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BT Daily News: Bitcoin Miners Chart an Uncertain Path in 2023, But Opportunity Calls, and more


1. Bitcoin Miners Chart an Uncertain Path in 2023, But Opportunity Calls

Bitcoin mining, an essential aspect of the cryptocurrency industry and an increasingly-important contributor to economic development in the United States, faced fierce market conditions in 2022. The capital-fueled "growth at all costs" strategy pursued by many miners in 2021 and 2022 led to a wave of failures and uncertainty amid a prolonged crypto winter.

While 2023 has so far witnessed modest improvements in unit profitability as bitcoin price growth has outpaced the growth in the network, the path forward remains uncertain. It is reasonable to presume that in a situation where the bitcoin price continues its rally through 2023, capital will quickly flow to Bitcoin miners, thereby lifting hash rate and reducing miner unit revenue (a commonly-preferred metric for understanding unit revenue is “hash price”). The questions for miners is how likely such a BTC rally is and how long will it take for sufficient capital expenditures to be deployed, such that hash price reverts to its equilibrium.

At Icebreaker Finance, our view is that only those miners who generate attractive profits at the “equilibrium” hash price offer opportunities for long-term investors. While hash price has seemingly found its equilibrium at about 6 cents to about 8 cents per terahash per day, many miners continue to generate insufficient cash flow to meet their fiat-denominated general-operations and debt-servicing costs. In many situations, lenders are rolling over existing facilities at uneconomic terms as a more favorable outcome than default. Amid this situation, ASIC manufacturers continue to bring stock to market and in many cases are deploying “unsold” new ASICs to self-mine through substantial hosting agreements.

Public equity markets reflect this pessimism. Many public miners are now more than 90% below their peaks and trade at valuations that attribute very little intrinsic value to their businesses. However, they remain highly volatile and have close correlations with the price of bitcoin.

In such a challenging environment, many have described the industry as “uninvestable.” Our view is different. Dispersion of performance has grown dramatically and publicly-traded miners offer an incomplete reflection on just how wide that dispersion is. To better understand the relative strength of miners in this environment, we segment the varying business models within the industry using a barbell analogy.

At one end, we have those miners who operate at scale and are vertically integrated to the underlying mineral rights and energy generation. These firms are “behind the meter,” where Bitcoin mining can enhance the economics of their existing business of monetizing capacity to source, generate and distribute energy. Such participants have not been significant players in the Bitcoin mining industry thus far. If Bitcoin gains broader adoption and regulatory support for the role Bitcoin mining can play in improving grid resilience and decarbonization grows, we should expect energy majors to enter Bitcoin mining at scale with profound implications for the equilibrium hash price.

In the middle of the barbell are miners who operate at scale "on grid" or "in front of the meter" and own infrastructure assets but not power-generation assets. A wide range of outcomes is expected for these participants, such that it is likely that only a small minority will be able to generate attractive returns for debt and equity investors through the cycle. Many participants in this segment of the industry, and particularly those who utilize fiat-denominated leverage in their capital structure, may fail, even if they gain short-term relief from short-term improvements in hash prices. The winners in this group need to be extremely sophisticated in site selection, energy contracting and financial practices.

At the other end of the barbell are niche operators who typically operate "behind the meter" on smaller sites to monetize truly stranded energy, making them an exciting long-term prospect for investors. They are often early in their business evolution and monetize stranded gas, flared gas, methane from landfills or partner with renewable energy providers for off-take agreements. Identifying suitable sites and operating them off grid requires miners to perfect a challenging set of multi-disciplinary competencies which suggests that execution risk will be high. It can also be a challenging business to scale, which may limit the size of this segment of the industry, even with favorable tailwinds from the ESG value of the activity.

Alongside such niche operators, we also expect to see substantial growth in “industrial augmentation” use cases where Bitcoin mining is introduced into the value chain of complementary industries. These are any companies that consume large amounts of energy and where there is an opportunity to monetize the heat generated from mining for other purposes or to monetize energy that is otherwise wasted. Greenhouses are an example of the industrial augmentation thesis, where water scarcity may drive greater penetration in greenhouse production in agriculture. At this end of the barbell, whether it be the niche operators or the industrial augmentation players, many participants are actively exploring ways to monetize the nascent carbon credit markets. Like all players entering the market now, infrastructure can be purchased at favorable prices.

For miners who do have a truly-differentiated energy and engineering proposition — which can occur anywhere across the barbell and particularly at either end — which places them in the top quartile of the network cost of production, the current market is a time for growth. Growth requires capital, and in some situations, modest amounts of debt may be suitable. In such situations, miners are understandably searching for as much tenor as possible and favorable loan-to-value ratios, while lenders are searching for a security package that includes uncorrelated assets and the ability to introduce risk sharing into loans so that lenders can also benefit from a situation where hash price improves while protecting the cash flows of the miner during periods of equilibrium hash price.

2. Bitcoin’s Newfound NFT Hype Attracts Interest of BSV Developer Twetch

The recent fervor surrounding Ordinals NFTs on Bitcoin is already attracting developers interested in building an ecosystem for the meme-themed art – now including Twetch, the team behind a “pay-to-earn” social network built on the rival Bitcoin SV blockchain (BSV).

Twetch’s existing social network on BSV allows users to earn money for their content. The platform also includes a non-fungible token (NFT) marketplace, a BSV wallet and several other features like a chat function and a job board.

When we saw the Ordinals stuff come out, we were just excited to hop onto the ‘NFTs on BTC’ train,” Twetch co-founder Billy Rose told CoinDesk in an interview. “We've been doing data on the blockchain for about five years now, so we're just ready to go.”

Bitcoin blocks have been chock-full of quirky JPEGs, audio files and text over the past two weeks, thanks to last month’s successful (albeit controversial) launch of the Ordinals protocol, which stores NFTs on the Bitcoin blockchain.

The trend has received mixed reviews from longtime Bitcoin supporters, many of whom have long derided the NFT craze on Ethereum and other blockchains as a distraction from Bitcoin founder Satoshi Nakamoto’s vision of a decentralized network primarily for financial transactions.

Twetch’s sudden interest might provide another cause for consternation among Bitcoiners, given BSV’s self-marketing as the original Bitcoin and its association with Craig Wright – the Australian computer scientist who has claimed without definitive proof to be Satoshi Nakamoto, the inventor of Bitcoin.

Even Ordinals creator Casey Rodarmor has reservations about Twetch’s association with BSV because of the links to Wright and his questionable evidence. But he welcomed the interest.

I hope they see the light and start building on Bitcoin,” Rodarmor told CoinDesk. “And if they make a great wallet, that's all for the best.”

Ordinals: Hype or hope?

The Ethereum community has already laid out a successful “blueprint” for a vibrant NFT ecosystem: a browser-based wallet like MetaMask, a marquee brand like Bored Apes and an NFT marketplace like OpenSea.

Twetch’s founders aim to replicate Ethereum’s success by borrowing that blueprint to build a similar NFT model on Bitcoin, especially now that Ordinals has become the dominant blockchain’s shiny new object.

Ethereum laid the road map out for us – OpenSea, Bored Ape and MetaMask,” Rose explained. “Those are the ultimate tools for using NFTs, working with NFTs, storing them, having true ownership of them and the ability to transfer and trade.”

It’s not clear if the Ordinals craze is just another flash in the pan or a more enduring development. Twetch’s co-founders are banking on the latter. In fact, Twetch is already exploring raising capital to build its NFT ecosystem on Bitcoin.

We're just looking for people who want to help … whether that's an investor or customer partnership,” Twetch CEO and co-founder Josh Petty told CoinDesk in an interview. “If anybody can align with having fun on Bitcoin, then we would love to talk to them.

The case of Satoshi Dice

This wouldn’t be the first time a startup has capitalized on a fun viral trend in the Bitcoin community. Over a decade ago, in April 2012, Erik Voorhees (who later founded cryptocurrency exchange, ShapeShift) launched a clever little gambling game called Satoshi Dice.

Players would send bitcoin to a Satoshi Dice address based on the odds and payout they were seeking (lower odds yielded a higher payout and vice versa). If a player won, a bitcoin payment was immediately sent back to their wallet address.

The game quickly became a smash hit in the Bitcoin community, and by early May 2012 Satoshi Dice was generating more bitcoin transactions than all other use cases combined.

Amazingly, in the period starting from Bitcoin’s genesis up through early 2014, more than half of all Bitcoin transactions were going to or from Satoshi Dice,” Voorhees told CoinDesk. “This also means the game was paying more than half of all mining fees on the network during those years. It was certainly a killer app.”

In an environment where Bitcoin’s subsidy – the amount of bitcoin awarded to a miner for successfully mining a new transaction block – is progressively shrinking, high transaction fees will become increasingly attractive to miners.

If Ordinals and Twetch were to generate anything similar to the success Satoshi Dice enjoyed between 2012 and 2014, mining fees could increase – and network security would theoretically improve. Hard-line Bitcoiners might have to hold their noses.

I'm best friends with the Riot Blockchain guys and they're doing really well because they're so big, but anybody lesser is having a hard time right now,” said Petty. (Riot Blockchain is one of the largest public Bitcoin mining companies in the world.) So when they see the fees go up, what I predict is there'll be more miners that start to become pro-Ordinals, because they're [currently] not making a lot of money.”

3. What is Mobile Crypto Mining?

When the word mining comes to mind, it indicates the excretion of the mineral resources from the earth's crust such as gold, diamond, ores, and many more.

But it is not possible to extract these minerals themselves. Hence humans made it possible to get it through the process of mining. Similarly, digital assets such as Bitcoins are very valuable cryptocurrencies in the digital world.  Since bitcoins replaced paper currency, their demand and value became equivalent to the value of gold and it is considered Digital gold due to their scarcity in the market and their high market value.

However, the extraction of cryptocurrencies is possible with mining processes such as other mineral resources but it does not involve processes like digging and drilling or soil and extracting something from the earth's crust.

What do you mean by Crypto Mining?

Crypto mining is possible with the help of digital machines to solve the complex mathematical expressions involved in blockchain. It requires energy consumption and other resources to exceed the mining process but, in its compensation, miners usually earn rewards from mining the cryptocurrencies. Moreover, crypto rewards are equivalent to the level of computing power offered by the miners.

Two main components of the mining processes are graphics application units (GPUs) and application-specific integrated circuits (ASIC). Due to their low energy consumption and power boost system, ASICs are preferable to GPU miners. Moreover, ASIC is dependent upon a single type of coin for mining but due to the volatile nature of crypto coins, it would not be suggestable to depend on only a single coin. Moreover, in case, the value of such coins depreciates, then the value of that coin will be useless.

What Is Mobile Crypto Mining and How Does It Work?

As compared to ASIC or GPUs, mobile crypto is a unique process used for mining. Mobile crypto means the use of the iOS system of smartphones and other such Android systems to process the mining of cryptocurrency. Moreover, the rewards of crypto mining and miners' rigs are according to the computing power offered. The financial value of mobile cryptocurrency is however higher than that of other mining procedures despite its mining company being lower than that of already constructed mining rigs.

For mobile crypto mining, a good quality smartphone, a speedy internet connection, and an already mining application are required on your mobile phone. But the availability of such crypto mining applications for iOS and Androids on third-party crypto increases security constraints before they are used. Some of the mining applications are not available on Google but it is on Play Store due to policies developed by Google which result in a shortage of batteries and overheating of phones due to the intensive processing of mining processes. In addition to that, the incentives earned through mobile crypto mining may be quite lower and may not be able to recover electricity consumption.

How To access crypto mining on an Android Smartphone

Way to mine crypto on smartphones are of two types. One is Android solo miners and another one is via using mining pools such as Antpool Via BTC, etc. Usually, miners prefer to mine with mining pools because solo mining takes years to mine cryptocurrencies, even if you have planned for another model too. Some of the applications such as Miner gate Mobile miners and Bitcoin miners etc, it is easy for miners to join the mining pool and they would be able to generate computational power and ultimately get some rewards and share according to their contribution. Moreover, the size of the Pool is dependent upon the incentives, frequently occurring payments along with the size of mining pools all have a specific payment mode and rewards accordingly.
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