Bitcoin mining took a big hit in 2018. 

For most of the year, mining activity operated below the threshold for profitability. The biggest name in crypto mining, Bitmain, ended the year by cutting 50% of staff and shelving plans for a stock market launch.

But what will 2019 bring? Will cryptocurrency mining become profitable again? In this article, we present an overview of bitcoin mining for 2019, touching on the biggest trends you need to know if you’re looking to get started.

Is Bitcoin Mining Profitable in a Bear Market? 

The price of bitcoin fell more than 70% in 2018, putting huge pressure on bitcoin miners. Mining profits fell 50% in one month alone (November) with the equivalent of 1.3 million miners going offline.

With cryptocurrency mining currently offering slim or zero economic return, what happens next?

Crypto mining profitability chart
Source: CoinTelegraph

It is definitely more difficult to justify starting a mining operation for most people. However, with fewer miners, there are greater chances to earn mining rewards.

There are a number of tools available that allow you to estimate potential profits or losses (here and here). These can be customized according to factors like crypto prices, electric costs, hardware specs.

Even under poor crypto market conditions, miners could decide to “hodl” any funds earned in hopes of a market turnaround. Clearly, 2019 price trends will go a long way in helping people determine whether or not to mine at all.

Layoffs at Bitmain

Bitmain is the largest cryptocurrency mining company on the planet. It supplies mining hardware and operates various mining pools.

If you’re looking into cryptocurrency mining, you need to know what’s going on at Bitmain.

In December 2018, Bitmain reportedly fired more than 50% of its staff, including its entire Bitcoin Cash (BCH) development team. The combination of huge losses and the major bet on BCH presents big challenges for the company moving forward. US IT firm UnitedCorp sued Bitmain, Kraken, Bitcoin.com, and Roger Ver for allegedly manipulating the BCH network. 

According to numerous reports, Bitmain was unable to liquidate its massive BCH reserves via cryptocurrency exchanges. Moreover, BCH was one of the worst performing cryptocurrencies in 2018. This only exacerbated the struggles of Bitmain. 

The company originally planned to open up a Texas-based data center that would cost $500 million and generate 400 jobs but has decided to put these plans on the backburner. Bitmain has also halted plans for a stock market launch, at least for now. Co-founders Wu Jihan and Zhan Ketuan plan to step down from the CEO position and remain on the board of directors. The likely successor is Wang Haichao, who is currently the product engineering director of Bitmain.

The Rise of Cryptojacking

Cryptojacking is another growing issue in the mining world.

At one point in 2018, cryptojacking replaced ransomware as the most popular form of cyber attack. Essentially, cryptojacking happens whenever person A uses person B’s computing power to mine cryptocurrency without person B knowing about it. In the early days of cryptojacking, it was more difficult to get hacked. This is because doing so required the installation of malicious software on a device.

Now, however, it’s possible to become a victim of cryptojacking just by visiting a website. With options like Coinhive, cryptojacking can be made possible by inserting a snippet of JavaScript code. The rise of cryptojacking presents new challenges for individuals and businesses both involved in the cryptocurrency space and not. Most online threat detection solutions don’t cover cryptojacking protection.

For cybersecurity experts, this has become a new issue to solve moving forward. Some major examples in 2018 included the arrests of 20 individuals in China who allegedly affected over one million computers with cryptojacking software. Additionally, In Japan, 16 individuals were arrested for a Monero (XMR) cryptojacking case.

Lawsuit Against Nvidia

The crypto bear market has weighed heavily on companies that supply chips for cryptocurrency miners. Nvidia, which produces microchips for gaming, AI systems, and crypto mining, had a rocky year in 2018.

In December 2018, Schall Law Firm announced the filing of a lawsuit against Nvidia, for “false and misleading statements to the market”. More specifically, Nvidia allegedly asserted that a decline in demand for GPUs used for cryptocurrency mining would not have a negative impact on the company’s operations or performance due to high demand for GPUs from gamers. 

While the stock market, in general, experienced declines in Q4 2018, Nvidia was hit harder than most. In addition, the timing lines up with its business performance. The day after Nvidia’s Q3 earnings report was released, Nvidia’s stock fell around 19 percent. One commenter said, “Stock went down for external reasons and no stock exchange listed firm can be sued for ‘force majeure’.” Another has said, “Assuming Nvidia made this statement, it could plausibly be grounds for a lawsuit, as it’s clearly in violation of securities rules.” 

No matter whose side you are on in this argument, it’s important to recognize how it could impact the cryptocurrency industry moving forward. What will be the result of this lawsuit? Will Nvidia focus on crypto-specific products moving forward?

Crypto Mining and Gaming: Asus and Quantumcloud 

One emerging trend in the mining community is harnessing the idle power of gaming rigs.

In November 2018, Asus announced a partnership with Quantumcloud. The solution is simple. Currently, there is a major surplus of gamers who use graphics cards only when gaming. For long periods of time, the capabilities of graphics cards are not being utilized. With this partnership, ASUS will allow gamers to be able to make use of idle graphics cards to mine cryptocurrency. There will also be options to cash out earnings through PayPal or WeChat. It’s still unknown which coins will be available as options for cloud mining with Quantumcloud software. We also don’t know if, or how much of the cut from earnings, will go to Asus or Quantumcloud.

Nonetheless, it is cool to see that major tech companies are still working on partnerships that involve the expansion of cryptocurrency mining even in the bear market. Additionally, this could create greater decentralization and egalitarianism to mining operations, and crypto supplies in general, by opening a new potential user base of miners.

The Ongoing ASIC Resistance Battle

ASICs (application specific integrated circuits) are designed specifically for mining cryptocurrencies. The rise of powerful ASICs has made it almost impossible to mine cryptocurrency on a PC or laptop; some crypto projects are fighting back and blocking ASIC mining. 

bitcoin miner

Instead of allowing miners to use ASICS, several projects are developing algorithms to block this possibility. Monero was probably the most well-known case of this in 2018.

Throughout the year, ASIC rigs designed for Ethereum mining started to emerge. In September 2018, it appeared that Ethereum was willing to let this go on without the implementation of a new algorithm in its upcoming release of Ethereum v3.5 (known as Constantinople). This is likely due to the fact that Ethereum is planning to switch from Proof of Work to Proof of Stake, which would eventually make all mining operations, (ASIC, GPU, CPU) obsolete. However, in recent weeks ahead of the January 2019 update, Ethereum developers have begun to implement an ASIC resistant algorithm anyway for Constantinople. 

So where does that leave the cryptocurrency mining community in 2019? There are still a few blockchains which allow ASIC mining to take place. Bitcoin (BTC) is a good example. Additionally, Bitcoin Cash (BCH) mining pools have adopted a protocol known as Asicboost which “can speed up the mining process by a factor of approximately 20 percent by reducing the gate count on mining chips.” 

Essentially, the protocol can be applied to all types of ASIC chips. For now, it appears that the ASIC debate will continue to be relevant throughout 2019 as technologies on both sides become more advanced.

Proof of Stake (PoS) Winning over Proof of Work (PoW)?

If the battle between pro and anti-ASIC sides wasn’t enough to change the landscape of crypto, the decision between PoS and PoW as the go-to consensus algorithm definitely is. As mentioned in our recent Ethereum roadmap article, the world’s second largest cryptocurrency by market cap is moving from PoW to PoS. Along the way, the reduced mining reward from 3 ETH to 2 ETH puts pressure on the miners until the switch to Casper (Ethereum’s PoS). 

The good news is that these changes are planned out pretty far in advance. However, it also presents new big picture questions for crypto projects, miners, and entire communities. If Ethereum’s change is successful in reaching greater scalability and making the network more decentralized, it will be interesting to see which projects follow suit. Ethereum isn’t necessarily a definitive trial test for the capabilities of PoS. 

Other projects (i.e. PIVX, NIX, etc.) have already made this switch in the past. However, none have been completed at this scale or with this degree of attention from the industry. It could ultimately lead to less reliance on PoW and mining. However, at the beginning of 2019, that is still yet to be determined. 

Top Mining Tech Trends to Watch in 2019

FPGA (Field-programmable gate array): In 2018, we saw the clear advantages of new types of mining equipment. As detailed above, ASICs demonstrated the capabilities of faster hash rates. However, they lack versatility and can’t be programmed to keep up with algorithm changes. Meanwhile, GPUs are much slower but a bit more versatile for mining various coins.

Now, FPGAs could emerge and offer a solution that is the best of both worlds. For instance, some FPGAs are 10x the speed of GPUs and can quickly change to different algorithms. Additionally, they are designed to use less electricity to run. 

As of the beginning of 2019, FPGAs have yet to gain user adoption despite being around since the early 2010s. This is mostly due to factors like high price points ($4,000 per card, or $25,000 – $30,000 per rig) and highly technical configuration requirements. Still, it would be interesting to see if new tech will emerge to make FPGAs more accessible to the average miner.

Mobile Mining: There are a few different mobile mining solutions available in 2019. DroidMiner BTC/LTC/DOGE Miner and Electroneum are two such examples for Android devices. Free Bitcoin is an option available for both Android and iOS. However, there is a clear lack of options for iOS and viable apps overall. 

The power of mobile devices simply hasn’t been enough to compete with dedicated mining rigs. Moreover, this type of mining would likely cause you to need to constantly replace mobile phone batteries. As a result, any profits are likely to turn to losses in a short amount of time. Still, it will be interesting to see if or how mobile mining can become more innovative moving forward. 

Conclusion

In summary, cryptocurrency mining operations continue to change along with the overall market. The struggle of everyone from small miners to large-scale enterprises in the past year is evident. However, the fact remains that crypto mining plays an important role in the validation of transactions for the vast majority of blockchains. Along with numerous challenges for miners, it’s also possible to find opportunities that could lead to more innovation.

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Mining crypto currency. Farm for mining bitcoins. Vector flat illustration

A new study by cryptocurrency exchange BitMex reveals that bitcoin mining revenues fell by more than half in November.

At the beginning of the month, daily mining revenues were at $13 million. By the end of the month, that figure had fallen to just $6 million. The news comes after the bitcoin price collapsed by 36% in November.

The fall in prices means a lower incentive for miners, who are rewarded with bitcoin for keeping the system running.

The BitMex study also noted a 13% reduction in hash rate (a measure of computer power dedicated to the bitcoin blockchain). That’s the equivalent of 1.3 million Bitmain S9 miners going offline.

bitcoin hashrate
Bitcoin hash rate 2018

The Good News

With miners switching off their machines, there’s less competition. It should, theoretically, become more profitable to mine bitcoin with fewer miners competing on the network.

We have also just seen two major shifts in bitcoin “difficulty.” The Bitcoin algorithm is designed to readjust itself every two weeks (roughly) to compensate for the volume of miners. 

The difficulty fell 7.4% on 16th November and 15.1% on 3rd December. These adjustments make it easier to mine bitcoin, thereby re-incentivizing miners.

Further reading: What is Proof of Work? – The Bitcoin Algorithm

Should We Worry?

Probably not. The fall in revenue is likely to knock out miners in regions where electricity is expensive. However, there are plenty of places around the world where mining is more affordable thanks to low energy prices.

We should also point out that most miners adopt a long-term strategy. As blockchain expert Andreas Antonopoulos explains: 

“Miners have a much more long-term perspective, meaning that they have existing investments in equipment and they usually purchase electricity on long-term plans, they don’t pay it by the week. And therefore, if they have to wait to become profitable another three months and they have the equipment in place, they’re not turning it off.”

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Bitcoin death spiral

A version of this article first appeared in our exclusive newsletter. If you’d like Block Explorer’s cutting-edge analysis before it hits our website, sign up now.

Sigh.

Another day, another slew of negative, fear-inducing, factually-inaccurate cryptocurrency reporting in the mainstream media.

The focus of my wrath is this article in Market Watch, titled Bitcoin is Close to Becoming Worthless.

Written by a professor of finance, it carries some weight.

But it’s also wrong on many technical levels.

The author’s basic claim is this:

With the price of bitcoin dropping, bitcoin mining has now become unprofitable.

If mining produces no profits, he says, miners will abandon the network. It will grind to a halt and bitcoin will become worthless. This phenomenon is known as the “bitcoin death spiral.”

Here’s why he’s wrong…

It’s true that bitcoin mining is currently unprofitable (we reported as much recently). However, the Bitcoin system is designed to adapt and morph to account for this.

It does so by altering the “difficulty” of mining.

This gets a little technical but bear with me.

Bitcoin Mining Background

In very simple terms, bitcoin miners process transactions in “blocks” by using extensive computer power.

That computer power directed towards the Bitcoin network is known as hash power. When lots of miners are working on the network, the hash rate goes up.

One Block Every Ten Minutes

The system is designed to produce one block every ten minutes.

Everything else being equal, if miners throw more computer power at the network, blocks will be produced faster. 

Too fast, actually. Miners get a reward (in bitcoin) for every block they produce. If blocks are produced too quickly, too much bitcoin is released.

That’s where the self-adjusting algorithm comes in.

When hash power is high, the algorithm automatically adjusts to make it more difficult to mine a block, slowing down production to meet the ten-minute block target.

The Problem Today

The problem we face currently is that miners are leaving the network. Some mining facilities are closing and throwing away equipment.

Hash power on the network is now lower, but the difficulty remains somewhat high.

In other words, the remaining miners have to work incredibly hard (using much more computer power) to produce the same block – hence the lack of profitability.

The “Difficulty” Just Readjusted

But it works both ways. With fewer miners contributing hash power, the algorithm will automatically adjust to make it easier and ultimately return to profitability.

That readjustment happened this week, with Bitcoin’s difficulty dropping 15%. 

Every Two Weeks

Bitcoin’s difficulty is set to re-adjust after every 2016 blocks (roughly every two weeks).

The “death spiral” is only possible if block production slows down so much that we don’t make it to the next difficulty adjustment.

Worst Case Scenario

If that reality plays out, there’s another option.

Bitcoin could execute a “hard fork” and form a new blockchain where the difficulty is lower.

Still confused? This tweet from Nic Carter sums it up quite neatly.

pastedGraphic.png

As blockchain expert Andreas Antonopoulos explains: “The chances of [a death spiral] actually happening are pretty low. The chances of it happening and nobody doing anything to fix it is near zero.”

So, as usual, the mainstream and financial media are blowing things out of proportion without explaining the full picture or technical background of bitcoin. 

Intrigued? Here are some more resources:

Proof of Work Explained: How Cryptocurrencies Keep Block Production in Check (Block Explorer)

Bitcoin Difficulty Targeting and the “Death Spiral” (Andreas Antonopoulos video)

A version of this article first appeared in our exclusive newsletter. If you’d like Block Explorer’s cutting-edge analysis before it hits our website, sign up now.

bitcoin mining energy consumption

It’s a tough time to launch bitcoin mining hardware. As Block Explorer recently reported, bitcoin mining profits turned negative earlier this year. Not only that, but pressure is building over the energy consumption and environmental impact of bitcoin mining.

But that hasn’t stopped Bitmain, the world’s largest bitcoin mining company, from building the next-generation mining equipment.

Bitmain’s new ASIC miners are set to launch Thursday 8th November, but will they reduce energy consumption?

ASIC explained: ASIC miners, or Application Specific Integrated Circuits, are super-powerful processing chips that focus on just one task, in this case, cryptocurrency mining. They are different to normal graphics cards or computer chips which are multi-purpose.

Everything we know about the new Bitmain ASIC Miners

Bitmain is launching two new devices on Thursday: the S15 and T15

Specific details, however, are sparse. We don’t yet know the price, features, or specs of the two devices.

Bitmain has only eluded to the launch via a tweet and empty product pages

Will the new Bitmain Miner Reduce Energy Consumption?

Bitmain’s co-founder and CEO Jihan Wu revealed some information about the forthcoming technology in a speech in September.

He suggested the new miners would “achieve a ratio of energy consumption to mining capacity that is as low as 42J/TH.”

To put that in perspective, Bitmain’s current top-of-the-range miner (Antminer-S9) runs at 96J/TH. In other words, the new miners are significantly more energy efficient than its predecessors.

The current Bitmain Antminer S9

Environmental Impact of Bitcoin Mining

The news comes in the same week as a new research paper which claims bitcoin mining is three-times as expensive as mining the same value of gold.

A further study suggests bitcoin mining consumes the equivalent amount of energy as the entire country of Austria.

The new Bitmain miners may go a small way to lowering the very real impact of bitcoin mining on the world around us. 

7nm Chip Technology

The extra efficiency comes from Bitmain’s new 7nm chip technology. As explained by Jihan Wu, the 7nm Finfet technology is more powerful and more efficient than before. With “more than a billion transistors,” it ushers in a “new era of high-efficiency.”

Of course, nothing is confirmed until Bitmain reveals the full specifications of the new models. Expect more details when the miners are made available for purchase tomorrow.

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China destroy bitcoin

Welcome to the weekend, folks. Grab a coffee and let’s recap the biggest news stories of the week in cryptocurrency and blockchain.

China Has “Capability” and “Motive” to Destroy Bitcoin, According to Report

A new report this week claims China could destroy Bitcoin. The report, authored by researchers at Princeton University and Florida International University outlines 19 different ways China could attack the Bitcoin network.

Is it based in truth?

Theoretically, yes. The report points to the fact that 74% of Bitcoin mining hash power comes from China. And five of the six largest Bitcoin mining pools are located in the country.

bitcoin mining pools

If those mining pools collectively orchestrated a 51% attack, they would control the network, and bring it down if they wish.

However, it’s important to point out that the Chinese government doesn’t own these mining pools. And the mining pools themselves have little incentive to execute a 51% attack (it would kill the value of bitcoin, making their efforts worthless).

What is concerning is the level of Bitcoin centralization in China.

The report goes on to explain how China’s “Great Firewall” appears to give Chinese miners an advantage. It slows down miners outside China and incentivizes those within the firewall to generate “empty blocks” (the blocks contain no transactions, but the miner receives a bitcoin reward anyway).

This, coupled with cheap electricity in China, is centralizing mining power in one country. And that’s a problem.

Note: the report in question has not yet been peer-reviewed.

Venezuela Is Forcing Citizens to Use Its Controversial Cryptocurrency to Buy Passports

As Venezuela’s fiat currency, the bolivar, soars towards 1,000,000% inflation, the government is putting its faith in a state cryptocurrency, petro.

Venezuela petro cryptocurrency

The petro was created by the Venezuelan government and its value is backed by the country’s oil price to keep it stable. Citizens are now required to pay for passports and renewals using only the petro cryptocurrency.

But the petro isn’t without controversy. Its creators have been accused of ripping off the Dash whitepaper. The US government has also accused Venezuela of using the petro to defraud investors, and critics say the petro pre-sale didn’t generate nearly as much as the Venezuelan government claims.

Cryptocurrencies Pose No Risk to Global Financial Stability

In somewhat brighter news, a report this week concluded that cryptocurrencies are not a risk to the global financial system.

The report carries some weight. It was released by the Financial Stability Board and is backed by the Bank for International Settlements, the world’s oldest financial institution.

However, it does go on to say there may be a tipping point in the future.

If they continue to grow, the report claims, cryptocurrencies may one day pose a threat to the reputation of current banks and financial systems. There may be a risk of exposure if traditional banks adopt crypto on a wider scale.

And there may be risky consequences if bitcoin or other cryptocurrencies become a common payment method.

Price News

The cryptocurrency market suffered an epic $16 billion wipeout on Thursday. It took place in just a few hours, dragging bitcoin down 4%.

bitcoin price
Chart: Coinmarketcap.com

As usual, altcoins bore the worst of the fall. Ethereum, XRP, and others fell in the region of 10%.

That’s all for this week. We’ll be back bright and early on Monday.

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