DHI confirms that it is mining Digital Assets

In mid-April the Forbes Magazine published an article about Druk Holding and Investments (DHI) borrowing millions of dollars in digital assets from two bankrupt crypto currency lenders BlockFi and Celsius.  The bankruptcy declarations of these two firms had lead to the public declaration of the transaction records which the magazine accessed, and then did its article.

The article brought an international spot light on Bhutan’s relatively unknown involvement with digital assets through its investment arm DHI, and domestically it raised speculation on if DHI had lost a lot of money due to some speculative buying and trading of digital assets, and also due to the bankruptcy of the two lenders.

The truth, however, is bigger and more interesting than that.

Mining digital assets and no money lost

The DHI led by its CEO Ujjwal Deep Dahal finally came out of the digital assets closet, and said that the company as one of its many diversified portfolios is also engaged in mining digital assets within Bhutan.

The overwhelming focus of the mining is on the higher profile and safer digital asset of Bitcoin (BTC) with a much smaller provision kept for mining Ethereum.

DHI entered the mining space a few years ago as one of the early entrants when the price of Bitcoin was around USD 5,000.

When asked about the borrowings from BlockFi and Celsius the DHI CEO said that Bhutan had borrowed some digital assets as a loan to make certain investments and everything has been paid back and settled with no dues.

It was clarified that firstly DHI did not lose money in the borrowing of the digital assets if one compared it to the cost of digital asset mining in Bhutan, and secondly even if there were a spate of international bankruptcies among companies lending or trading in digital assets, DHI had not deposited the mined digital assets anywhere risky to lose them.

Bhutan suited for green mining that pays for itself

If one thinks of it really, then Bhutan is perfectly set up to mine digital assets. For the country’s size, it has vast amounts of green energy generated through run-of-the river hydro projects and more importantly it is cheap.

Then the country’s high mountain passes or mountains provides the perfect naturally air-conditioned places to set up digital asset mining operations which otherwise would consume a lot of power for air conditioning in warmer places.

These are effectively green crypto mines with no carbon footprint given its green energy source.

The other important question is how is DHI paying for all this when it is well known that mining is not cheap.

Here the DHI assured that the project is essentially paying for itself. An example of this is that Bitcoins are sold to come up with money to pay for electric bills and the money is also used to pay for the many computers required for the mining operations.

Bhutan is basically selling digital assets to run the operations and then it is keeping back some for the long run when its value is expected to go up especially after the halving of Bitcoin in 2024 when the the block reward will decrease from 6.25 to 3.125 bitcoins per block mined.

No diversion of power

The next question would be on if electricity from Bhutan’s hydro projects are being prioritized to the mining operations over the requirements of local industries and the private sector.

Here DHI clarified that the priority of power supply is for domestic consumption, local industries and private sector and in fact mining gets the last priority.

In fact, in the winter months when hydropower production is low then the mining operation either shuts down its machines or even imports power if it is affordable in order to not disrupt the domestic consumers and industries.

Beyond digital assets and managing risks

Another question propping up is if DHI is focusing more on digital assets and also the risks involved with that.

Here, the DHI said that as the investment arm of the Royal Government of Bhutan, it has the sole objective of bettering the lives of the Bhutanese people today and achieving a secure future for generations to follow.

To deliver on this goal, DHI said a team of investment professionals manages a diversified investment portfolio which holds assets across a variety of local and global asset classes and investment themes.

“Our portfolio contains investments across a range of asset classes that deliver exposure to traditional sectors and the industries driving the modern economy. This includes global equities, fixed income and venture capital investments in promising startups; domestic and international real estate; renewable energy including hydropower generation; healthtech, biotech, life sciences and agritech; and digital asset mining and investment,” said a statement from DHI.

In terms of the risk management the view within DHI is that like in any business a certain amount of risk is involved, but for Bhutan the risk is already mitigated to a large extent as DHI is not buying and selling digital currency, but is mining mainly Bitcoin at a relatively low cost using green energy.

The DHI said that it utilizes legitimate and the best of Know Your Customer (KYC) exchanges around the world in whatever investment it does and in addition to building a domestic team it talks to best in the world in this space not only for mining and digital assets, but for other technologies and economic growth fuelled by technology. The DHI said it is not a fear of missing out (FOMO) investment but one meant to adopt a technology and benefit from it rather than coming in at the tail end. 

A DHI official said that now increasingly traditional international banks are also getting into digital assets and places like Europe, Dubai, Singapore and Hong Kong are coming up with regulations for crypto currency.

Currently the leading digital assets mining in the world is happening in the USA.

The Fourth Industrial Revolution in Bhutan

DHI also stressed that this focus on technology is not just for digital assets but to invest in the whole spectrum of technology for economic growth and enhancing the lives of ordinary Bhutanese.

DHI said its future-facing investment strategy is helping to build a more connected and sustainable Bhutan by deepening local knowledge and engagement in the rapidly evolving technology landscape.

“At the same time, we are fostering relevant human capital for industries of the future, ensuring our citizens are equipped to participate in the modern global economy from within Bhutan. For example, DHI’s investment in building the world’s first Self-Sovereign National Digital Identity platform, which was designed and built locally, represents a significant step in the country’s ongoing digital transformation. Such investments will ensure Bhutan is at the forefront of global innovation,” said DHI.

The National Digital ID itself works on block chain technology.

It said going forward, DHI will continue to prudently manage its portfolio with a view to steadily generating positive, long-term returns across traditional equity and fixed income assets; strategic investments such as renewable energy assets to advance Bhutan’s commitment to sustainability; and emerging technologies such as blockchain, artificial intelligence and machine learning systems, carbon credit platforms and the metaverse

Does Bhutan really have another choice?

It has been around five decades since Bhutan has been trying to achieve economic self-sufficiency and Bhutan has tried everything possible like agricultural development, industries, tourism, construction, hydropower, mines etc but given the inherent disadvantages of Bhutan with its small size, small population, mountainous geography, limited arable land, and landlocked nature none of the above could really make Bhutan economically self-sufficient.

This economic stagnation is the biggest reason why Bhutan is seeing an unprecedented migration of young Bhutanese and professionals to mainly Australia and also increasingly to Canada and the UK.

However, the benefits of the fourth industrial revolution are what Bhutan could really exploit as technology does not require a country to have a large population, large size, have sea ports and even a major traditional economy.

This maybe the first bold effort or experiment of its kind where a Least Developed Country with major developmental disadvantages aims to leap frog into the future using the fourth industrial revolution.

What is digital asset mining (Bitcoin in this case)

Many Bhutanese will not be familiar with digital assets or mining.

In the normal Financial world when a Bhutanese buys something in the market from a shop using his or her phone then the money is transferred electronically to the account of the shopkeeper and not actual cash.

The bank becomes the middleman as the digital transaction is recorded in the ledger of the bank’s computers.

When it comes to digital currency or assets there is no middleman or bank in between. Digital assets like Bitcoin firstly gains the acceptability of a number of users to accept a digital asset among themselves as a store of value and exchange almost like a digital cash or gold.

An important condition here for a digital asset like Bitcoin apart from acceptability is scarcity as the online system is set up in such a way that only a certain number of these digital assets can be generated after solving increasingly complex and cryptographic (encrypted) algorithmic math problems that requires a lot of computing power and hence the mining.

The way mining works is that all Bitcoin transactions are broadcast publicly to the network to ensure transparency. Then the computers used by the miners compile all these transactions into one group which forms a block. The block becomes official when five other blocks that have been mined after it refer back to it in a sequence. With Bitcoin a new block is mined around every 10 minutes.

The Cryptographic technique of hashing (a form of code that cannot be decrypted) comes in when the new block has to refer to the earlier block within the blockchain by containing a hash of that block to confirm that block before is correct and acceptable to the larger network and also came before it.

This blockchain then becomes the official record of all the transactions in the network in proper order.

Mining is not for everybody as Bitcoin makes it difficult and also costly to do verifications to form blocks.

According to Matt Levine of Bloomberg, for a miner to mine a block it has to take a summary of the list of transactions in the block, a hash of the previous block and then stick an arbitrary guessing number called ‘nonce’ at the end and then it is run through the SHA-256 hashing algorithm. It takes trillions of calculations to guess the correct nonce to generate the right 64-digit code called a hexadecimal number which is when the miner has mined the block.

The reward for mining or creating blocks is getting a limited numbers of Bitcoins which becomes even more difficult to get when there are more miners.

As more people mine the same asset then the difficulty rate of mining increases and lesser rewards are distributed to the miners as the number of the asset is fixed.

This scarcity coupled with its security also makes it a store of value.

Another underlying idea behind digital assets is that when it comes to legal currency backed by governments their value drops over time as central banks print more and more money, but this is not the case with a digital asset like Bitcoin as its very design and system makes them difficult to produce.

Security is another aspect as it is not just one or two banks who monitor the transactions and validate them but in the case of digital assets this is done by tens of thousands of computer nodes across the world and the transactions and values are stored on all computers ensuring everyone has a digital ledger.

This is why the world currently does not have the computing power to hack and disrupt digital assets like Bitcoin as the hacker would have to simultaneously hack tens of thousands of devices and more which is not possible. 

The blockchain technology itself that is behind digital assets can be applied to numerous other fields.

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