When Bitcoin was introduced, very few individuals understood what it was let alone what it could achieve. Although a few prominent investors were interested, the crash of BTC thanks to the Mt. Gox hack plus the overall levels of uncertainty linked to BTC made investors uncertain and refrained from investing.
However, through the years, more regulators started seeing Bitcoin in a more positive light eventually embracing it, this caused the wheels of fortune to begin turning, and by the time the price of BTC hit the $1000 mark the floodgates had opened, leading to a rush of buying and selling activity. Analysts considered it a bubble, but when the value of Bitcoin crossed the 17,000 marks, it proved many people wrong — the number of transactions being conducted also led to an entirely new employment opportunity.
The concept was quite simple actually, use computing machines to solve mathematical problems and verify transactions and get Bitcoin rewards exchange. As much as the mining process has become more complex the concept has remained the same.
However, here’s the thing, Bitcoin mining, in general, has one massive disadvantage, it’s at the complete mercy of the market. For instance, when the United States Securities and Exchange announced that it wouldn’t be regulating Bitcoin and Ethereum as securities, it was broad expectation that this announcement alone would propel the value of BTC over $10,000 but it didn’t, in fact because of false news, hacks, and speculation the price of Bitcoin kept falling.
It’s hard to accurately predict how the cryptocurrency market will go, leave alone plan for it.
However, what does this mean? Especially for a miner. See if you forecast your profits at a price of let’s say $15,000 and the price falls to $6,000 you might not make quite the loss. These fluctuations have seen the price of BTC reach a new low of just 3,600 (Based on data from CCN) which means for most miners it might not be feasible to actually continue mining because then only losses can be made. And it shows – based on recent data the number of daily BTC transactions has been stagnating, falling up to 5 times lower than Ethereum transactions, it’s a worrying trend.
Miners aren’t the only ones feeling the heat; the big corporation is too. Derived from a recent article by the South China Morning Post (SCMG), a mining platform based in Hong Kong called Suanlitous has had to suspend all mining contracts for users that involved the Antminer T9 because it couldn’t manage the escalating management (i.e. electricity) costs associated with that specific ASIC. Other big-brand companies like Bitmain and Canaan, which also happen to be two of the biggest suppliers of mining rigs, have had to postpone their IPOs because of the prolonged bear market.
Don’t forget rumors on how a change in BTC’s POW algorithm could make Application Specific Integrated Circuits like the Antminer S9 and the Antminer S7 redundant. Although this change hasn’t been implemented, it’s still worrying.
Not Just Reward – Revenues Also Drop
Other than rewards earned in the mining process, miners have also been earning extra revenues from transaction fees, which are the costs associated with joining a mining pool. So, for every reward or payment you receive from the pool, it earns a transaction fee. However, even the more expensive ones like Slushpool or Pool.BTC.com and the cheaper, more affordable ones have suffered the same fate. Based in research from BitInfoCharts the average transaction fees earned in December 2017 was $34, by March 15 this number had dropped to no more than $0.21, this decline can also be blamed on the rise in popularity of mining.
Unfortunately, this price drop has led to speculation that cybercriminals are now running rampant because the dip made mining as a whole seem like a less viable method of getting BTC especially considering the power costs involved. Because they wouldn’t need to expend many resources, these hackers have now turned their attention to fleecing miners who had profited from the price bubble; taking advantage of loopholes in the network to steal another user’s cryptocurrency. Remember Robert Ross, the Silicon Valley executive who lost 1 million dollars’ worth of crypto he was saving to pay for his daughter’s college tuition in a sim swapping hack. These unfortunate incidents have increased in number over the past few months. So as long as chip manufacturers like Nvidia Corporation make advances in computing and keep releasing more affordable technology, it will be much easier for hackers to take advantage of the plummeting bitcoin prices.
What Can We Expect in The Future?
In less than two years, May 27, 2020, to be exact, the price of Bitcoin will be halved – from 12.5 to 6.25 and although the halvening of 2016 is what attributed to Bitcoin’s bull run and the eventual peak of 19,000. Investors and relevant stakeholders are nervous that based on the recent dipping, the halving could lead to a similar situation as the 2012 halvening where Bitcoin fell to under $200. Now to be fair this price did correct itself and eventually skyrocket in record time, it’s still easy to wonder, could this be where the market reaches its equilibrium?
It’s tough to know, but, all of the previous halvenings have impacted the price of BTC either for the better or for, the worse. Luckily the market has always adjusted itself because it had anticipated a supply reduction so by buying more from the market adjusted the price accordingly.
Focusing on Efficiency
There’s a reason China is the biggest crypto-mining hubs, and it’s not just because miners need to send money overseas to avoid oppressive capital controls imposed on them by the Chinese government, it’s also thanks of the widely available and overall cheap power sources found in most parts of the mainland and although the state has started cracking down on a majority of these mining rigs, there’s no doubt.
The key to successful mining lies in how efficient the processes are, this is why even though the prices of BTC have been dropping, there has been an increased hash rate across the board, the speed at which computing can complete operations within the bitcoin code has risen to over 52 quintillion hashes per second, meaning crypto movement can happen more seamlessly.
Moreover, while it makes more sense that higher hash rates should directly translate to higher token costs, this assumption is partly correct.
Even now that value of BTC has plummeted, miners remain confident that shortly the value will appreciate again and are willing to maintain or also ramp up their computing power to collect more and more even if it means operating their pools at a loss.
In order to achieve mass market adoption of crypto in the same manner the internet was adopted, the entire mass market needs to be on board and whether that involves greater regulatory oversight to improve user security and ultimately boost consumer confidence, one thing is sure, If miners can’t find new ways to save on costs and electricity while ultimately increasing the efficiency of their computing, the world will be stuck riding a stagnant wave, one where the entire global economy is still dependent on centralized institutions and corporations, a world Satoshi Nakamoto hoped to do away with. It’s thanks to mining that the world can finally fully embrace the benefits of BTC and decentralized technologies as a whole thus allowing crypto to go mainstream.
With future events such as the halvening leading to a possible reward reduction for miners, ‘old miners’ will be phased out as more efficient miners look to other ways of improving their activities, for example some of them will need to start relocating their resources to unbanked and ‘hyperinflated’ nations like Russia, Georgia, and Venezuela, so as to take advantage of all the benefits some of these countries offer – like more affordable energy options – all while improving both their bottom lines.
Fortunately, though, as computer processing keeps getting faster, chip technologies improve and become more advanced, and hashing power leaves the network – it’s expected that the process of mining a new block will be much more comfortable and if the methods are easier mining won’t need to consume as many resources leading to cheaper management costs, better margins, and a more balanced Network.