Thomas Shewchuck, Chief Underwriting Officer at Evertas, used his keynote at Mining Disrupt Miami, June 24–26, 2024, to walk through three trends his firm was seeing in Bitcoin mining and how an insurer thinks about the risk in each. He said most of the room would already know the topics, but he wanted to give a different twist by looking at the risk components and how to manage them. Bitcoin traded at $61,272 when the session was recorded; it stands at $82,531 today.
The insurer's view: who Evertas is
Shewchuck opened by describing Evertas as the first insurance company solely focused on insuring the crypto industry, covering mining alongside custody, crime, theft, fidelity, exchanges, on-chain risk and DeFi. He said the firm was founded by crypto natives who are key stakeholders in the industries it supports: he mines Bitcoin himself, one founder has been in crypto since 1993, before it was called crypto, and others since around 2010 to 2012.
We don't have any other industries that we support.
Thomas Shewchuck · 1:07
As of the end of 2023, he said, Evertas insured about 25% of the Bitcoin network, and the figure was a little higher by the time of the talk. Mining is not the firm's only focus, but he called it one of its largest product lines and a very large portion of its business, and said the company had been fortunate to grow with the industry.
Solar and wind: the double-edged sword of intermittency
The first trend was the emergence of solar and wind power at mining sites over the preceding nine to twelve months. Shewchuck's point was to understand the risk components at those sites and how to manage them. The first is intermittent supply.
If the wind doesn't blow, the sun doesn't shine, you're not mining, right?
Thomas Shewchuck · 2:49
He told miners to build that into their financial modeling, because it also means a higher potential for downtime. The sites Evertas has underwritten also tend to be in remote parts of the US, around 10 to 15 miles from a local fire department that may not be manned around the clock. Against that, he listed real efficiencies: lower power costs, because a miner acts as an anchor tenant for a producer that wants to sell its power whenever it is generated; carbon credits; a more diversified power mix for operators that are mostly on coal and nuclear; and some good PR.
With fewer risk controls on site, his advice was to go through an insurance broker for peril scoring, where a third-party vendor estimates the odds in any given year of, say, a tornado or straight-line winds of 150 miles an hour, so an operator knows which black swan events it might be facing in a jurisdiction. He also recommended reviewing the business continuity and disaster recovery plan: if a blade on a windmill breaks, how long will it take to get running again, and is that bad enough to justify moving the fleet to another site?
New silicon, old problems: the risk of unproven hardware
The second trend was the retooling of fleets with newer ASICs such as the S21 and S19K Pro, a way to smooth margins after the halving alongside cheaper power. The operational risk, he said, is that these models had not been on the market very long.
You have a smaller sample size of operating time, so you don't necessarily know if they're going to function as well as the manufacturer's specs suggest.
Thomas Shewchuck · 5:24
That small sample size means another potential for downtime and unknown troubleshooting issues. Depending on the repair facility, he said, working those issues out usually takes 8 to 12 months, and that ambient air-cooled, liquid immersion and water-cooled environments each bring different vectors of risk for how machines degrade. The efficiencies are clear to him: better profit margins, lower joules per terahash, fewer ASICs for the same hashrate and so better use of rack space, and easier sourcing of replacement parts than for the S19J Pro era machines that are no longer manufactured.
He also flagged the moving target of unit values. When the S21 and S19K Pro came out, the S19J Pro and earlier generations lost value, and because machines are insured in fiat, operators need to track how those values move as Bitcoin, network hashrate and mining difficulty change.
You should be mindful about how your values are moving through time so that you know how to properly ensure those values.
Thomas Shewchuck · 7:13
His solution was to talk to other industry professionals about how the new machines perform, and in particular to repair shops such as HM Tech and RepairBit, which see the pain points first because the larger miners running the newest machines still need them repaired.
Beyond the US: managing geopolitics and volcanoes
The third trend, which Shewchuck called probably the biggest, was expansion into the Nordic countries and South America, with a massive shift specifically into Paraguay, Iceland and Finland. He said Evertas expected much more percentage growth in mining outside the US than inside it in 2024. The considerations he listed were geopolitical stability, which applies more to South America, a shallower pool of skilled labor such as chip-level repair technicians and people to run a mine that is not staffed around the clock, and a higher frequency of unfamiliar perils.
I don't think it's a secret that bribery is more of a thing down there than it is here.
Thomas Shewchuck · 8:41
Where US operators are used to hurricanes and tornadoes, Paraguay brings mudslides and more flooding, and Iceland a higher frequency of volcanic activity. The draw is lower power costs, which he called the most enticing reason to go, cheaper labor even with a smaller talent pool, and consistent renewable power such as hydro and geothermal. He added heightened counterparty risk and compliance with local regulations and jurisdictional law to the list of things to weigh.
His solutions were direct. Do your KYC and AML and your own research on the people you work with, and where third parties cannot give a definitive answer, talk to people already operating in the jurisdiction about who the good and bad actors are. Understand who owns the power and the substation: a municipality, a government or a private entity. Evertas prefers a municipal or government-owned substation, he said, because it is less likely to be bribed, has fewer fail points and tends to mean less downtime when the grid has a problem. And build a local disaster recovery plan.
It's not as if lava is really going to stop at any given point.
Thomas Shewchuck · 11:48
If a lava flow is heading for a data center in Iceland and there are two days to move, he asked, how will that happen? That means talking to the people operating the mines and the people who own the data centers or the land, and if the answer does not look good, it may be reason to think twice about expanding there. He closed by saying it was great to see the mining community expanding in 2024, that Evertas was growing with it, and that anyone with questions could reach the firm at [email protected].