CryptoQuarry, a retrospective (Part 1/4)
Today I’m going to somewhat free-form write a brief retrospective about my company, CryptoQuarry, as a closure of sorts since we officially closed up shop as of a few weeks ago. With the recent boom of Bitcoin, it feels like a great time to talk about our experience to other prospective miners out there.
tl;dr: History on our 1000+ GPU, 3.5mWh/mo 3500ft² fully autonomous crypto mining operation, what went well and what we learned.
Some terms that I’ll use quite a lot in this blog post that may not be super familiar:
- GPU: Graphics Processing Unit, a piece of hardware that generally is used to render computer graphics such as for video games. These are also used in “crypto mining”, which was the basis for our business.
- Crypto: Shorthand for cryptocurrency. Bitcoin is one such example.
- Mining: The operation in which a GPU does some “work” in exchange for some cryptocurrency, put very simply.
- BTC: Shorthand for Bitcoin, a cryptocurrency.
Who founded CryptoQuarry / Who am I?
- I’m Ricky Mutschlechner, a Sr. Software Engineer at Riot Games (Creator of LoL, Valorant, and more) working on infrastructure and tooling. I’ve spent my professional career doing everything from working on old school phone systems* for a university, writing software, and building datacenters & infrastructure. I spent a year in the “illustrious FAANG” at Facebook as a Sr. Production Engineer helping them improve their storage hardware management. I was the CTO for CryptoQuarry from 2015 to 2020, throughout its entirety.
- Lucas Benotsch, my co-founder and CEO, also comes from a software engineering background and had worked in the fintech/finance industry prior to joining CQ. We’ve been close friends since high school back in the 2000s and have sunk thousands of hours together in all sorts of video games and other fun hobbies.
Both of us worked on CQ nearly full time alongside our existing full time 9–5 jobs. This was incredibly taxing and difficult for both of us, but ultimately when you have an idea that’s both really interesting and has some entrepreneurial possibility, the fire within truly allows for crazy things.
How did CryptoQuarry start?
- Lucas and I have both been crypto hobbyists since 2010–2011 when bitcoin first started to show up. I’ve sold a textbook for over 1.0 BTC, when BTC was around $150. I used to (*cough, allegedly) mine dogecoin in the dorms on their free electricity. We’ve followed the space and saw that around 2015, Ethereum became hugely profitable to mine. Running some basic numbers, we realized that one GPU could pay itself off in under 30 days at the time. We were shocked and both bought a couple of GPUs to test this out and sure enough, we made our money back.
- Lucas’s parents saw that Lucas and I had done this, and asked us to set up miners for them. This was the beginning of the more business-oriented nature of CQ in its infancy, as we drafted up contracts as well as worked out a deal to manage their rigs in exchange for some of the profit.
- After we did this, we decided to formally start a business in 2016/2017 (as CryptoQuarry LLC back then), and find a rental property for ourselves to fill with our own rigs and try and make some money. We took out a small business loan of around $50k under the LLC, and spun up our very first iteration of CryptoQuarry in a warehouse that we designated CQ-1; the warehouse was located in Minnesota due to cost + proximity to two of our co-founders. We briefly had a third co-founder, but parted ways amicably due to not having a great team fit. We had a lot of help in the form of contract (and volunteer) work from some amazing friends: Peter, Matt, Evan, and Spencer to name a few.
- After running the warehouse for about 8 months, a great friend of mine introduced us to an investor who we pitched the company to, and we made a deal together to expand operations. I’ll talk more about this below, but this was the birth of CryptoQuarry Inc, a c-corp.
- We ran the company as a c-corp for about 2 years (2018–2020), expanding drastically after a VC deal with our partner Sia.
What exactly was CryptoQuarry?
- Our vision for CQ was to create a completely autonomous mining warehouse, filled entirely with custom server SKUs (cost-optimized for the best GPU throughput per dollar) and custom software that would allow for the warehouse to run without anybody physically present. Our internal SLA for success was that nobody would have to go to the warehouse more than once a week, for no more than 8 hours, at the very most.
- We raised money at a ~$1.5M valuation, all of which was put directly into the acquisition of a warehouse rental property as well as purchasing hardware. For the most part, we did not pay ourselves (will touch more on this in another part) for the work and were betting on the long term success.
- For the most part, we succeeded at our main goals and actually ran the operation for nearly 5 years starting with the very small proof-of-concept.
What skills did we need to run the company?
- I believe the reason we were able to run the company for as long as we did is due to a lot of the existing SME that we brought to the table, as well as being able to partner with an awesome investor. Without this, we would have spent a lot of time and money that we did not have, hire other experts to work with us.
- The three pillars that I believe were key to us running the company were:
- Some highlights: existing deep subject-matter expertise in software engineering, networking, infrastructure, datacenter operations, hardware management, and software infrastructure. Also moderate SME in cryptocurrency. Designing and creation of various large sized software projects.
- Some things we could have done better: how to create software projects that would increase profitability or longevity of the business
(arguably the pillar we had the least experience in)
- Some highlights: having great mentors who had gone through creating a business, having a very vast network of people we could ask questions to: anything from network engineering to writing a cap table.
- Some things we could have done better: Learning how to fundraise early, learning how equity vesting should be done, coming up with ways to reward ourselves along the way rather than put all eggs in the future basket.
- Some highlights: lots of experience running medium to large software projects, working as senior engineers at various places, having some existing experience with hiring and building teams.
- Some things we could have done better: vetting for team/experience fit early on, and truly doing our own vetting rather than blindly trusting networks and word-of-mouth.
I’m going to leave it at this for now, but some of the topics I plan to dive deeper into soon are:
- What specifically did we *do* software, hardware, networking, and automation wise? I could write for hours and hours on datacenter design and provisioning, test bench creation and automation, and infra/software auto-triage and management. We had a lot of challenges in these regards, especially with scaling up to 1000 GPUs and a double digit amount of racks in our own homegrown makeshift datacenter.
- What core entrepreneurial facets did we learn that we could apply in future businesses and/or pass on as advice? Examples here would be fundraising, equity vesting schedules, etc.
- In what ways did we succeed and fail, and how many of the failures were preventable? Things such as having a stronger vision earlier, having a more varied skill set between our founding members, and being able to run a profitable (albeit very marginal) business for appx. 5 years.
If you’ve made it this far, thanks for reading. Please leave me some feedback on the content and structure, as this is my first Medium post and I don’t quite have the hang of writing on here yet. Cheers!
Here’re a few bonus pictures from various warehouse build sessions: