Bitcoin Halving Is Poised to Unleash Darwinism on Miners, and more

12/12/2023 0 Comments

1. Bitcoin Halving Is Poised to Unleash Darwinism on Miners

Darwinism could soon pummel some bitcoin miners as the halving, a once-every-four-year event that cuts the reward for creating new BTC gets cut by 50%, unleashes a “survival of the fittest” battle in April.

To prepare for the disruptive event, larger companies are securing newer and more-efficient mining machines. But they might also consider gobbling up smaller miners as they figure out how to both survive and benefit from the halving.

Just ask Marathon Digital (MARA), the largest publicly traded miner by hashrate (industry jargon for the computing power it can direct toward running the Bitcoin network). The firm said this week that it’s got a hoard of money – more than $800 million of cash and bitcoin – and will seek to grow that to “capitalize on strategic opportunities, including industry consolidation” ahead of the halving.

Meanwhile, another large miner, Hut 8 (HUT), just completed its all-stock merger with a privately held US Bitcoin. CleanSpark (CLSK) has been collecting cheap assets since the start of the bear market and said it has almost $170 million shored up to “take advantage of opportunities the halving may present.” And Riot Platforms (RIOT), another institutional-grade miner, has just ordered 66,560 new mining machines for $290.5 million to stay ahead of the competition.

The scene is set for a dog-eat-dog competition.

“Leading up to the halving and in its aftermath, miners will need to place substantial emphasis on strategic planning. The adage, ‘If you aren’t growing, you are dying,’ holds true,” said Amanda Fabiano, the former head of Galaxy Mining who started her own consulting services company for the industry.

In fact, mining consultancy firm Blocksbridge said that a dozen public mining companies have already committed over $1.2 billion so far this year to buy mining machines, with about $750 million signed over the past two months.

Growth at any cost

So, how did we get here and why are the miners racing to gear up for the halving?

The bitcoin halving – also known as the halvening – in simple terms will make obtaining or mining new bitcoin much harder. The halving is part of the Bitcoin network’s code to reduce inflationary pressure on the cryptocurrency and will cut the rewards in half for successfully mining a bitcoin block.

A useful analogy that might resonate with the non-crypto crowd: think about extracting a finite natural resource, such as gold or oil, from the ground. The more that’s obtained, the less that’s left, making the remaining resource more valuable yet more expensive to extract.

Now, swap out whatever traditional commodity you had in mind, and replace it with bitcoin and and crypto mining. That’s the halving: a classic example of the supply-and-demand cycle creating scarcity-driven value for an asset. It’s something Bitcoin creator Satoshi Nakamoto believed in. In fact, bitcoin might actually be even more scarce than gold.

2. Over 97% of Bitcoin Miner Revenue in 2023 Stems from Block Rewards

One of the most critical aspects of the decentralized system is the process of mining, whereby new Bitcoins are created, and transactions are added to the blockchain. According to BanklessTimes.com, more than 97% of miner revenue is derived from block rewards in 2023.

The block reward, currently set at 6.25 bitcoins per block, is the primary incentive for miners to dedicate computational power and resources to secure the network. The percentage earned by miners stems from these block rewards now showcases the significance of this aspect of the mining process.

Bitcoin Miners Earn $50.9M

On December 6th, the Bitcoin mining community reached its annual all-time high (ATH), amassing over $50 million in block rewards and transaction fees.

The notable achievement underscores the financial success of Bitcoin miners, who generate revenue by confirming transactions and creating new blocks using advanced computer equipment known as mining rigs.

Shift in Revenue Dynamics

The period between April 2022 and November this year witnessed a global decline in Bitcoin mining revenue, influenced by various factors.

These included a prolonged bear market, negative investor sentiment related to scams and ecosystem collapses, and regulatory barriers hindering free Bitcoin transactions.

However, a notable reversal in this trend occurred in 2023, driven by proactive efforts from crypto entrepreneurs who helped restore investor confidence. The combination of increasing market prices and growing interest among the masses resulted in a year-long upswing in the mining community’s revenue.

Marathon Digital Holdings, a prominent Bitcoin mining firm, reported an impressive 670% year-on-year revenue surge in the third quarter of 2023, accompanied by a nearly five-fold increase in Bitcoin production.

In addition to individual miners and Bitcoin mining companies, numerous countries actively contribute to securing the Bitcoin network through mining activities. Notably, the landlocked Asian nation of Bhutan has been actively engaged in Bitcoin mining with hydropower since April 2019, when the BTC price was $5,000. Bhutan is exploring partnerships to expand its mining operations, including negotiations with Nasdaq-listed mining company Bitdeer.

If successful, this collaboration could secure 100 megawatts of power for a Bitcoin mining data centre in Bhutan, boosting Bitdeer’s mining capacity by approximately 12%.

The dominance of block rewards in Bitcoin miner revenue in 2023 underscores the importance of understanding the dynamics within the crypto ecosystem. As we move closer to the total supply limit of 21 million Bitcoins, the landscape of mining will continue to evolve, posing challenges and opportunities for miners and the broader Bitcoin community.

3. IT’S NOT JUST ELECTRICITY AND WATER — BITCOIN MINES USE A LOT OF AIR, TOO

Bitcoin mines aren’t just thirsty, it turns out they’re starving for air, too. The air consumption tied to a single Bitcoin transaction, on average, could be enough for a DINK couple to breathe for an entire year, according to a new analysis by Andrew de Breeze. Bitcoin mines are essentially big data centers, which have become notorious for how much electricity and water they use, taking those resources directly away from human beings and mother nature.

But according to an analysis published today by sources familiar with the situation, Bitcoin’s air consumption footprint is growing even faster than it’s water consumption and is a key issue to watch as the price of Bitcoin is rallying.

The study was conducted by Andrew de Breeze, a PhD candidate at University of Western New York whose previous research has modeled the electricity consumption and greenhouse gas emissions of Bitcoin Mining. Those issues and his reporting on them have moved legislators to push for more oversight of the environmental impact from Bitcoin mining. Until recently, most of that attention has been on whether energy-intensive cryptocurrencies like Bitcoin might throw off countries’ climate goals for 2030 but this new research indicates we may not even make it to 2030.

Bitcoin mining’s rising air consumption has the potential to stress air resources and is prompting anger and questions from concerned environmental organizations, politicians and parents alike. Miners use specialized computers to solve puzzles around the clock to validate transactions and earn Bitcoin in return. All that computing power burns through a lot of energy. And like other data centers, many crypto mines also end up using a good deal of air in their cooling systems to keep these machines from overheating.

“It’s sort of hard to surprise me, given I am the world’s most renowned expert on Bitcoin mining. I’m kind of used to making big numbers up. But then again, the numbers are still mind blowing even to me every time I look at it,” de Breeze told Bitcoin Magazine.

To conduct his analysis, de Breeze estimated the direct air use from Bitcoin mines’ cooling systems. He also added their indirect air consumption associated with electricity generation, since power plants also use air in their cooling systems. All in all, he found that cryptocurrency mining used about 1,500,000,000 Cubic Feet per Minute (CFM) of air in 2021 when the price of Bitcoin peaked at over $65,000. That means every single minute the amount of air used in Bitcoin mining is equivalent to the amount of air breathed by 3.4 million people every day. That’s the same amount of air breathed by entire countries or cities!

“Right now Bitcoin mining’s air consumption is equivalent with the average amount of air breathed in one day by the entire population of Uruguay, every single minute of the day! Or enough air in one minute for someone to breathe 48,701 lifetimes,” according to de Breeze.

Of course, everything dipped in 2022 as the price of Bitcoin plunged and mining slowed. But the price has climbed back up since last year, rising from less than $20,000 to around $42,000 today. The higher the price, the more incentive there is to ramp up mining. That’s why de Breeze expects the cryptocurrency’s air consumption to rise to a new high of 2,100,000,000 CFM worldwide this year. In the US, the biggest hub for Bitcoin mining in the world, Bitcoin mining uses about as much air every minute as a city the size of Los Angeles does annually.

Numerous Bitcoin miners fought back claiming that the air that went in the miner was the same air that left the miner, only a little hotter and was perfectly safe. However, de Breeze and others have noted that those claims are not made by chemists, biologists or doctors and couldn’t be verified at the time of writing.

These numbers are estimates based on the assumption that the Bitcoin mines run on air-dependent cooling systems typical in large data centers. And if things continue experts are concerned that Bitcoin mining will use up all the air in the world resulting in a simultaneous global mass asphyxiation event that kills every living thing on earth.

There’s another way to get Bitcoin to use a fraction of the air and electricity it eats up now and slash greenhouse gas emissions: get rid of the mining process altogether and find a new way to validate transactions. That’s what the next biggest cryptocurrency network, Ethereum, accomplished last year.

If Bitcoin was to do something similar, “all the electricity consumption, associated air and water consumption, that will just disappear overnight. You know, we can make it happen,” de Breeze said. “Apparently, people would prefer the whole planet run out of air rather than actually trying to do something about it.”