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Correspondence

April 3, 2019

VIA EDGAR

United States Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, D.C.  20549

Re:

Riot Blockchain, Inc.

Supplemental Response Letter re Riot Blockchain, Inc.’s Accounting and Financial Practices for Digital Currency Assets

File No. 001-33675

Ladies and Gentlemen:

We are in receipt of your letter dated February 14, 2019 addressed to Riot Blockchain, Inc. (the “Company”) from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”), regarding your review of the above referenced filings of the Company including the current, quarterly, and annual reports of the Company filed with the Commission (collectively, the “Filings”). As a supplement to our responses to those questions raised by the Staff therein, we are filing this communication regarding certain accounting and financial reporting practices and procedures of Riot Blockchain, Inc. (the “Company”).

We have prepared the enclosed supplemental response to address: (i) the Company’s adoption of ASC 606, Revenue Recognition from Contracts with Customers; (ii) the Company’s affirmative commitment to assessing its internal controls with its audit of its financial statements for the year ended December 31, 2018 for revenue recognition from its digital currency mining activities and the effect of its change in its accounting practices therefore on its financial statements; and (iii) a summary of the facts and circumstances affecting such accounting and financial reporting changes.

Accordingly, the Company’s supplementary response contained herein is divided into three parts: (1) the Company’s ASC 606 Scope Analysis; (2) the Company’s affirmative commitment to assessing its internal controls; and (3) a discussion of the Company’s Financial Reporting changes as adopted.

Riot Blockchain, Inc. 202 6th Street, Suite 401 ● Castle Rock, CO  80104 ● Tel. (303) 794 - 2000

PART I.

ADOPTION OF ASC 606, REVENUE FROM CONTRACTS WITH CUSTOMERS

Scope Analysis

In the case of Riot Blockchain, Inc. (“Riot,” or the “Company”), the new revenue standard applies to a contract only if the counterparty to the contract is a customer. ASC 606-10-15-3 provides the following guidance on identifying whether a contract is with a customer:

“A customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. A counterparty to the contract would not be a customer if, for example, the counterparty has contracted with the entity to participate in an activity or process in which the parties to the contract share in the risks and benefits that result from the activity or process (such as developing an asset in a collaboration arrangement) rather than to obtain the output of the entity’s ordinary activities.”

Analysis

The customer here is the mining pool operator (the “mining pool operator”).  In cryptocurrency mining, the mining pool operator using the collective computing resources of the mining pool participants, attempts to be the first to solve a mathematical algorithm that serves to verify individual transactions in exchange for specified consideration paid by the blockchain, to the mining pool operator in cryptocurrency coins.

The mining of cryptocurrency in exchange for consideration involves the delivery of computing power which is an output of the Company’s ordinary business activities.  We have concluded that the mining pool operator would be considered a “customer” - a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration - and so the Company’s transaction verification services fall within the guidance of ASC 606.

Summary of Revenue Recognition Under the New Revenue Standard

The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

·

Step 1: Identify the contract with the customer

·

Step 2: Identify the performance obligations in the contract

·

Step 3: Determine the transaction price

·

Step 4: Allocate the transaction price to the performance obligations in the contract

·

Step 5: Recognize revenue when the company satisfies a performance obligation

Step 1: Identifying the Contract with the Customer

In identifying the contract, ASC 606-10-25-1 requires the following criteria to be met before revenue is recognized:

a.

The parties to the contract have approved the contract (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations.

b.

The entity can identify each party’s rights regarding the goods or services to be transferred.

c.

The entity can identify the payment terms for the goods or services to be transferred.

d.

The contract has commercial substance (that is, the risk, timing, or amount of the entity’s future cash flows is expected to change as a result of the contract).

e.

It is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, an entity shall consider only the customer’s ability and intention to pay that amount of consideration when it is due. The amount of consideration to which the entity will be entitled may be less than the price stated in the contract if the consideration is variable because the entity may offer the customer a price concession (see paragraph 606-10-32-7).

The accounting standard requires that contracts be combined if they are entered into at or near the same time with the same customer (or affiliate of the customer) if they meet the following criteria:

·

The contracts are negotiated as a package with a single commercial objective

·

The amount of consideration to be paid in one contract depends on the price or performance of another contract

·

The goods and services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation

Step 1 also requires determination of the duration of the contract to apply the new revenue standard. Ernst and Young LLP (“EY”) provides the following guidance on that assessment:

“An entity will have to first determine the duration of the contract to apply certain aspects of the revenue model (e.g., identifying performance obligations, determining the transaction price). The duration of a contract is the period in which parties to the contract have present enforceable rights and obligations. An entity cannot simply assume that there are presently enforceable rights and obligations for the entire term stated in the contract. Entities have found that determining contract duration during the implementation process takes longer than expected because they likely have to consider enforceable rights and obligations in individual contracts.

The period in which enforceable rights and obligations exist may be affected by termination provisions in the contract. For example, if a contract includes a substantive termination payment, the duration of the contract should equal the term through which a termination penalty would be due. This could be the stated contractual term or a shorter duration if the termination penalty did not extend to the end of the contract. If an entity concludes that the contract term is less than the stated term because of a termination clause, any termination penalty should be considered in the transaction price. Significant judgment is required to determine whether a termination penalty is substantive, and all facts and circumstances related to the contract must be considered.

Conversely, if a contract with a stated contractual term can be terminated by either party for no consideration at any time, the contract term ends when control of the goods or services already provided transfers to the customer (e.g., a month-to-month service contract), regardless of the contract’s stated contractual term. In these cases, entities also need to consider whether a contract includes a notification or cancellation period (e.g., the contract can be terminated with 90 days’ notice) that would cause the contract term to extend beyond the date when control of the goods or services already provided transferred to the customer.

A customer-only right to terminate should be considered in the same manner as a contract in which both parties have the right to terminate.”

Step 1 Analysis

Based on the facts and circumstances as described above, the delivery of computing power as part of transaction verification services is governed by a written contract with the mining pool operator, executed electronically when the Company signs up on the mining pool operator’s portal. The Company, operating in the mining pool, attempts to be the first to solve the stated algorithm that identifies a block (a verified transaction) in exchange for cryptocurrency coins automatically awarded by the system. As each block is identified a mining pool operator receives the specified cryptocurrency consideration.  The services required by the customer and consideration payable are specified by the terms of the contract between the customer (the mining pool operator) and the service provider (the Company), and collectability of contract consideration is assured.

Based on the facts and circumstances of our relationships with the mining pool operators, we concluded that the contract arises at the point that the Company provides computing power to the mining pool.  While the Company has no obligation to perform and can exit the mining pool at any time, when it does provide computing power it has a right to a share of the consideration received by the mining pool operator, if any, for the proportionate share of the power that it has provided.  The mining pool operator’s payment obligation arises upon the provision of computing power, but such payment is a function of the cryptocurrency received by the pool in a successful transaction verification and block addition.  As such, the pool operator is obligated to pay a portion of the cryptocurrency received from the collective efforts of the mining pool participants to each participant according to their proportionate contribution of computing power to the mining pool in a given successful transaction verification and block addition.

These types of arrangements with a mining pool operator are customary within the cryptocurrency industry, and we concluded that such arrangements meet all of the criteria set forth in 606-10-25-1 to be considered a contract.

Step 2: Identifying Performance Obligations

In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. In identifying the performance obligations in a contract, ASC 606-10-25-14 provides the following guidance:

“At contract inception, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer either:

a.

A good or service (or a bundle of goods or services) that is distinct.

b.

A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (see paragraph 606-10-25-15).

If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.”

Step 2 Analysis

The provision of computing power as part of the mining pool operator’s transaction verification service is the only performance obligation of the Company.  Mining pool participants that are successful in adding a block to the blockchain (by verifying an individual transaction), are automatically awarded by the mining pool operator a number of digital currency tokens for their effort based on their proportionate share of computing power provided to the mining pool in that successful transaction verification and block addition, adjusted for transaction fees.

Step 3: Determine the Transaction Price

The next step is to determine the transaction price. ASC 606-10-32-2 through 32-4 provide the following guidance on determining the transaction price:

ASC 606-10-32-2.

“An entity shall consider the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.”

ASC 606-10-32-3.

“The nature, timing, and amount of consideration promised by a customer affect the estimate of the transaction price. When determining the transaction price, an entity shall consider the effects of all of the following:

a.

Variable consideration (see paragraphs 606-10-32-5 through 32-10 and 606-10-32-14)

b.

Constraining estimates of variable consideration (see paragraphs 606-10-32-11 through 32-13)

c.

The existence of a significant financing component in the contract (see paragraphs 606-10-32-15 through 32-20)

d.

Noncash consideration (see paragraphs 606-10-32-21 through 32-24)

e.

Consideration payable to a customer (see paragraphs 606-10-32-25 through 32-27).”

ASC 606-10-32-5 through 32-7 provide the following guidance on assessing whether the transaction price includes variable consideration:

“If the consideration promised in a contract includes a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer.

An amount of consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items. The promised consideration also can vary if an entity’s entitlement to the consideration is contingent on the occurrence or nonoccurrence of a future event. For example, an amount of consideration would be variable if either a product was sold with a right of return or a fixed amount is promised as a performance bonus on achievement of a specified milestone.

The variability relating to the consideration promised by a customer may be explicitly stated in the contract. In addition to the terms of the contract, the promised consideration is variable if either of the following circumstances exists:

a.

The customer has a valid expectation arising from an entity’s customary business practices, published policies, or specific statements that the entity will accept an amount of consideration that is less than the price stated in the contract. That is, it is expected that the entity will offer a price concession. Depending on the jurisdiction, industry, or customer this offer may be referred to as a discount, rebate, refund, or credit.

b.

Other facts and circumstances indicate that the entity’s intention, when entering into the contract with the customer, is to offer a price concession to the customer.”

With respect to the considerations surrounding constraining estimates of variable consideration, the following guidance is provided:

ASC 660-10-32-11.

“An entity shall include in the transaction price som