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BT Daily News: Bitcoin Hashrate Hits 300 EH/s Mark as Industry Gets Some Breathing Room


1. Bitcoin Hashrate Hits 300 EH/s Mark as Industry Gets Some Breathing Room

Computing power on the bitcoin network, or hashrate, reached 300.65 exahash per second (EH/s) Wednesday as miners got some breathing room amid a bitcoin price rebound and a decline in energy prices.

The hashrate gained 100 EH/s within around one year, twice as fast as it went from 100 EH/s to 200 EH/s, data from Luxor Technologies shows. “It is a strong testimony of how institutionalized the industry has become,” said Wolfie Zhao, head of research at TheMinerMag.

Starting in late 2021, mining firms took out big loans to build out mining capacity. This hypercharged the development of new mining sites and the hashrate quickly climbed. However, the economics of mining also deteriorated significantly due to the increased competition and, later, the bear market – sending some of the industry’s biggest companies to bankruptcy court.

In the last few weeks, the economics of mining have improved, along with the price of bitcoin. The hashprice, a measure of mining profitability, bounced back to over $70 per petahash/second (PH/s) from below $60/PH/s at the end of 2022.

With profitability on the horizon, miners – including those with less efficient setups – have plugged back in machines they took down to deal with the market headwinds.

At an electricity cost of 6 cents per kilowatt hour (kWh), “equipment with an efficiency of 50J/TH is now profitable whereas a month ago, equipment with an efficiency of 40J/TH could barely generate any meaningful profit,” Zhao said.

Legacy commitments” and increased deployment of newer, more efficient and powerful machines account for the growth of the network, wrote analysts from investment bank B. Riley in a note to investors on Jan. 31.

But the turbo-growth of 2022 will not be repeated: The overall deterioration in mining economics will stunt the rate of hashrate growth in the next year, analysts said.

While it took less than one year for the Bitcoin hashrate to grow from 200 to 300 EH/s, we will likely have to wait considerably longer until it breaks 400 EH/s. I'm confident we will end 2023 at below 350 EH/s, as the poor mining economics of 2022 didn't incentivize new investments,” Jaran Mellerud, analyst at mining services Luxor Technologies, said.

D.A. Davidson analyst Chris Brendler said that, given current bitcoin prices, the network growth is “here to stay” in a Jan. 31 note to investors. That’s due to a recent drop in the price of natural gas, which means lower power prices for miners. The analyst predicts the hashrate will reach 363 EH/s by the end of 2023.

2. Bitcoin Miner Iris Energy Expands Data Center to Triple Hash Rate

After facing a massive debt crunch in November, Iris Energy announced on Monday that its hash rate is recovering to pre-FTX levels.

Over the coming months, the Bitcoin mining firm’s self-mining capacity is slated to increase from 2.0 exahashes per second (EH/s) to 5.5 EH/s. One exahash equals one quintillion hashes—proposed answers to the complex math problems required to mine Bitcoin blocks.

Iris Energy has successfully utilized remaining prepayments of US$67 million under its 10 EH/s contract with Bitmain...  to acquire 4.4 EH/s of new S19j Pro miners without any additional cash outlay,” stated the company.

Bitmain is the manufacturer of Antminer cryptocurrency mining servers.

The hash rate increase more than compensates for the company’s 3.6 EH/s loss in November, when it was forced to unplug a swath of mining machines used as collateral for $103 million in loans from creditors.

Like many mining firms at the time, a combination of rising energy costs and Bitcoin’s descending price left it unable to produce enough cash flow to cover its debts. North America’s largest Bitcoin mining facility Core Scientific filed for bankruptcy in December, while Argo Blockchain’s Bitcoin production that month was crippled by a winter storm surrounding its Texas facility.

However, Iris now states that its existing obligations under its 10 EH/s contract with Bitmain are now “fully resolved,” and that the firm is now “debt free.”

To raise further funds, Iris is also considering selling any surplus miners that bring it beyond 5.5 EH/s in mining capacity. This will be reinvested into “growth initiatives and/or corporate purposes.”

The self-mining fleet is expected to generate greater revenue than a third-party hosting alternative, whereby external buyers rent Argo’s mining machines for profit-sharing purposes.

We would like to thank Bitmain for their ongoing support and partnership, particularly during a challenging period for both the industry and markets more generally,” said Daniel Roberts, Iris Energy’s Co-Founder & Co-CEO.

According to analysis from Glassnode, Bitcoin’s return above $20,000 in January brought the average Bitcoin miner back into a position of profit, despite the related costs of running a mining machine.

3. Bitcoin miners already made nearly $600K from Ordinals’ NFT transactions

Bitcoin miners have earned nearly $600,000 in two months from a new controversial nonfungible token (NFT) protocol called Ordinals that has triggered a surge in user activity.

What are Bitcoin Ordinals?
Ordinals allow users to inscribe data in images and other media types in newly mined blocks on the blockchain that is otherwise largely used for peer-to-peer (P2P) monetary transactions.

Since the launch of Ordinals in mid-December 2022, users have inscribed nearly 74,000 NFTs into the Bitcoin blockchain, earning miners a cumulative $574,000 in BTC transaction fees to date, data from Dune Analytics shows.

These NFTs include “digital artifacts” stemming from clones of projects like CryptoPunks and the Bored Ape Yacht Club collection.

Rising demand for Bitcoin block space
The Ordinals protocol was made possible by Segregated Witness (SegWit) and Taproot, Bitcoin’s network soft fork upgrades from 2017 and 2021, respectively.

For instance, the SegWit update effectively increased Bitcoin’s block capacity to four megabytes (4 MB).

Similarly, the Taproot update helps batch and verify multiple transactions together as long as their size does not exceed 4 MB. This feature allows the inscription of data, such as images and videos, in Bitcoin blocks.

The advent of Ordinals has coincided with Bitcoin’s mean block size jumping from its typical average of 1.5–2 MB to between three and 3.5 MB in early February.

Simultaneously, the number of pending SegWit and non-SegWit blocks in the Bitcoin mempool has also increased significantly — the highest since the FTX collapse, as shown below.

On some occasions, Ordinals’ data has been comprising over 50% of Bitcoin block space, according to BitMEX Research.

This describes a growth in the user base and an upwards pressure on the fee market from usage beyond the typical investment and monetary transfer use cases,” noted Glassnode in its weekly report, adding:
  • Ordinals are a new frontier [...] to observe how it affects and manifests in both on-chain network and investor behavior.“
Ordinals: BTC miners’ new revenue stream?
Bitcoin miners generate most of their revenue from the network’s block subsidies, i.e., finding or “mining” new blocks. By comparison, the share of miners’ earnings from transaction fees is only about 3%.

Currently, the Bitcoin network rewards miners with 6.25 BTC per block. But this subsidy will drop by 50% to 3.125 BTC in spring 2024 in a halving event, which happens every four years. As a result, the share of miners’ revenue from transaction fees is expected to rise over time as block rewards decrease.

To some, Ordinals introduce what’s called miner extractable value, or MEV, which has been previously associated with mining on Ethereum.

Simply put, MEV is the maximum value that miners can obtain from producing new blocks beyond the block rewards and transaction fees.

Critics, however, argue that Ordinals is an “attack” that will price out the real financial activity and thus damage Bitcoin’s image as a reliable P2P payments network.

Bitcoin is designed to be censor resistant,” said Adam Back, co-founder and CEO of Blockstream, adding:
  • [It] doesn’t stop us mildly commenting on the sheer waste and stupidity of an encoding. At least do something efficient. Otherwise, it’s another proof of consumption of block-space thingy.“
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