At their headquarters on Birger Jarlsgatan in Stockholm, I meet two of the founders of one of Stockholm s hottest start-ups. The company is a world leader in its industry, has customers in over 120 countries and can thank the digitalisation for its success. Spotify?
No, the company is KNC Miner and it sells equipment to bitcoin enthusiasts all over the world. And despite the fact that it has existed for less than a year, KNC Miner has managed to do something that the music service Spotify, whose offices are located just a bit further up the same street, has not been able to do in six years. It makes money.
A bitcoin fever broke last year. Interest in the cryptocurrency skyrocketed and the exchange rate followed suit. It is through this digital gold rush that KNC Miner has earned its money. They have done so by _ a lesson from gold miners of times past. The safest way to build a fortune during a gold rush is not by digging but by selling picks.
The picks they sell are powerful computers used to mine for bitcoin. The much written about digital currency is built up in such a way that a person who provides computing power to the blockchain, the core of the bitcoin network, is rewarded with newly created bitcoin. Greater computing power results in more bitcoin, resulting in a digital arms race between miners.
When Sam Cole and Andreas Kennemar, founders and co-owners of KNC Miner, are asked about total sales, they look at each other for a while. Then, Sam Cole brings out his cell phone with a laugh. That is where the sales figure is. 80 million dollars, according to the screen.
The Wall Street Journal writes that you have made a profit of 15 million dollars. Is that true?
There s a lot of speculation about that. But we do make a profit, sure, and we don t need to borrow a cent. We have declined a bunch of venture capital companies wanting to invest in us. We don t need their money, so what would we need them for? says Andreas Kennemar.
We invested 50,000 Swedish krona to start a limited company, that s our entire investment. And that is not normal. We are one of the largest crowdfunding projects ever, adds Sam Cole.
When KNC Miner s Jupiter was launched at the beginning of October last year, it was the first commercial ASIC computer for bitcoin. ASIC (Application Specific Integrated Circuit) chips are task-specific and more energy efficient than chips that can be reprogrammed.
The response was enormous. In the first week alone, 7 million dollars worth of equipment was sold to customers in 120 countries, according to the company s own records. The company s first annual accounts will not be released until June this year. Sometime in the second quarter this year, KNC is launching its next model, Neptune. It is already sold out, despite its unit cost of 10,000-13,000 dollars.
The bitcoin fever, just as other gold rushes, has occasionally been chaotic. Large fortunes have been won and lost. Fights, bluffs and mistrust have been common. In short, it has been a bit of a Wild West. Even KNC Miner has a turbulent history. We lied the whole time. That is how Andreas Kennemar describes the strategy they used to reach the position they have today within the bitcoin world today, as a respected and profitable company.
Sam Cole and Andreas Kennemar met four years ago working on a project to move a bank from Sweden to Denmark. Sam Cole is originally an Englishman and IT architect, having designed banking infrastructures in both Europe and Sweden, while Andreas Kennemar is from the IT finance side and has built up stock exchange platforms, among other things. When the bank relocation was completed, they started a joint consulting firm with assignments from several several Swedish banks and financial institutions.
In January 2013, they started mining bitcoin as a hobby. They soon ordered equipment from an American company promising significantly greater effect. But after a few months wait, the computers had still not arrived and they realised that they were far from alone in having been cheated.
That is when they decided to venture into the game.
The demand was enormous. People were screaming for this product, and the technology was there. It just needed to be assembled better. We felt that this was something we could do better, says Andreas Kennemar.
Their network in the IT and financial sectors did not understand exactly what captivated the duo.
Bitcoin, what s that? Call us again in a month when you ve gotten tired of it, they were told by their old employers.
In April, we wrote on a big bitcoin forum that we would develop Jupiter, an ASIC computer for bitcoin. We knew that there was a possibility of doing it in Sweden. Because there s a lot of tightly concentrated competence here.
They soon went out promising to have a working product on display before October 1. A dangerous deadline in a community subjected to many companies making promises but coming up short, as well as pure tricksters.
But it was all about being first. If we d said that we would deliver in January 2014, we wouldn t have sold a single unit, says Andreas Kennemar.
By chance, he found a highly interesting contact on the networking site Linkedin.
It was Marcus Erlandsson who worked at Orsoc, a chip development company with big-name Swedish clients such as Ericsson, ABB and the defence industry. They had exactly the sort of specialist knowledge that Kennemar and Cole s venture needed. After a lunch, Orsoc was on board. That is when a manic hunt to reach the goal began.
Until the last day of September, they worked seven days a week, up to 15 hours per day. Licenses were to be acquired, staff to be recruited, orders to be handled and, not least, they were flooded by questions from customers. Orsoc attended to their contacts at chip factories in Asia.
We had couriers who crossed the borders with semiconductors in attaché cases to hurry everything up. One of the factories required six months of preparation time before you could go to their factory. But by then, we hadn t even existed for six months. But, with the help of bonuses, we got their specialists to work three-shift for us, says Andreas Kennemar.
Finally, the ASIC chip was completed. A process that could take up to two years had been shortened down to a couple months.
But that did not mean that KNC Miner was home free. When the chip finally arrived in Sweden, only 24 hours were left before the deadline, and still remained the task of assembling it into a working computer.
In a factory somewhere in the middle of Sweden, KNC Miner and the factory specialists work with Jupiter began. Almost thirty people were assembled at the same table.
When we had worked for 18 hours with the chip, it was time to test it. Short circuit right away. We tried another chip. Same thing.
By then, many of us were pale, including myself. One error would entail three month s wait. The only thing I could think was: Will we survive this? says Andreas Kennemar.
You weren t pale at all, you shifted in all sorts of colours, Sam Cole interjects.
A little nail had slipped between the table and the chip and caused the short circuits. But with fifteen minutes to spare, they uploaded a video to Youtube that showed the world that Jupiter worked as promised. A few days later, they began shipping it to customers.
Normally, tests go on for two months. We tested for twenty minutes before we went out with the product. But they work to this day, says Andreas Kennemar.
This is where the lie comes into the picture. The video they uploaded to Youtube actually shows a significantly faster product than what they promised customers.
We said from the beginning that our product would do 350 GHz. Then, we went out and said that we had made some adjustments and gotten our chips to be faster. We did things like this a few times, says Andreas Kennemar.
We always knew that the chips would be faster. We lied to make customers happy and to confuse competitors. They didn t know where we d set the bar.
But doesn t this create unreasonable expectations on Neptune?
Yes, we obviously can t promise that it will be significantly betterâ€¦
KNC Miner was, after all, ahead of its competitors and kept its own deadline. Sam Cole boils down the recipe for success to three ingredients. They did not listen to those who said that it couldn t be done, they had a team that was entirely focused in the same direction and they had experience in developing and selling complicated products.
It wouldn t have been possible with another team. We have a mix of abilities that overlap each other just enough. I understand chip development, but I would never get mixed up in it. If you overlap too much in this type of project, you can never work together, says Sam Cole.
If we d had ten more engineers, it would have taken more time. Because, then, we d have had more meetings and more paperwork. We have quick meetings ever day, and then we go off in our own direction. If we can do something with a person, we do it with that person, he adds.
Our competitors have done a fantastic job in designing their products. But look at ours. The cords stick out in the front. But we have not gotten a single complaint about the design. They just want this thing first. Because it eats electricity and spits out money, Sam Cole goes on.
The same day as the interview is being held, the bitcoin exchange Mt. Gox went bankrupt. The Swedish business newspaper Dagens industri called out that nothing less than a miracle would save bitcoin from going under. But KNC Miner are not too worried.
Mt. Gox, Silkroadâ€¦ All of bitcoin takes a hit from that sort of thing, sure. But they must be removed in order for better companies with experience from other industries to be able to take over, because bitcoin is not a playhouse anymore, says Andreas Kennemar.
In the beginning of February, they began with an effort of what they call Plan B. In one of the Swedish Defence Force s old helicopter hangars in Boden, a datacentre is being built to enable customers to purchase shares of the ASIC machines for a smaller sum.
This is probably the biggest thing that has happened in Boden for many a day, says Boden s councillor Bosse Strömbäck of this establishment.
When the mine in the north is in operation, it will generate approximately 1 million dollars in revenues, says Sam Cole.
During what period of time?
When asked about what they believe the turnover will be in 2014, they just laugh. But, in any case, their plans extend far beyond the server room in the north of Sweden.
It may be too early to sayâ€¦ But KNC Miner will do much more than mining in the future. There is a whole world within cryptocurrencies with banking, savings accounts, commerceâ€¦ Payment networks in Africa have enormous business potential. The market is moving fast and we are ready to move along with it.
But anyone who claims to be able to see farther than three months ahead within bitcoin is a liar, concludes Sam Cole.
This article was originally published in Swedish.
Click here to read the original version of this article.
Translated by Renée Ericsson