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07/07/2023
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1. What Happens When All 21 million Bitcoin are Mined?
The money supply in the United States, calculated by the M2 method, has increased by over 40% since January of 2020. When currencies do not have clear regulations around supply and governments can print at their will, we start to see inflation as demonstrated throughout history and in the present. Given this outcome, the creator of Bitcoin, Satoshi Nakamoto, created a supply cap of 21 million Bitcoin which acts as a definite limit to the supply of outstanding Bitcoin that can ever exist. Bitcoin miners, who process and validate transactions, are the parties that will earn new Bitcoin as it is mined and their revenue is then impacted by a supply cap.
Today, more than 19 million Bitcoin have been mined to date, which only leaves under a few million remaining to be mined. Bitcoin miners earn revenue through two ways, newly minted Bitcoin from “block rewards” and from transaction fees of the users who transact on the network. The supply schedule for Bitcoin block rewards are defined based on the original code from Satoshi and are setup to decrease the reward that miners earn approximately every 4 years.
The algorithm that governs Bitcoin is set up so that every 10 minutes a new block is added to the Bitcoin blockchain and the miner that validates and adds that block earns the block reward. The current block reward is 6.25 Bitcoin per block, which means that every day, 900 new Bitcoin are added. After 210,000 blocks, the reward is cut in half, known as a “halving” event. The impact of a halving event is significant as miners immediately lose half of their revenue from block rewards. When Bitcoin was first released, the block reward was 50 Bitcoin per block, however at the time the value of those rewards were significantly lower as the market price of Bitcoin was well under $100.
Since miners will have their revenue negatively impacted every four years, the alternative source of revenue for them comes from transaction fees that are collected when a Bitcoin block is added. If a person wants to send someone Bitcoin, they must pay a transaction fee for that to occur, which is directly paid out to a Bitcoin miner. Today, transaction fees do not account for a significant amount of revenue for a miner.
In fact, based on current rates only about 0.14 Bitcoin is earned by a miner on average for each block. Accounting for current market prices, this means miners are earning about $4,000 per block or $576,000 per day. Today, this number is low relative to the almost trillion dollars of value that Bitcoin secures in the network, but as the ecosystem grows we could expect that the value of transaction fees will increase.
Based on the current schedule, all Bitcoin will be mined and in circulation by the year 2140, which leaves a significant amount of time ahead for the network to grow and become more globalized. In 2140, all of a miner’s revenue will be associated with just the transaction fees on the network. Although there are no guarantees that transaction fees will ever supplement the current block rewards, many Bitcoin enthusiasts believe that significant development and growth of users will drive increased revenue for miners.
While today many use cases for Bitcoin are limited and the commercial acceptance of it as a payment system is not solidified, it is quite possible that in the years to come, more institutions, banks, and companies will utilize Bitcoin for its settlement qualities. The importance of transaction fees can not be understated as it will be crucial and imperative that miners have a strong revenue stream for the long-term health of the Bitcoin ecosystem. However, today it is safe to say that most miners will continue to earn a majority of their revenue from the block rewards in the near future.
2. UAE emerges as a pro-Bitcoin mining destination in the Middle East
The United Arab Emirates (UAE) is gradually solidifying its status as a go-to Bitcoin mining destination in the Middle East. The country has established itself as a pro-Web3 destination for crypto-focused companies with over 30 free trade zones and a growing contribution to the Bitcoin mining hash rate.
The UAE’s mining journey began with Bitcoin miner Marathon Digital partnering with Zero Two — the digital asset arm of Abu Dhabi’s sovereign wealth fund — in May. The joint venture established two mining sites with a combined 250-megawatt (MW) capacity in Abu Dhabi.
Abu Dhabi has become a hub for all kinds of crypto mining activity in the UAE due to its energy efficiency and status as the center of trade in the country.
According to data from Hashrate Index, UAE’s combined Bitcoin mining capacity is likely around 400 MW — or 4% of Bitcon’s global hash rate. While the likes of the United States, China, Russia and Kazakhstan are the top four countries with the largest share of Bitcoin’s global hash rate, the UAE could gradually climb the ladder due to its available resources.
As a global player in the energy market, the UAE has shifted its focus from its oil and gas reserves toward solar and nuclear energy. Historically, the country’s electricity was generated by natural gas, but in the recent past, shares of nuclear and solar are growing rapidly.
UAE’s electricity demands fluctuate significantly between the hottest and coolest months, leading to a heavy loss of generated electricity. For example, in 2021, the UAE’s combined power and desalination plants wasted 20 terawatt hours, equal to approximately $600 million. This gap and wastage of electricity could be filled by Bitcoin miners.
With Bitcoin mining focused on using clean energy sources, the UAE could see a significant chunk of its energy coming from nuclear and renewable sources in the next decade. Thus, the surplus from these sources could be utilized by miners in the country. Among other advantages for miners is the country’s zero-tax policy.
This means Bitcoin miners can register in one of the country’s over 30 free trade zones and avoid corporate tax, value-added tax and import duties — a significant advantage over operating in Western countries.
3. Bitcoin miner Hive Blockchain is going through an AI-inspired rebrand
Bitcoin miner Hive Blockchain Technologies is set to undergo a name change to reflect its focus on supporting the growth of artificial intelligence, or AI.
The company is set to become Hive Digital Technologies as soon as July 12 as part of “a significant strategic expansion,” the company said in a Thursday news release.
The upcoming rebrand reflects Hive’s use of Nvidia graphics processing unit (GPU) chips, which the company says is “a vital tool” in the world of AI, machine learning and advanced data analysis.
“We feel now is the best time to change its name because the word ‘digital’ means we are riding a bigger wave,” Hive Executive Chair Frank Holmes told Blockworks in an email. “Hive Digital Technologies encompasses a broader scope of our company’s mission, which ranges from not just blockchain technology, but also Web3 investments and AI.”
Holmes added the “enormous adoption of AI across every industry,” citing ChatGPT — a natural language processing tool introduced by OpenAI in November that reached an estimated 100 million users just months after its launch.
“To run efficiently, these metaverse apps will need advanced graphics and AI processors, increasing investments in high-performance AI chips from companies such as Nvidia and in data center operators — and that is where Hive comes in,” Holmes said. “We are rapidly scaling, with new chips coming in every month and moving to servers.”
Hive notched $106 million of revenue during its latest fiscal year, which ended on March 31, the company reported last week.
The Vancouver-based miner grew its bitcoin mining ASIC hashrate by 50% during those 12 months. It held 2,332 bitcoins — worth about $66 million — on its balance sheet at that time.
Holmes said in a statement last week the company has taken “significant steps forward in pivoting into the [high performance computing] business marketplace, with our 38,000 Nvidia GPUs, which have the capability to do AI workload.”
The company said in February it anticipates 10x growth in Hive’s high-performance computing (HPC) segment over the next year, citing demand for ChatGPT, medical research, machine learning and rendering.
