07/25/2023 0 Comments

1. Monumental Achievement: The 800,000th Bitcoin Block and Its Future Implications

Undeterred in its mission, the Bitcoin network has successfully excavated the 800,000th block. A mere 40,000 blocks are left until the imminent halving of the network’s mining reward, heightening anticipation amongst crypto enthusiasts. On July 24, the 800,000th block emerged, brimming with 3721 transactions and weighing in at 1.64 megabytes. This noteworthy event occurred as Bitcoin’s price was meandering under the $30,000 mark.

Bitcoin Milestone: An Emblem of Network Security and Durability

This landmark achievement quickly reverberated through social media platforms on July 24. Bitcoin’s advocates and pundits underscored the event as a beacon of the network’s steadfast security and robustness. In the world of Bitcoin, ‘block height’ doesn’t just denote progress; it is also a testament to the network’s unyielding immutability.

The ‘block height’ in the Bitcoin blockchain serves multiple purposes. It’s a marker of progress and a formidable barrier to malicious attacks. As the chain of blocks lengthens, the computational power needed to tamper with preceding blocks intensifies exponentially.

In a hypothetical 50% attack, an assailant must hijack sufficient computing power to generate new blocks and receive rewards single-handedly. The attacker could disrupt other miners’ operations and even backtrack transactions. However, the cost of this process does not outweigh the benefits by any means.

The Functionality of Block Height in Mining Difficulty and Rewards

Block height also plays an integral role in fine-tuning Bitcoin’s mining difficulty. In proof-of-work-based blockchain networks like Bitcoin, mining difficulty undergoes periodic adjustments. These alterations hinge on the network’s total computational power and the time needed to mine a specific number of preceding blocks.

The Bitcoin network churns out a new block approximately every 10 minutes. If additional hashing power is fed into the network, it impacts this metric and automatically recalibrates the mining difficulty every two weeks to maintain balance.

Moreover, block height is instrumental in determining Bitcoin’s miner rewards. The system’s blueprint includes a block-halving event every four years or 210,000 blocks on the chain.

The Bitcoin Halving: A Retrospective Look and Future Outlook

The inaugural block reward stood at 50 BTC in 2009 before undergoing consecutive halvings to 25 BTC in 2012, 12.5 BTC in 2016, and currently at 6.25 BTC since 2020.

The upcoming halving event, slated for April 2024, will reduce the block reward to a modest 3.125 BTC. Halving events historically usher in substantial price rallies for BTC and the wider cryptocurrency market. Thus, a potential BTC rally is on the cards, notwithstanding the subdued market momentum observed since late 2021.

The cryptographic treasure hunt continues unabated as the Bitcoin network steadily navigates toward the 840,000th block, the next significant milestone in this fascinating journey.

2. Through It All, the Bitcoin Mining Industry Looks Set for Growth

Though the Bitcoin halving will reduce rewards for miners, the prospects for the industry remain bright and innovations like Ordinals promise more demand for miner services in the future.

Mining is critically important in crypto. It’s the financial infrastructure of blockchains, especially Bitcoin. Global networks of distributed “trust machines” ensure decentralization and lay the plumbing for an open internet. So here’s the good news. Crypto mining is mostly profoundly healthy.

A quick look at the Bitcoin network’s hashrate, a measure of the amount of computing power committed to running the network, shows a bountiful capacity with which to run crypto’s premier network. As of July 21, Bitcoin’s hashrate was 400 exahash per second, up five-fold from June 2021.

That said, in about nine months’ time, the entire economics of the mining industry will undergo a profound change, and there’s nothing anyone can do about it. In April 2024, we will see the fourth Bitcoin halving.

Right now, every time a bitcoin block is mined the owner of the machine that mines the block is able to claim the coinbase transaction. The coinbase transaction consists of up to 6.25 bitcoin. These new bitcoins are how bitcoins are minted. After the halving in April, that 6.25 bitcoin reward will become 3.125 bitcoin.

Miners earn money through network transaction fees and through the block subsidy (i.e. the coinbase) – with most earnings coming from the block subsidy. And so the halving means that, all else equal, miners will lose out on 3.125 bitcoin worth (~$90,000) of earnings per mined block.

But the halving is hardly unexpected and it’s something predictable that miners can prepare for, based on their experience from three similar events. Although a big change, it’s a painfully simple one. And, we’ve known it was coming for years. Bitcoin was programmed with these halvings built in at inception and that will never change.

A very mobile industry

This type of stuff is actually important because it illustrates something fundamentally great about Bitcoin mining: It can be done anywhere.

Like in, say, rural Kenya, which is what microgrid developer Gridless is doing. Gridless, a startup backed by ex-Twitter CEO Jack Dorsey, has brought electricity to people in Kenya and Malawi who are otherwise excluded from the grid. They have set up hydropower microgrids and are mining bitcoin with the energy the people don’t use.

The regulatory aspect

Greenpeace is an environmental nonprofit and they’re not big fans of Bitcoin mining. And to bring awareness to how much they hated Bitcoin mining they commissioned an art piece of a huge skull urging people to come together to protest for a code change to Bitcoin so that it doesn’t require energy to work anymore. It didn’t exactly work as planned, since the Skull of Satoshi became an unintentional mascot and, ultimately, the code change would never go through. Bitcoin will always be a proof-of-work blockchain network.

The attention Greenpeace is giving Bitcoin is also coming from regulators and governments for basically the same reasons. China banned crypto mining in 2021 due to its environmental impact, although that lasted all but two seconds, and the White House came out swinging earlier this year proposing a punitive tax on crypto mining operations for “the harms they impose on society.”

And then there’s Sen. Elizabeth Warren (D-Mass.) who routinely critiques crypto mining for its energy use and even created her own “anti-crypto army.” She also has come out against the fraud and crime crypto enables, zooming in specifically on suppliers of fentanyl precursors.

Political grandstanding aside, most of the national rules targeted at miners don’t really exist. Where they do exist is at the state level, albeit not to a fatal extent.

“Arkansas is a good example,” Luxor’s Head of Content Colin Harper told CoinDesk. “Miners are regulated as much as they are subject to the same constraints as other power consumers. Of course, there’s the moratorium on fossil fuel-based miners in New York, but really the over-regulation that some states have tried to push through have ultimately fallen through for now.”

Harper was alluding to Texas whose state Senate passed a bill which would have limited bitcoin miners’ ability to participate in demand response programs only for it to be shot down in the state House.

As for the U.S. losing its foothold on bitcoin mining with all the regulatory crosshairs aimed at crypto, CleanSpark’s VP of Mining Technology Taylor Monnig thinks the opposite.

“I think the U.S. will actually increase its foothold in the mining space, even with regulatory uncertainty we continue to see companies scaling in the US at larger and larger scales. It will take time for the U.S. to fully understand the benefits of Bitcoin and Bitcoin mining, once that happens we will see even more expansion,” he said.

The unpredictable aspect

The mining industry has many inputs which are more or less predictable (or at least, logical). That said, there are many potential unpredictable factors which could crop up and turn it all on its head. We’ve already touched on the price of bitcoin. That’s unpredictable – who knows what the mining world would like if bitcoin hit $1.48k or $148k or $1.48 million. But there are many other potentially unpredictable things.

Just take Ordinals, Bitcoin’s answer to NFTs, which have mostly been created on Ethereum. Ordinals were incredibly popular earlier this year and they ushered in a huge spike to miner fees for a few months. While the Ordinals spike in miners’ fees has mostly fallen away, there’s always potential for innovators to create new ways to use the Bitcoin network, creating new demand for the services that miners provide.

Mining is still a young industry, and it’s ripe for change.

3. Why Texas is the canary in the crypto mine

El Salvador has established itself as a hub for cryptocurrency (or “crypto”) mining. In 2021, it became the first country to adopt bitcoin as legal tender and the first to issue a bitcoin-backed bond. Now, it has announced that it is seeking to open a “bitcoin embassy” in the United States, in Texas.

Because of its relatively cheap energy and receptive regulators, Texas is one of the largest crypto-mining hubs in the world. This has placed Texas at the forefront of crypto policy, and the state recently enacted several bills that may change the crypto landscape. Policymakers and blockchain businesses alike should keep their eyes on the Lone Star State’s latest attempts to regulate the wild west of cryptocurrency innovation.

Crypto mining is the process of validating cryptocurrency transactions, by using high-powered computers to solve extremely complicated math problems. As incentive for “mining,” or solving those math problems, miners are rewarded with cryptocurrency.

But crypto mining requires a lot of energy. A 2021 New York Times analysis found that mining one bitcoin uses as much electricity as an entire household does over nine years. Crypto miners are, therefore, conscious of their electricity costs and must carefully choose where to mine. Many miners have chosen Texas.

The Texas Blockchain Council stated in 2022 that Texas was already home to 2 gigawatts (GW) of bitcoin mining alone (not including mining for hundreds of other cryptocurrencies) and was attracting 2 GW per year of additional bitcoin-mining capacity. And as of mid-2022, the Electric Reliability Council of Texas (ERCOT) estimated that there were 33 GW of bitcoin mining projects in its interconnection queue. For reference, the combined households of Houston — the fourth biggest city in the country — use less than 6 GW per year. 

Riot Blockchain is building the largest bitcoin-mining facility in the world in Corsicana, Texas, with 265 acres of bitcoin-mining computers. The previous largest bitcoin mine in the country is also in Texas. London-based Argo Blockchain chose the state because it has plenty of land, low electric prices and an abundance of wind farms. Other companies have also chosen Texas due to its cheap electric prices and ample renewable energy; in 2022, Texas led the nation in renewable energy, producing over 2.5 times as much electricity from wind and solar as second-place California.

Some have criticized crypto mining for the large loads required for these operations, especially during periods of extreme heat in Texas; however, crypto miners have countered that they help to keep electric generation operational and have the capability to rapidly curtail mining to support grid integrity.

Because Texas is such an attractive place to conduct cryptocurrency mining, many of the issues surrounding crypto play out in Texas first. As a result, the state is often on the cutting edge of crypto policy.

Crypto initiatives in Texas are important to the industry nationwide because the state is often the canary in the crypto-mine. Without clear instructions regarding crypto from the federal government, Texas is making its own rules. For example, in the wake of the collapse of FTX’s crypto exchange, the state felt it needed to act to protect consumers. Here are five crypto-related bills that have recently been enacted, or could be re-introduced and enacted, in coming years:

Under the law, Texas agencies have the authority to regulate digital asset service providers, which serve as banks for cryptocurrency depositors. These crypto banks will not be allowed to comingle customers’ funds with bank funds, use customers’ funds to secure a transaction or maintain customer funds in a way that customers may be unable to later withdraw them. The crypto banks will also now be subject to annual reporting requirements and audits.

The law is slated to go into effect on Sept. 1. Any crypto bank that violates the law may lose its Texas money transmission license, be fined and face criminal penalties.

The bill is sometimes called the “anti-bitcoin mining bill” because it might discourage miners from entering the market, but it won’t do anything unless it is enacted. For now, it is moored in committee. The bill can be reintroduced in the next legislative regular session, which starts in January 2025.

Everything is bigger in Texas, including crypto. Because of that fact, Texas has focused on developing an environment that will attract crypto companies to the state and attempt to protect consumers from volatility in the electricity and crypto industries. Other states would be wise to keep an eye on what policies work — and don’t work — in the Lone Star State.

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Harvey CHEN

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