Northern Data - Disaster or HPC Superpower?
An Analysis of Public Claims Made by Northern Data
This newsletter was originally published on HASHR8.
In November 2019, a publicly listed German company providing hosting contracts for Bitcoin mining merged with a US company that had just received a contract to build a datacenter in Rockdale Texas. The baby of the merger, Northern Data, has since made ambitious statements regarding its datacenter development, customer demand, and revenue projections.
Those in the mining community have been questioning their ability to deliver on the claims made while also scrutinizing their presence outside of the mining market. The company has been heavily marketing itself as a high-performance computing (HPC) company with enormous contracts signed with blue-chip corporations. We dedicated this week’s release of the HASHR8 Difficulty Adjustment to analysing the claims made by Northern Data and the likelihood of these claims materializing.
HASHR8 is now on YouTube. Watch our recent episode with Trevor Smyth of Arctos Capital.
Northern Data Are Building the World’s Biggest Data Centre… Or Are They?
A publicly-listed German company that offers hosting contracts for Bitcoin mining has been receiving increased amounts of attention. Northern Data AG publicizes itself as a major player in the HPC and AI datacenter markets.
But questions have been raised regarding the veracity of the claims made by the company and it’s CEO Aroosh Thillainathan. Despite the scrutiny Northern Data is being subject to, the share price of the company trades near record highs after increasing 367% over the past year. The current share price corresponds to a market valuation of ~$627 million.
Northern Data Share Price (Source: Tradingview.com)
Northern Data was founded by a merger between Thillainathan’s former company Whinstone US and German company Northern Bitcoin. Both firms operated dominantly in crypto mining. Some of the claims made by the company and Thillainathan include:
Building the world’s biggest data centre in Rockdale, Texas. The company expects a 1 GW facility built by the end of 2020. 300 MW of capacity is reportedly already built and in usage. The company further expects to expand to a 3.6 GW facility by 2023. To put this into perspective, the entire Bitcoin network is currently estimated to draw ~6.2 GW of energy.
Thillainathan estimated that the demand within 18-24 months for “blockchain computing alone will be thirty times higher” than the capacity they can build in a year which has been stated to be 1 GW. This puts their estimate of the demand for computing power in the cryptocurrency industry at roughly five times the current Bitcoin network energy draw.
Contracts signed with large blue-chip corporations for HPC services in the Texas facility. No specific corporations have been named. In one case, the company reports to have secured a US customer with demand of 100 MW without naming the corporation.
A “conservative” expectation for revenues of €120-140 million in 2020 with EBITDA of €45-60 million in 2020. Before merging, Northern Bitcoin had reported €1.49 million in revenue for the first half of 2019 with a balance sheet of €4.3 million.
To have benefitted from the COVID-19 pandemic due to two factors –
Pharmaceutical companies and researchers demanding HPC to perform calculations.
Existing data infrastructure being overloaded. Thillainathan goes on to note that streaming services such as Netflix and Amazon Prime are being forced to reduce their data rate.
Requiring only 20 full-time staff per GW facility due to software which manages operation, control, and maintenance activities.
A big marketing push is being put behind Northern Data building the “biggest datacenter” in the world. The biggest datacenter in Europe has a capacity of 250 MW. What is being presented to the public is that Northern Data is building a HPC datacenter four times bigger than the largest in Europe with only 20 full-time staff required to run it. Northern Data is heavily marketing itself as a leader in providing HPC solutions to “blue-chip” customers.
In reality, there is little to back this up. The evidence strongly suggests that Northern Data dominantly provides Bitcoin mining hosting contracts. Their activities in other areas are likely minimal. Before Northern Data, Thillainathan focussed efforts on securing hosting customers for a previous venture. In November 2018, Thillainathan was at World Crypto Con in Las Vegas promoting mining products for a business called Hashtrend. A brief video on the Hashtrend Twitter shows a datacenter with the description “Sweet #Lambo Sounds from our #Scandinavian #Datacenter”. It is unclear what activities were carried out at Whinstone before the merger with Northern Bitcoin but media has described it as a “colocation partner serving cryptocurrency and graphics rendering clients.” Whinstone secured the Rockdale facility in early November, just before the merger later that month.
A press release announcing the merger of Whinstone and Northern Bitcoin notes that the “first customers of the new [Rockdale] site are two stock-listed corporations that will use a significant portion of the capacity for Bitcoin mining.” The corporations referred to are likely Japanese corporations SBI Holdings and GMO Internet. Another entity associated with Northern Data is Block.one, the company that carried out the $4 billion ICO for EOS. Block.one has recently invested $21.5 million in Northern Data.
Another scrutiny which has been raised against Northern Data is the evidence to back the revenue expectations. A research report released by German Investment Bank Hauck & Aufhäuser advised a €100 euro per share recommendation for Northern Data and backs up revenue forecasts with customers paying $0.06 per kWh in hosting contracts. However, we were unable to verify these statements through our research as we could not find a copy of the report online. The investment bank may have distanced themselves from the report after its release. Nonetheless, the research has been referenced in the media. As reported before, hosting rates as low as $0.03 per kWh can currently be accessed in certain regions in China so it is difficult to believe that large customers are paying as high as $0.06 per kWh.
If the claims are accurate, 2020 will be a big year for Northern Data. The 1 GW facility will be complete. A US customer that demands 100 MW will be announced along with several other publicly listed blue-chip corporations. Revenue of roughly €120 million will be recorded on the books and all should be achieved with just 20 full-time staff overlooking the Rockdale facility. If all this manifests, a share price of $73.8 may be a bargain. On the other hand…
Claims can turn out to be inaccurate…..
Questions naturally arise….
Share price tanks...
Investigation probes begin...
Go to jail cards are drawn.
What Miners are Monitoring
The “Liquidity Mining” apple falls far from the PoW tree. A new phenomenon coined liquidity mining has stormed the DeFi world. However, the activity is a far cry from PoW mining. Liquidity mining refers to the distribution of governance tokens to liquidity providers in certain DeFi protocols. Liquidity mining spiked in popularity after the success of the Compound protocol rewarding COMP tokens to liquidity providers. The COMP token appreciated from ~$67 to over $320 in the space of a few days. The opportunities many are seeking in DeFi through liquidity mining and yield farming do not come without risks. $500k in liquidity was recently drained from the Balancer protocol after a hacker identified a bug to exploit.
Gas Usage on Ethereum at Record Highs. In late May and early June, the Ethereum network was operating close to its maximum capacity. Miners elected to increase the gas limit per block by 25%. The increase allowed the network to handle a throughput of 44 transactions per block compared to the previous 35. After the increase, the total amount of gas being used on the network recently reached all-time highs. Ethereum miners have been earning greater revenue as a result of the increase in gas usage. Gas price has also increased which has further improved miner revenue.
Ebang lists on the NASDAQ stock exchange under the ticker symbol “EBON”. After highlighting concerns in last week’s release, the Ebang IPO successfully went ahead. The stock opened trading at $5 and has traded in a range of $3.81-$5.23 since listing. The price chart highlights that trading has been illiquid at times. Coindesk analyst Matt Yamamoto has noted two recent additions to Ebang who previously had stints at Chinese company Hailiang Education Group. Ebang’s new CFO Lei Chen and an addition to the board of directors Ken He both previously worked at Hailiang Education. Short-selling firm Citron Research previously analysed Hailiang Education and surfaced several red flags including partnerships with ambiguous entities and weak internal controls by its accounting firm.
HASHR8 Insider
Core Scientific purchases 17.5k Antminer S19s. Under normal circumstances, current hardware purchases are only available for delivery in December but Core Scientific has managed to secure these latest-generation rigs for delivery between now and September.
A new SHA-256 ASIC?! In a vague e-mail promotion, Wattum announces that a new ASIC is coming to market soon. It is reported to have a hash rate of 90 TH/s at 3350 watts. Wattum claims the machine will outperform rigs by Bitmain and MicroBT.
HASHR8 Podcast Episodes
East versus West Crypto Finance with Leslie Lamb - Amber Group Institutional Head of Sales Leslie Lamb details differences between the East and the West when it comes to crypto finance. With a background in traditional finance, Leslie has a deep understanding of how the crypto markets operate. The future of Bitcoin regulation in North America is also discussed.
Immersion Bitcoin Mining with Scott Bennet - Immersion cooling is one of the most exciting areas for innovation in Bitcoin mining. The co-founder and President of Scate Ventures joins to discuss their unique immersion mining technology.
Zcoin and Crypto Privacy with Reuben Yap - Can privacy coins be a catalyst for mass crypto adoption? Reuben has a theory that suggests so. Reuben also shares his views on whether there is a need for all the privacy coins currently on the market.
Creative Financing for Bitcoin Miners with Trevor Smyth - Arctos Capital recently completed a $1 million sale and leaseback financing deal with Blockware Mining. Trevor Smyth from Arctos Capital joins to discuss how creative financing deals are helping North America miners free up capital. Trevor further details how Chinese ASIC manufacturers are impacting financial products for miners.
About HASHR8
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This is an excellent analysis of Northern Data’s current challenges and potential future in the HPC landscape! I appreciate how you’ve broken down the complexities of the company’s situation and the broader implications for the industry. It’s clear that the market for high-performance computing is evolving rapidly, and Northern Data has an important role to play, whether in overcoming obstacles or capitalizing on opportunities. Your insights into the technical and business aspects of the company’s trajectory are incredibly valuable. For more information and resources, [prokr.org](https://prokr.org/) offers some great content. Thank you for such a comprehensive and thought-provoking post!
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