One company is driving its business plan straight into the “bitcoin wastes too much energy” argument and has raised $30 million to do so.

That’s according to Layer1 co-founder and CEO Alexander Liegl, which plans to bring wind-powered bitcoin mining rigs to West Texas early next year. The company is raising a total of $50 million at a $200 million valuation, he said.

The idea of bitcoin crowding out other uses for clean energy reflects a misunderstanding of the market, Liegl explained in a phone call:

“Renewable energy is still primarily under-utilized so you don’t actually have a zero-sum game.”

The company has so far raised funds for its series A from Peter Thiel, Shasta Ventures and other cryptocurrency investors that it has declined to disclose. This round follows a previous $2.1 million seed round that also included Thiel, as well as the Digital Currency Group.

Further, Liegl questioned the whole premise that the use of electricity to power the bitcoin network is a waste.

“Bitcoin is the only thing we believe in and that’s what we think can lead to disrupting the financial system,” he said, adding:

“We think electricity directed to the bitcoin mining network is certainly a net positive for society.”

The company is vertically integrated, in that it plans to run its own bitcoin mining facilities in the United States, using mining rigs that the company designed and built in-house and running its own power procurement.

“We actually own electricity substations and land-property in Texas already,” Liegl explained. “We own everything up to our own power plant, but I can tell you that is certainly on the agenda.”

The company has co-founders with prior expertise in hardware and mining, such that they believe they can execute a sophisticated strategy that makes mining in the U.S. profitable again.

“The last seven years we think of as mining 1.0,” Liegl said, with firms doing little more than racing to deploy the most capital. He added:

“Going forward, the market is shifting to a game of operational expenses.”

Don’t mess with Texas

Texas has a major advantage as a cryptocurrency mining location, with energy prices among the very lowest in the nation (particularly for industrial electricity), according to the U.S. Energy Information Agency.

“I love the place. It’s so private-market-friendly,” Liegl said. “Bitcoin mining is pretty compelling to people out there because it’s pretty analogous to how oil and gas works.”

Further, 16 percent of power in Texas comes from wind, according to the Department of Energy. Over 25,000 megawatts have been built with almost 8,000 currently under construction.

While Liegl acknowledges that any operation like his will need a backup power supply for times when wind is not strong enough, the company still expects to deliver a very high proportion of its hashrate via renewable electricity.

The problem for Texas, Liegl explained, is cooling the miners.

Air-cooled miners in Texas would burn up, he explained, so they had to devise a way to liquid-cool the miners. That’s what Layer1 has created with its proprietary mining equipment, each unit of which runs on two megawatts of power.

The first facility will be set up in an open area about 90 minutes west of Midland, Texas.

How big is enough?

“The United States’ hash rate share is currently below 5 percent,” Liegl said. “Our goal is to bump that up to at least over 15 percent.”

As the company notes in an announcement shared with CoinDesk in advance, 60 percent of bitcoin’s hash rate and all of its hardware production is in China. The announcement describes the scale of Layer1’s ambition:

“With this funding, we are positioned to own the whole Bitcoin mining stack by designing, producing, and operating our entire mining infrastructure, including proprietary: ASIC chips, liquid-cooled mining containers and power procurement and development.”

By securing a large amount of funding early, Jacob Mullins of Shasta Ventures said that Layer1 can pursue a more ambitious vision than most startups could, pursuing unit economics that make it attractive as a long-term investment. Further, he believes that as a producer of bitcoin in the U.S., taking a pro-regulator approach, Layer1 will have an advantage when domestic institutions finally move into bitcoin.

“I think that’s another bold way of going at the market and I think over time will create a moat of quality for the business,” Mullins said.

Of course to meet institutional demand – if it ever comes – will take a lot of bitcoin.

There’s no question that Layer1 is going for scale and quickly, but Leigl declined to disclose expected wattage used in 2020, though he said he expected it to be “many hundreds of megawatts.” He added:

“Going forward to 2021, we’re talking gigwatts.”

Wind turbines in West Texas image via Shutterstock