6 months after first releasing its IPO prospectus, Melbourne-based cryptocurrency miner, Bitcoin Group, has released its second replacement prospectus.
Since June, the company has released 6 versions of its prospectus as it sought to explain its business, address concerns raised by ASIC and delay the listing date. The company has included a report from an independent expert in the latest prospectus, to allay concerns raised by ASIC surrounding bitcoin mining.
The company is intending to raise $20 million, 90% of which will be spent on new mining equipment.
Given the elapsed time since the first prospectus was published, BCG has also released audited financial statements showing an increase in revenue to $1.8 million from $1.73 for the period ended 30th June, leading to a gross profit of $447,000 and net profit after tax of $34,000.
The report from the independent expert, Professor Peter Taylor, a professor of mathematics at the University of Melbourne, is an overview of the bitcoin mining process and an analysis of the business of bitcoin mining.
ASIC was concerned about “how the Bitcoin industry operates, the variables underpinning the Bitcoin Mining Equation… and its impact on BCG, and information setting out future performance of BCG,” according to BCG’s third prospectus.
Bitcoin miners receive bitcoins in exchange for solving complex maths problems, which has the benefit of recording transactions. Currently, 25 bitcoins are awarded but this will decrease to 12.5 in July 2016. Further, the actual mining processing is getting harder.
These two trends together pose serious questions for BCG’s business model as it is a pure-play bitcoin miner.
“Given that more and more computing power is being devoted to Bitcoin mining, the general trend is for the cryptographic problem to become more difficult over time,” notes the report. The increased difficulty calls for more computing power, which in turn requires more electricity — one of the chief costs incurred in bitcoin mining.
This downward spiral can be overcome by joining a “mining pool” with other miners, something BCG has already done. It pays $26,000 in fees to the mining pool, according to its balance sheet. And given all of the parameters of bitcoin mining, Professor Taylor shows that it is actually possible to predict with a degree of certainty the proceeds of bitcoin mining.
“..a mining entity can expect, on average, to mine a proportion of the blocks that is the same as its share of the worldwide computing power applied to Bitcoin mining…. Consider, for example, a miner with 0.5% of worldwide computing power… we can see that such a miner will, on average, mine 131.76 blocks in a 183-day period.”
The current value of 131.76 bitcoins is roughly $77,716.90.
You can find the second replacement prospectus on the BCG website.