Reasons to tokenize solar power plants used for mining
Solar panels are considered one of the solutions to the main problem of mining – high energy consumption. Renewable energy sources make it possible to solve both the issue of energy shortages and environmental problems. However, companies need to raise funding before mining with solar power as the equipment is quite expensive. If you wonder how many solar panels to mine bitcoin you may need, here’s the answer: 30-50 panels depending on your location. But at the stage of getting funding, many nuances arise because the number of investors who can invest in such businesses is limited. Tokenization can come to the rescue. This article will talk about tokenization and how it can help companies engaged in mining with renewable sources.
Is green energy mining promising?
A new trend actively promoted among miners is mining cryptocurrencies using solar power mining farms. This trend arose for three main reasons:
- Reducing the cost of a kilowatt of electricity from renewable sources. The levelized cost of kW is declining while the price of electricity from fossil fuels is rising as energy prices rise.
- Environmental friendliness. Environmental conservation and climate change are directly related to mining due to increased electricity consumption. The use of solar-powered crypto mining rigs allows companies to reduce emissions to zero.
- Fight against Chinese influence. With the transition to renewable energy sources, the share of the hash rate of China, the most significant energy power, is gradually decreasing.
However, solar power mining farms have their nuances. First of all, this is due to low profitability. Equipment for the arrangement of solar power plants is expensive, and the high price increases the payback period. In addition, cryptocurrencies are volatile assets, and their price can rise or fall sharply and almost unpredictably. There is also a mining complexity factor, which also affects profitability. It can change, and its movement is unpredictable. Despite these nuances, the crypto community sees a great prospect in green energy mining.
What challenges do companies face when switching to solar energy for mining?
The decision to switch to solar power alone is not enough. The main problem for companies that want to use this solution for mining is to raise funding. Finding money for such projects can be very difficult indeed.
Traditional investors are highly reluctant to invest in any mining projects. Investors refuse such investments because of too high risks. For example, it is almost impossible to get a loan from an ordinary bank for such a project. The factors of volatility and complexity of mining, the unpredictability of the value of assets, etc., also affect here.
Another problem that companies face when raising funds in the traditional way is the lack of legislation. In many jurisdictions, cryptocurrencies are still not regulated. Accordingly, there are no clear legislative norms for cryptocurrency mining. As a result, it is virtually impossible to raise finance through lending.
Previously, the method of raising funds through ICO was actively used in the crypto community. However, today, in the case of mining, this method cannot be applied. ICO implies the issuance of utility tokens. Such tokens can only be used to obtain privileges on a particular blockchain platform, but not for profit. For example, you can use them to buy any goods at a discount, receive bonuses in games, etc. As a result of mining, a cryptocurrency is produced, which holders can then sell and make a profit. It is impossible to conduct an ICO and issue tokens for a mining company within the legal framework.
What is asset tokenization?
Despite all the difficulties in attracting funding, companies still have options. One of the most suitable methods to finance solar power mining farms is asset tokenization. Tokenization is the process of transferring assets to the blockchain.
Unlike ICO, where a utility token is issued, the company issues security tokens in the case of an STO (security token offering). This type of token allows investors to get ownership of a share in a company, part of its profits, etc. A security token is a digital equivalent of security. With tokenization, a company can guarantee investors the right to receive profit.
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Within tokenization, the company issues a digital analog of shares. Any investor can buy a token, depending on the company’s rules and the specifics of regulation in a particular jurisdiction. Smart contracts guarantee the fulfillment of obligations by both parties.
The holder of security tokens receives certain rights, for example, the right to receive a share of mining income. It will persist as long as the tokens are stored in the investor’s wallet. Also, the token holder can sell their digital assets on the secondary market and get a quick profit.
Benefits of tokenization
Asset tokenization is gradually gaining popularity in many business areas. You can tokenize a wide variety of assets. For example, in addition to the cryptocurrency sphere, security tokens are used to tokenize real estate, the oil and gas industry, art objects, land, precious metals, etc. This technology allows you to get several important advantages at once.
- No problems with regulators. Unlike utility tokens, security tokens are considered securities. Accordingly, they are regulated as shares. This saves the company from possible issues associated with regulation by government agencies.
- Opportunity to attract investment from retail investors. By tokenizing assets, you can sell tokens to private investors from all over the world. Thanks to this, it is possible to expand the circle of investors who want to participate.
- Raising funds despite the risks. Private investors are more willing to invest in high-risk projects than traditional banks or institutional investors. Since mining is a high-risk sphere, this is a very important factor.
- Safety. The technology of smart contracts allows you to control the fulfillment by the parties of their obligations automatically. This reduces the risk of fraud to almost zero.
- Absence of bureaucracy. Launching an STO for a green mining company takes about 3-4 months, and with proper support from consultants, it goes smoothly.
Thus, the tokenization of assets allows solar power mining farms to attract funding. At the same time, due to the ability to attract private investors, companies can raise more funds. Many private investors are willing to add a high-risk asset to their portfolio, especially if its value is relatively low and the potential return is high.
Solar power mining farms are becoming more and more common. This is a promising way to mine cryptocurrencies. However, raising funds to purchase the necessary solar panel mining equipment and expand an existing rig is not easy. Traditional investors, in most cases, are not ready to invest in such projects.
Asset tokenization can be a good way out. This is an opportunity to attract investments from private investors. The company receives the necessary money, and investors receive guarantees of their share of the profits from such mining. Thus, tokenization looks like a promising method of raising funds for businesses operating in this area. If you are interested in tokenization options for your mining business, feel free to contact our experts! We offer a 30-minute complimentary consultation.