Reporter with Silicon Hills News

Emmanuel Abiodun, founder of Austin-based Cloudhashing

Emmanuel Abiodun, founder of Austin-based Cloudhashing

Emmanuel Abiodun’s first foray into bitcoin mining took place at home in London in January 2013. Today, his Austin-based company CloudHashing has mining facilities both outside Dallas and in Iceland, and he’s signing million-dollar contracts with investors looking to cash in on the cryptocurrency phenomenon.

Before CloudHashing, Abiodun worked at HSBC building risk-management and trading systems, so he had a good mix of finance and tech background. Around the time he began mining, he had friends who were also interested, but lacked the necessary tech savvy.

“So that’s where the business idea came from,” he said.

Abiodun decided to sell pre-order mining contracts to raise capital to invest in the hardware to build a major mining pool. He launched in April 2013. Abiodun’s initial investment was $15,000. Now he has mining hardware worth $15 million kept in guarded facilities with strict security procedures that include biometric scanning.

A bit of background on cryptocurrency mining: The mysterious/anonymous person (or maybe group of people) Satoshi Nakamoto introduced the Bitcoin program in 2009. Today, it is the frontrunner among dozens of digital currencies. Bitcoin uses a cryptographic algorithm to release coins. Only 21 million bitcoins will ever exist, and presently there’s around 12.6 million in circulation. About every 10 minutes, more bitcoins are released and the program is written so that the last coins will enter the market in 2140. By having computers “hash” the algorithm (i.e. solve really difficult math), miners compete to earn bitcoins as they’re released. In 2009, it was possible to do this with a desktop computer, but as more computers work on solving the algorithm its difficulty increases. Today, people buy multi-thousand dollar chips specifically manufactured to mine bitcoin.

The hardware involved sucks up a lot of electricity, generates heat, can be noisy and smells like ozone. CloudHashing offers a solution to people who want to mine bitcoins without the hassle of purchasing and maintaining their own equipment. For as little as $299, people can buy a one-year contract that is essentially a lease on CloudHashing’s mining power.

Shortly after the CloudHashing website debuted, Abiodun was contacted by Benny Gorlick, a small businessman from Anchorage, Alaska whose company sold heavy equipment to gold mining and oil companies. Like Abiodun, Gorlick was in his early thirties, had only recently started bitcoin mining, and he too had a wife who was befuddled by all the loud, hot computer equipment he was installing in their home. After a long Skype call, the two decided to work together. Gorlick’s experience negotiating with real-life mining equipment manufacturers helped them in the process of buying bitcoin mining equipment.

Their introductory conversation took place around May last year, Gorlick and Abiodun wouldn’t meet in person until October. In the intervening months, both kept their day jobs and ran the company together over Skype and email, but their customer base quickly mushroomed beyond what just the two could manage.

Today, the company has a small sales and customer service office in north Austin. The Iceland mining facility began operating at full capacity in October, and the one here in Texas at the end of January. Gorlick moved from Alaska and now oversees the U.S. side of operations, while Abiodun continues to live in the U.K., but travels to the States frequently to meet with customers. CloudHashing chose Texas partly for its low energy costs (which Iceland also offered) and proximity to manufacturers. CloudHashing’s office is across the hall from one of its hardware suppliers, Cointerra, which is also only about a year old and has already seen sales of $35 million.

Both companies received some criticism from consumers unhappy with order delays (Cointerra’s mining rigs shipped late, and CloudHashing initially had delays delivering capacity). As Gorlick put it when reflecting on his experience in the oil and gold mining equipment industry, “You’re always in line behind the guy who’s ahead of you.” Right now, it’s a scramble for manufacturers to develop faster hardware and for miners to snap it up. Meanwhile, the Bitcoin algorithm’s difficulty increases and returns diminish. Abiodun said his goal is to have CloudHashing doing 15 percent of total Bitcoin mining activity, but presently the company is at about 7.5 percent, as stiff competition slows growth across the board.

Presently, Abiodun says his typical customer is between 30 and 50 years old and has a salary of $115,000-200,000 a year. Many have invested hundreds of thousands in the company and the biggest contract to date was for $1 million.

Glenn Chaffin, a financial controller for a California marketing company, invested about $20,000 with CloudHashing in December. “I kind of wanted something with contractual obligation, to where I didn’t have to do any setup or support of software,” he said. Chaffin estimates he’ll break even in nine months, but it depends on the price of bitcoin, which has dropped over the last three months.

Abiodun said he doesn’t worry about the short-term fluctuations in bitcoin price, and that his stresses have more to do with the day-to-day operations of the business and keeping the hardware mining optimally. It’s been a whirlwind thus far, and as for the next six months? The plan is to increase CloudHashing’s mining capacity exponentially.