Quarterly report pursuant to Section 13 or 15(d)

Organization and Operation of Our Business

v3.21.2
Organization and Operation of Our Business
9 Months Ended
Sep. 30, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Operation of Our Business

Note 1. Organization and Operation of Our Business

Nature of Operations:

Riot Blockchain, Inc. operates a cryptocurrency mining operation using specialized computers equipped with application-specific integrated circuit (ASIC) chips (known as “miners”) to solve complex cryptographic algorithms in support of the Bitcoin blockchain (in a process known as “solving a block”) in exchange for cryptocurrency rewards (primarily Bitcoin). The Company has also historically mined Bitcoin cash and litecoin; however, the Company has focused its efforts on mining Bitcoin.

The Company participates in “mining pools” organized by “mining pool operators” in which we share our mining power (known as “hashrate”) with the hashrate generated by other miners participating in the pool to earn cryptocurrency rewards. The mining pool operator provides a service that coordinates the computing power of the independent mining enterprises participating in the mining pool. Fees are paid to the mining pool operator to cover the costs of maintaining the pool. The pool uses software that coordinates the pool members’ mining power, identifies new block rewards, records how much hashrate each participant contributes to the pool, and assigns cryptocurrency rewards earned by the pool among its participants in proportion to the hashrate each participant contributed to the pool in connection with solving a block.

The Company generates substantially all its revenue through two business segments, its Cryptocurrency Mining segment and its Data Center Hosting segment.

Cryptocurrency Mining:

Generally speaking, mining operators with greater hashing power relative to other miners attempting to solve a block have a higher chance of solving the block and receiving a cryptocurrency award. Further, as the market price for Bitcoin has increased, we have observed generally that the relative number of miners and the total hashing power deployed on the Bitcoin blockchain has also increased. Accordingly, we seek to increase our hashing power capacity relative to the total hashing power devoted to the Bitcoin blockchain by acquiring and deploying increasing numbers of the latest generation of more powerful and energy-efficient miners.

As of September 30, 2021, the Company exclusively operated the Antminer series of miners manufactured by Bitmain Technologies Limited (“Bitmain”), which use ASIC chips designed around the 256-bit secure hashing algorithm (SHA-256) used by the Bitcoin blockchain and, therefore, the primary cryptocurrency the Company seeks to mine is Bitcoin.

During the nine months ended September 30, 2021, the Company continued to expand its quantity of miners and the scope of its mining operations, and the acquisition of Whinstone provided the Company with the necessary infrastructure to increase its operational efficiency and performance.

As of September 30, 2021, the Company had deployed a total of 25,646 miners in its mining operations.

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Riot Blockchain, Inc. and Subsidiaries

Notes to the Condensed Interim Consolidated Financial Statements

(Unaudited)

Data Center Hosting:

On May 26, 2021, the Company completed its previously announced strategic acquisition (the “Whinstone Acquisition”) of Whinstone US, Inc. (“Whinstone”) from Northern Data AG, a German stock corporation (the “Seller”).

Whinstone’s data center facility is believed to be the largest single facility, as measured by developed capacity, in North America for Bitcoin mining (the “Whinstone Facility”). The Whinstone Facility provides critical capacity for Riot to deploy its future shipments of Bitcoin mining hardware, in addition to providing an opportunity to expand Whinstone’s hosting business for third-party Bitcoin miners.

In pursuit of achieving the most efficient power strategy, Whinstone combines fixed low-cost power agreements, real-time spot power procurement and income from ancillary power services revenue. Riot benefits from this low-cost energy to maximize its production margins. The combination of Riot and Whinstone allows the Company to rapidly scale its self-mining business at one of the world’s largest mining facilities with power costs among the lowest in the industry.

Whinstone currently hosts Bitcoin mining operations for institutional customers. In addition to hosting revenue, Whinstone also generates engineering and construction services revenue from hosting customers on site, including revenue derived from the fabrication, installation and maintenance services and deployment assistance on immersion cooling technology for Bitcoin mining.

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Riot Blockchain, Inc. and Subsidiaries

Notes to the Condensed Interim Consolidated Financial Statements

(Unaudited)