custom tokens that have a limited market. This strategy also provides Blockwise an early opportunity to recover some or all of the upfront investment in mining hardware. Under the tax law, as currently understood, contracts sold to Mining Investors are similar to bonds in that they do not include the ownership of physical assets and there is a fixed end date. The hashrate not sold to Mining Investors would be retained by Blockwise.

Investment Opportunity

Blockwise is selling 40% of the Company for $4 million, which will be leveraged with $1.75-million in debt to install three BWMs. These BWMs will be located where there is low-cost electric energy and the installations will be timed to benefit from the latest generation of mining hardware. As a byproduct of the cryptocurrency mining strategy, no customers will be needed to generate sufficient cash flow to repay the initial cost of the BWMs.

At current bitcoin prices and mining yield, within one year after full deployment three BWMs are projected to generate an after tax cashflow of $6 million the first year. Contact me if you are interested in learning more.

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