Swedish mining company KnCMiner has declared bankruptcy ahead of the upcoming halving of bitcoin block reward. The CEO has clarified that the upcoming halving of bitcoin block reward is part of the reason their company is finding it hard to show a profit, and therefore has had to declare bankruptcy.
KnCMiner was started in 2013, and had successfully raised $32 million from venture capitalists, including from firms Creandum and Accel. The company was in news recently for a lawsuit about Titan, a hardware product that helps mine cryptocurrencies. Even though KnCMiner won the lawsuit, it still is finding it hard to remain profitable.
According to CEO Sam Cole, the upcoming halving of bitcoin block reward is the primary factor in the decision. The block reward is given to any company or individual that successfully ‘mines’ or creates a block that gets added to the bitcoin blockchain. As of June 2016, the reward is 25 bitcoins for every new block. However, from next month, this reward will be halved to 12.5 for each new block created. This directly impacts the profits of the mining companies like KnCMiner, for which the block reward is the primary motivation, or the only motivation, to mine.
Says CEO Sam Cole:
“Effectively our cost of coin – how much we produce the coins for – will be over the market price. The price is now [roughly] $480. With all of our overhead, after July, the cost will be over $480. All of the liabilities we’ll have after that time will be too high.”
Cole has also denied that there is any link between the lawsuit and filing of bankruptcy. He also clarified that the company board of directors had decided to shut down operations before the lawsuit was decided.
Presently, KnCGroup and all the companies in it, including KnCMiner, are put under control of receiver Nils Åberg. This does not include XBT Provider, which is only partially owned by KnCGroup. XBT Provider offers an exchange traded note in the Swedish stock exchange, and some of the people from KnCMiner will continue to impact the bitcoin world through their work with XBT Provider. However, 34 employees will be fired, and will be looking for jobs elsewhere after the closure of the KnCMiner, it was reported.