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.
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.
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.
“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.”
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.
We are officially announcing the release of our new 7nm miners which possess industry-leading hash rates designed to mine with the SHA256 algorithm. Two models will be offered, the Antminer S15 and T15. Available for purchase on 11/8. pic.twitter.com/m6HbWGZS1O
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.
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.
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).
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.
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.
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.
The cryptocurrency market suffered an epic $16 billion wipeout on Thursday. It took place in just a few hours, dragging bitcoin down 4%.
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.
To come up with its $7,300 figure, Fundstrat takes into account a $4,000 energy fee (at $0.06 kW/h) and $3,300 for equipment, wear-and-tear and other overheads.
So what makes bitcoin mining currently so unprofitable?
More Mining Competition Than Ever
Despite the bitcoin bear market, mining activity is stronger than ever. Bitcoin’s hash power has doubled since May, which means more and more miners are competing to generate Bitcoin blocks.
Hash rate explained: In order to generate a bitcoin block, miners compete to solve mathematical puzzles. The first to solve the puzzle with computational power generates the block and receives the bitcoin reward. The total number of attempts to solve the puzzle per second is called hash rate. The more miners working to solve the puzzle, the higher the hash rate.
The hash rate hit a record high in August. In other words, there are more miners working to generate bitcoin blocks than ever before.
More competition means each miner requires more energy and computer power to generate a bitcoin block.
Energy Rates are Choking Mining Profits
Because miners need more and more energy to compete, electricity prices are choking their profits.
Diar estimates that anyone paying a retail energy price of $0.10 kW/h can no longer make a profit on bitcoin mining.
Add that to overhead costs such as equipment, rent, and salaries, and you begin to see why profits are declining.
It’s no surprise that 81% of bitcoin’s hashing power originates in China. That’s because energy rates are relatively lower – an average of $0.08 kW/h at retail price.
Bitcoin Mining: Dominated by “Deep Pockets”
Energy prices are even lower when bought at wholesale prices, which only large mining pools can afford to do.
In other words, the dominance in bitcoin mining will shift more and more towards big companies like Bitmain. Bitmain owns two of the largest bitcoin mining pools and commands up to 75% of the world market for mining equipment.
With bitcoin prices in a bear market, hash rates at a record high, and fierce competition, miners are increasingly incentivized to join larger mining pools.
And here’s where it interesting. The vast majority of Bitmain’s revenue comes from selling mining equipment (95%). So it’s in Bitmain’s interest to keep bitcoin mining profitable for its miners, wherever they are in the world.
Since Bitmain can purchase cheap energy wholesale in China, where it owns 11 giant mining facilities, it can offset the more expensive mining costs in, say, the US. Bitmain can therefore lure miners to a larger pool by offering more security.
Big Companies Can Afford to Take a Short-Term Hit
The profitability issue is also linked to the fact that bitcoin is at a significantly lower price today than it was in January, offering a lower return. Companies like Bitmain can afford to play the long game, betting on higher profitability when the crypto market turns around.
By that point, Bitmain will have swallowed up more miners and increased its market share.
This all means that power, dominance, and control over bitcoin mining will shift yet further to just small group of mining pools.