Source: AFP
Bitcoin miners will soon face a halving of the reward for running the most popular cryptocurrency, in a pivotal event that is a test of survival, industry commentators say.
The halving, which takes place every four years and the next one is expected this month, exposes the weakest mining companies and individuals because it cuts into their main source of income, experts say.
Bitcoin is created as a reward when computers solve complex puzzles to decide which miner wins the privilege of validating the block and receiving the reward, an expensive process that uses enormous amounts of energy.
This reward has been set for the past four years at 6.25 bitcoins per new block and is expected to drop to 3.125 bitcoins later this month. The new bounty will total over $210,000 based on Wednesday’s price level.
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“Reward halving tends to ‘shake up’ weaker mining operations,” Simon Peters, an analyst at trading firm eToro, told AFP.
“Unfortunately for some, with the lower block reward received, it is no longer profitable to mine bitcoins and the operation is shut down or acquired by a larger rival.”
“Downward spiral” for some
Since the last half in May 2020, the digital unit has set a record.
That streak has continued this year, fueled by moves toward greater accessibility to transactions and the impending halving — which aims to limit the number of bitcoins in circulation.
Bitcoin peaked last month at an all-time high of just over $73,797 and that partially offset the looming reward shortfall for the mining community.
However, reduced returns could prevent miners from investing in the latest and fastest computer technology — and could even halt operations as skyrocketing costs outpace profits.
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Peters warned that this could lead to “a downward spiral” for some miners whose operations become uncompetitive.
“The probability of mining a block decreases due to fewer computing resources,” he added.
“If there is a significant drop in the price of bitcoin after the halving, then the lower margins could get significantly worse.”
Bitcoin miner Hut 8 Corp announced in March that it would shut down operations at its facility in Drumheller, Alberta, Canada, partly blaming excessive energy costs.
Race for performance
In order to stay competitive, the titans of the cryptocurrency industry are scrambling to cut costs, invest in efficient machines, and develop cheaper and greener energy sources to cool and power their massive banks of bitcoin mining computers.
“The big things we’ve done is we’ve increased the efficiency of our fleet,” said Taylor Monnig, head of mining operations at CleanSpark.
The US company bought 160,000 new “Bitmain S21” computers, which “are currently the most efficient machines” and will replace older-generation technology, he told AFP.
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CleanSpark has also developed a passive cooling system to further reduce the energy bill.
Canadian competitor Bitfarms claims to derive 80% of its power from hydropower and plans to expand further.
Hydropower is “not only green but also economically viable in terms of its price,” said Bitfarms mining chief Ben Gagnon.
Consolidation
High costs have also fueled consolidation in the industry, with some mining companies buying stakes in rivals — and even merging like when Hut 8 and Bitcoin Corp combined late last year.
The new group, Hut 8 Corp, has mining operations but has also diversified its revenue streams to cover fixed costs by selling services to host and operate mining facilities.
Another industry heavyweight, Marathon Digital, has amassed a war chest totaling $1.5 billion in its most recent accounts to help finance potential acquisitions that need to be spun off to increase capacity.
“We can look at opportunities,” Marathon chief development officer Adam Swick told AFP.
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“If there are sites that are struggling, if there’s a site with attractive electricity pricing that has older generation machinery that might not be as efficient … it might be an opportunity for Marathon to come in, buy the site, and upgrade the machinery . And suddenly it’s an attractive location.”
Source: AFP
