Inside Butterfly Labs: The challenges of producing bitcoin mining hardware

CoinDesk's Daniel Cawrey recently visited and toured the facilities at Butterfly Labs, one of the most prominent and written about producers of bitcoin mining technology. In this first part of this series, he reports on how they've tried to manage customer expectations and why they stay away from mining themselves.

“We understand that we didn’t deliver on time, you know? We take responsibility for what we’ve done”. I nod as I’m listening to Jeff Ownby, who is the VP of marketing for Butterfly Labs in the company’s conference room at their headquarters near Kansas City.

Indeed, Butterfly Labs admits that they’ve made mistakes in the past, but they want to move forward and I get the sense that they really want to do right by their customers. “Bitcoin has grown from a forum realm to a business realm," Ownby tells me. "I think we're past the 'BFL is a scam' thing at this point. We're in this for the long haul".

It has been written with a fair amount of frequency that Butterfly Labs had been unable to meet the expectations of its early customers. Indeed, CoinDesk has written about the company with a degree of mystique as its ASIC hardware began to appear. Many of BFL's customers put down a significant amount of money to preorder hardware, expecting to be at the forefront of the ASIC mining revolution.

Butterfly Labs aimed to be one of the first companies to offer ASIC bitcoin mining hardware, but problems with their chip designers resulted in deadlines slipping. In that time, organizations like Avalon were able to ship ASIC hardware and to also supply OEM chips for other manufacturers.

This meant Butterfly Labs received a lot of attention in the bitcoin and mining communities, and much of that has been critical and negative. Some don’t even believe that Butterfly Labs is a real company. But I can tell you, from the moment I contacted them to ultimately seeing their facility, it’s all very real.

The Butterfly Labs HQ is bustling with employees, over 35 of them I'm told. Customer service, assembly and logistics are all run from the facility.

“We’re shipping about 300 units a day, but we’d like to be doing more”, Butterfly Labs Chief Operating Officer Josh Zerlan tells me. We’re standing in the back of their facility in a suburb south of Kansas City. This is the warehouse portion of their headquarters, and it is chock full of boxes from floor to ceiling. A forklift is parked off to the side. The executives tell me that they need more warehouse space, and are thinking about using a tractor-trailer temporarily in one of the cargo bays to make more room.

They share the building with a general contractor company and are currently in talks about possibly taking over and occupying the entire building. It doesn’t take much to realize that this company is outgrowing its office. When you are the first to be commercially selling bitcoin mining hardware to the public, you’d have to be. Bitcoin is getting big, and mining is one of the best ways to get involved.

One of the easier methods of getting in involved in bitcoin mining is to purchase a $274 BFL Jalapeno model, a tiny cubed device that can mine at 5 gigahashes per second. I watched as the entry-level Jalapeno was put together. There was no soldering involved; it was more of an assembly process. The ASIC PCB board was laid down in the chassis first, followed by the heat sink.

Then the fan was put in place, with the wiring snaking around the heat sink. Then a few screws tightened the whole cube into one little box. The components come from all over; from China, Chicago and the west coast, to be assembled and tested in this facility.

The bitcoin network has gone through a hardware evolution. This is going to continue – and more on that in the second piece in this series – but it has moved over the past few years through several different technologies. It used to be that you could use PC CPUs to process the computational problems that are required for the bitcoin network to operate. As well as sophisticated setups with multiple graphics cards, there was also FPGAs that could mine more efficiently.

Today, we’re in the ASIC era. ASIC stands for application-specific integrated circuit. That means Butterfly Labs - among others like Avalon - have developed chips that specifically solve SHA256 cryptographic problems needed for the proof of work to mine new and process existing bitcoins. That’s what their chip was built for, and unlike GPUs, that’s all it does.

Many have said that Butterfly Labs has an interesting business model. It has been pointed out by some people that BFL is selling mining hardware when they could just use their own equipment to mine bitcoins.

But they were clear with me that their goal is to supply the technology, and not to be a mining company. I asked them about their hosting services that they offer for equipment to be stored in datacenters around the Kansas City area for a fee with hardware services provided by BFL. They told me specifically that was all being done by a third-party company in the business of datacenter hosting. They would service warranties and make repairs, but nothing else.

And as for the information that the media was getting special treatment in getting BFL units, I got none as a writer for CoinDesk. When I asked about a 25 G/H Single unit that I had ordered, I was told I’d be waiting, just like everyone else. On a deep level, I felt pretty good that BFL was doing the right thing by getting through their backlog as orders have come in.

We’re in Zerlan, the COO’s office, talking about mining. In the corner behind his chair I see a modified Mini Rig SC top end unit with the chassis split open. It’s emanating some kind of red glow that gives the impression that it is some sort of futuristic mining prototype. I don’t even ask what its for, expecting that information on a machine like that wouldn’t be shared with this writer. I was also afraid that my mind might be bitcoin blown.

Zerlan is flying a small remote controlled helicopter around his office, shooting projectiles from the airborne machine into a wall. He says it’s a gift from one of Butterfly Labs’ customers. I can understand why: once you obtain some of their mining gear and start making some bitcoins, you’re going to be one happy customer. Time can heal the past, and it seems that Butterfly Labs is acutely aware of this.

Up next, part two: How BFL sees the future of ASIC bitcoin mining, how it affects bitcoin price, the arms race between hardware manufacturers, and more exclusive images from inside Butterfly Labs.