• Compass Mining is a service that hosts, supplies, and operates mining rigs for retail miners who don't want to deal with the logistics of physically handling mining equipment themselves.

Eng Taing is in the business of making money.

He runs his own private equity firm with $250 million in assets under management (according to his website), invests in real estate, has worked in data science and analytics at Apple — and he got into bitcoin back in 2013, well before it was popular to make even a passive bet on the crypto asset class.

Now, Taing runs 261 personal mining machines generating the world's most popular digital token.

"I just like making money," Taing told CNBC.

"I invest in a lot of things. I have a lot of apartment buildings, I have senior living homes. I have GPU mines," continued Taing. "I just like to look at where I can get some good arbitrage advantage, and I thought bitcoin mining presented that both from just, 'Hey, I could get more bitcoin by having miners than buying bitcoin, especially at the scale that I can get into it — but also, that I am a big believer in bitcoin's future.'"

Bitcoin operates on a proof-of-work mining model, meaning that miners around the world run high-powered computers to simultaneously create new bitcoin and to validate transactions. The process requires expensive equipment, some technical know-how, and a lot of electricity. Taing decided to outsource most of that work by enlisting the help of Compass Mining, a service that hosts, supplies, and operates mining rigs for retail miners who don't want to deal with the logistics of physically handling mining equipment themselves.

So far, the experiment is working out pretty well, according to Taing. Of his 261 mining rigs, which include Canaan AvalonMiners, Bitmain Antminer S19 Pros, and Whatsminer M30Ss, 200 are hosted through Compass in Nebraska and Canada. They generate about 2.8 bitcoin a month, or about $111,000, according to digital receipts he provided CNBC.

Taing also earns income buying and selling mining hardware to retail customers on Compass' marketplace. They typically buy one or two at a time and are not as price sensitive.

CNBC spoke to multiple Compass customers to better understand the appetite for small-scale mining as they increasingly compete with major industry players with massive operations. But Compass CEO Whit Gibbs says that's exactly the point: To capture market share for retail miners and put the network into the hands of the people.

"It will effectively give small miners a substantial share of bitcoin's network hashrate, which has ultimately, always been our goal," said Gibbs. "We want to get 5% of the network being controlled by retail miners, and then move that up to 10% to 15% in the coming years."

Gibbs says he's noticed a lot of people who would normally invest in real estate are instead bringing those dollars to mining, because they're able to see a faster return on mining than they would if they were buying a rental property, especially as private equity steps in to buy houses and drive up prices.

From mining 'plebs' to billionaires

Compass clients range from self-proclaimed "plebs," who stack the smallest denomination of bitcoin known as satoshis, or "sats," to billionaire bitcoiner Jack Dorsey.

One of those plebs is Jon McClellan, a Texas based lobbyist for AT&T. He currently has a single bitcoin miner with Compass in Oklahoma, which he purchased at the end of 2020. For him, the desire to mine is part ideological, part financial.

"I wanted to do my part to secure the the bitcoin network — have my own hashrate, under my own power," said McClellan, referring to his share of the collective computing power of miners worldwide.

"I knew that if I buy a miner, I'll be literally buying bitcoin every day, every minute, every second, every hour, regardless of what's going on in my life, budget-wise," continued McClellan, who calls the process an "easy way to dollar cost average into bitcoin."

McClellan says Compass was the only retail mining company that seemed accessible for the average person. Compass Mining allows customers to buy (new or used) mining machines for between $4,500 and $25,800 on their website, then locates them in partner data centers and takes care of the physical logistics and subsequent maintenance.

The return on investment for personal mining varies based on a few key factors, including the upfront cost of buying gear, the number of mining machines you're running, the cost of electricity and hosting, plus pool fees, which allow a single miner to combine their hashing power with thousands of other miners all over the world to increase their chances of earning bitcoin.

McClellan, who took out a bitcoin-backed loan of $10,000 through Coinbase at an 8% interest rate to buy his single miner, says that his ROI is about two years. He is currently pulling in around $400 a month, though he has to pay $150 for hosting fees, so he nets about $250. But McClellan has plans to scale up his operation this year in Texas, Oklahoma, or Wyoming, since all three states are favorable to the bitcoin mining industry.

Taing says he has about 18 months until he achieves ROI with profit margins of around 65% to 70% to cover operating expenses. Unlike other customers, however, Taing has a special rate of 0% for pool fees through Foundry.

Gibbs, the Compass CEO, says their customer base is mostly retail, which he defines as miners who buy one to five machines, investing somewhere between $10,000 and $50,000.

"That's really where the majority of our business has been over the last six months," said Gibbs, though he notes that Compass is beginning to serve more institutional clients.

Nevin Bannister, for example, is using Compass to build out a large-scale bitcoin mining operation in hopes of taking it to the public market.

"They make it really simple," said Bannister. "They are a great turnkey option. They help you buy the machines, they plug them in for you, they maintain all the operations."

So far, Bannister has bought 6,000 rigs, 1,500 of which are operational. Most are housed in Oklahoma, and they have just under a hundred in Canada.

While Bannister wouldn't disclose his monthly revenue, he did tell CNBC that each rig should produce about .015 bitcoin a month. At 1,500 rigs, that hypothetically produces 270 bitcoin a year, or $10.7 million.

"I'm a serial entrepreneur. I've had several companies that I've sold, and I just love learning new things," continued Bannister, who says on his LinkedIn page that he has founded start-ups that have sold for a combined value of over $800 million. "This is like getting into the internet in the early days."

Ultimately, Gibbs thinks that institutional buyers like Bannister will be a good thing for the smaller-scale miners, because their investment will help to bring down costs overall and make more space available to retail clients.

Jack Dorsey also leaning in

Jack Dorsey's payments company Block (formerly Square) is also looking to make it easier for the little guy to start mining for bitcoin.

In a string of tweets earlier this year, Block's general manager for hardware, Thomas Templeton, laid out the company's plans for next steps.

Templeton says the goal is to make bitcoin mining — the process of creating new bitcoins by solving increasingly complex computational problems — more distributed and efficient in every way, "from buying, to set up, to maintenance, to mining."

Toward that end, the company is solving one major barrier to entry: Mining rigs are hard to find, expensive, and delivery can be unpredictable. Block says it is open to making a new ASIC, which is the specialized gear used to mine for bitcoin.

Templeton writes that Block is also looking to improve reliability and the user experience of mining.

"Common issues we've heard with current systems are around heat dissipation and dust. They also become non-functional almost every day, which requires a time-consuming reboot. We want to build something that just works," Templeton tweeted. "They're also very noisy, which makes them too loud for home use."

Democratizing access to bitcoin mining is a big part of the mission statement of this project.

"Mining isn't accessible to everyone," wrote Dorsey in October, just a few months after the U.S. eclipsed China for the first time ever as the world's top destination for bitcoin miners. "Bitcoin mining should be as easy as plugging a rig into a power source. There isn't enough incentive today for individuals to overcome the complexity of running a miner for themselves."

Gibbs says he welcomes another player into the retail bitcoin mining space.

"It's going to be massively beneficial to bitcoin and ultimately, to us as well," Gibbs told CNBC.

"My understanding of what they're putting out is going to be more of a home-based, low power consumption, probably more of a low-yield product, but it will get people that first taste of bitcoin mining," continued Gibbs. He assumes that as individuals get the bug to grow their hashrate they'll look at Compass or rival River Financial to expand their operation.

"I really do think that along the lines of Jack's mission in general, he wants to get mass adoption for bitcoin, and he's gonna throw dollars behind anything that he thinks is going to get more people paying attention to it," said Gibbs.

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