Denis Slabakov, Founder, New Mining Company, on the Challenges and Opportunities in Crypto Mining Data Center Operations

The foundation of cryptocurrency mining lies in the formidable data centers that drive it. These hubs of innovation are brought to life and sustained by specialized operator companies. Among the pioneers in this field is Denis Slabakov, the co-founder of New Mining Company. His firm is adept at providing comprehensive infrastructure solutions for crypto mining. In this insightful interview, Slabakov shares his expertise and experience on the challenges and opportunities faced by hosting providers in the dynamic world of cryptocurrency mining.

Denis, you co-founded New Mining Company in 2017, when mining was gaining traction but wasn't fully mainstream. What inspired you to dive into this sector?

— My fascination with technology dates back a long time, and I discovered cryptocurrency around 2010. I used to operate a business that developed software and sold IT components for computer upgrades and repairs. Then, customers started asking about crypto mining. Initially, my interest was purely as a hobby, but I soon saw a business opportunity. I started exploring which direction in this field might be intriguing for me. When I saw data centers with my own eyes, I realized that I could develop or build them, too. So, I began with a small experimental data center right across from my office in Moscow. It was a small setup with a capacity of only half a megawatt.

Why did you zero in on data centers specifically? Did you consider other areas in the business?

— Trading didn't appeal to me back then; it felt like an unfamiliar territory. Blockchain software development seemed a bit raw at the time as well. Yet, there was the angle of selling and fixing miners and building the infrastructure they required. That's how we got into constructing data centers and supplying and maintaining the equipment. Over time, we expanded our services to include software supply and trading.

Currently, the market for specialized software catered toward miners seems quite niche and underdeveloped.

— Yes, and this is because many companies still work in Excel-we started with it, too. But, we quickly recognized the need for automated processes, which led us to develop our own infrastructure software. We have been involved in crypto mining since 2017, and all our expertise has been invested in this software. We're not selling it right now, but we're seriously considering it. Our goal isn't just profit; it's about improving our processes and understanding our clients' needs better. By working closely with the infrastructure, we get an inside look at the business. If we begin supplying software to at least 10% of the companies involved in crypto mining, it would significantly broaden our market insight.

What challenges did you encounter when launching the New Mining Company?

— One of the biggest challenges was assembling the right team. With most businesses, like starting an ice cream shop, you'll find tons of resources online—business plans, job descriptions, and even franchises. But with crypto mining, there's no playbook. Plus, back in 2017-2018, the market was swarming with self-proclaimed experts who were really just beginners. So, I had to look outside the industry for skilled people who could adapt to the nuances of crypto mining. It was a tough process, taking about a year and a half, but we eventually got there.

Another challenge was dealing with the crypto mining equipment, which is notably noisy and requires a comprehensive cooling system. In traditional data centers, this accounts for 10-20% of the total facility cost. In crypto, though, you need a cheaper solution to keep things economically viable. We figured it out through a process of trial and error. For example, at one site, we had to build a noise-reduction system using plywood and wooden frames. It wasn't super hard, but it did require us to develop a unique set of skills and solutions.

How many data centers do you operate now, and who are your main clients?

— Currently, we're running five data centers in Siberia, Russia, with a total capacity of 25 MW, housed in 48 containers. We've also worked in Norway and Abkhazia before. Now, we're eyeing expansion into Canada and the USA. The U.S. is particularly interesting for both traditional and crypto-mining data centers. There are loads of industrial sites for negotiating power supplies and even unused gas and oil fields that are perfect for setting up shop, especially with amenities like roads and Starlink. We're thinking about compact, mobile data centers there that can be up and running in two months and relocated in six.

Right now, our 25 MW capacity serves mainly individual entrepreneurs who've jumped into this as a business. But revenue-wise, half comes from larger companies scattered across the globe—Canada, the U.S., Russia, Latin America, and Paraguay. These firms place their mining equipment in various locations, and we provide the infrastructure and support.

Russia is a vast country. Why did you choose to operate in Siberia?

— The thing about electricity is that it's cheaper when you use it close to where it's produced. Transporting it over long distances needs a lot of infrastructure, which gets expensive. In central Russia, for instance, it's hard to find places with excess electricity. During high-demand times, like a 'bull run' in crypto, electricity costs there go through the roof, and they stay high even in a 'crypto winter.'

Siberia, particularly around Krasnoyarsk and Irkutsk, is a different story. There's a surplus of power, so prices are lower, and it's consistently available. Of course, a number of customers would prefer to have their equipment closer to them, especially if they reside in the capital, but we don't cater to them.

Speaking of crypto winter, how did you handle your first major downturn? Mining becomes less profitable during bear markets.

— The first crypto winter in early 2018 was tough. We had to look for new investors to convince them of the long-term potential actively. The investor pool shrank dramatically, from around 100 interested parties to about five. It was a fierce competition to get these few on board and place their equipment with us. We negotiated hard for the lowest possible electricity prices, struck deals with equipment suppliers, and even slashed our margins to make it all work. We managed to get through that winter quite well.

But then, during the bull run, we faced a different challenge: high demand and not enough capacity, equipment, or space. We even lost some capacity at certain locations for various reasons, which taught us the importance of diversification. Now, we're spread across five locations and avoid concentrating too much in any one spot.

In this business, you have to be ready for profitability to drop at any moment. Therefore, firstly, you must have at least some capacity with very cheap electricity. Secondly, you need to ensure that the amount of operating equipment nearing the end of its life cycle is minimized. Thirdly, you must not inflate your operational costs. It's important to note that stagnation periods can last for months, not just days or weeks, so it's crucial to adjust your business model for the long haul.