Riot Blockchain Just Established Itself As A Leading Bitcoin Mining Play

As people continue to stare at what is now the most explosive asset in human economic history, most investors still have no idea what mining bitcoin even means. In a sentence, it’s the process of adding blocks to the blockchain and completing bitcoin transactions. If that still sounds cryptic, consider this:

Bitcoin mining has just hit the Nasdaq, with mining company Riot Blockchain Inc RIOT just closing its acquisition of 1,200 bitcoin mining machines. Why is this important?

Despite the meteoric rise, there remains a considerable barrier to the buying and the safe storage of bitcoin in particular. When this barrier is cleared the bitcoin buy side will open wider. To clear it, we need to start seeing more mainstream bitcoin storage companies like Riot become more active.

Riot is up close to 80% over the last three months, though this is nothing special, having risen in line with the price of underlying bitcoin. It could make a decent exposure to the rise of cryptocurrency for anyone not looking to buy bitcoin outright, or hold the currency indirectly through an ETF.

It's also one of the few companies in this space that isn’t sitting back and allowing the underlying asset to do all the work from a value-add perspective. The company recently announced an agreement that will see it pick up a total of 1,200 bitcoin mining machines before the end of this month from a bitcoin hardware company called Bitmain.

Bitcoin mining is the process through which transactions that take place on the bitcoin blockchain are processed. So-called 'miners' dedicate computing power to solving complex mathematical problems. When they solve a problem, a new block is added to the chain logging the most recent transactions. The miner that did the solving receives a predetermined number of bitcoin as a reward.

It used to be the case that miners could use everyday computing equipment to carry out this process. Now, because of the difficulty rate (which increases as more and more bitcoin are added to the overall supply), specialist equipment is needed. The equipment that Riot just purchased is one of these pieces of kit.

Specifically, each machine is an AntMiner, which is the industry gold standard in the space, and the company has picked up 700 AntMiner S9 machines and 500 AntMiner L3 machines, with the former being a little more powerful than the latter but the L3 being a bit more agile in terms of its ability to switch between different coins.

Once operational, the miners will total out to a hash power of 9.8 Petahash for bitcoin mining and 250,000 MH of X11 for Litecoin mining.

That's pretty substantial and positions Riot blockchain as one of the leading players in this bitcoin mining space in the US.

Whether the company will leverage its mining capability to mine bitcoins for self-storage, or whether Riot will choose to rent out some of its mining power remains to be seen.

Either way, against a backdrop of rapid price increase in the cryptocurrency space right now, this move positions Riot as one to keep an eye on.

Disclosure: the author has no positions in any of the stocks mentioned in this piece.