In a surprise announcement, Swedish mining firm KnC Miner said today that it is filing for bankruptcy, citing Bitcoin block reward halving and competition from Chinese hardware companies.
CEO Sam Cole told Bitcoin.com the company was speaking to lawyers and shutting down as much of its business as possible, but that he personally wished to continue working in the cryptocurrency space if possible.
The shutdown includes parent company KnC Group and seven subsidiaries.
Investors Liked KnC, But Costs High
KnC Miner had previously laid off 10 employees, or 20% of its workforce, as a cost-cutting measure in February 2016. At that time, the company also referred to the tough competition from manufacturers in China, as well as delays in proposed reductions to Swedish energy taxes.
Cole said as much as 44% of KnC’s income went to paying energy taxes, which were about 19.2 cents per kilowatt hour.
KnC had received $3 million USD in funding as recently as December 2015, and had raised a total of about $29.34 million USD in the company’s lifetime.
It had previously reported losses in 2014 and 2015, with Cole saying the company was cashflow positive but had also made large investments.
KnC designed ASIC chips that power nearly all bitcoin mining today, and was the first to mass produce 28nm and 20nm chips. It also built industrial-scale mining operations to run on hydroelectric power, using its green credentials as a selling point.
It operated in several physical locations globally, but mainly above the Arctic Circle. As well as producing hardware devices and mining bitcoin itself, it also sold cloud mining shares in its operation to consumers.
A Swedish court had just this week made a ruling in favor of KnC in a two-year-old lawsuit which involved buyer disputes over the company’s “Titan” devices, which mined non-bitcoin currencies. The judge ordered the plaintiffs to pay KnC’s legal costs.
Bitcoin Block reward Halving and China
In July 2016, the four-yearly reconfiguration of bitcoin block rewards will see miners receive only 12.5 BTC for each new block mined, down from 25. For the first four years of Bitcoin’s existence, when the cryptocurrency was still obscure, that reward had been 50 BTC.
Unless there is a corresponding increase in bitcoin price after the halving occurs, many miners will see a big drop in income — which could make mining unprofitable in places with high overheads and without access to cheap electricity.
Like those in other sectors of the technology hardware industry, bitcoin mining equipment makers have struggled to compete against Chinese manufacturers with low labor costs and access to materials.
China’s bitcoin hardware makers, which endure cutthroat competition even within their own local industry, are based mainly around the technology center of Shenzhen. From there, they are able to transport the latest machines quickly by land to large industrial mining operations in the Chinese countryside.
These efficiency advantages have seen a large percentage of bitcoin mining coalesce in China over the years, which has led to concerns over centralization and potential interference by authorities.
Is the loss of KnC Miner bad news for the bitcoin industry? What will happen to mining operations after the block rewards halve in July?
Images courtesy of KnC Miner.