It’s harder than ever to mine Bitcoin as the reward is also hardest to come by.
Miners are gasping for air as their income hits rock bottom while difficulty to mine blocks goes to record highs.
Hash price, which quantifies how much a miner can expect to earn from a specific quantity of hashrate, hit an all time low last week. Miners received an average of $35 per petahash per day on August 4 which translates to the lowest mark in history, according to the Hashrate Index.
Simultaneously, and adding more pressure to miners, Bitcoin hash rate hit an all time high of 673 exahashes per second on July 26. This means it was the hardest it has ever been to produce a new block.
Bitcoin trades for $59,200 with a small 1.5% drop today. It’s been a volatile week with the asset trading in a wide range between $50,000 and $60,000 without much clarity as to where it’s heading next.
Worldwide Competition
Bitcoin mining is a worldwide competition that involves specialized computers trying to find a randomly generated number. On average, every ten minutes, a miner finds the number and gets rewarded in bitcoin for doing so, although on April 20 the reward got reduced in half in what’s called a halving.
Miners are forced to turn off their operations due to the confluence of factors, which has a twofold cascade of effects. Ultimately, it helps to foster efficiency in the system, because only the top quality equipment and operations get used, but it also breeds centralization because most companies still in the space have the capital requirements to stay alive.
Bitcoin mining centralization is a touchy subject, with allegations that Bitmain controls 80-90% of the hardware that miners use this day. Such a high number while the current scenario forces only those with next-generation equipment to stay online, only furthers claims of centralization, especially at the level of mining pools which Bitcoin core contributor Matt Corrallo considers one of the biggest threats to the ecosystem.
Dire Straits
The situation is dire for miners that aren’t using next generation machines, said Colin Harper, Editor-in-Chief of Blockspace Media, a firm that specializes in Bitcoin mining and Ordinals on a recent episode of the Mining Pod.
Harper called the all-time low in hash price “brutal,” and that if “you zoom out, you can see how absolutely battered it’s been over the past year.” He added that the situation post halving got exacerbated last week due to hash rate hitting the all time high along with Bitcoin’s price falling below $50,000.
“Basically, mining margins have never been thinner, and miners who aren’t using next-gen machines are really sweating right now,” Harper said. In other words, miners are going through “max pain” at the moment, he pointed out.
Is the Bottom In?
Last week threw the financial world in disarray as an unwinding carry trade that originated in Japan sent markets spiraling . Markets, including cryptocurrency, took a beating, with the price of Bitcoin dropping to a low of $49,000 and Ethereum plummeting to $2,200.
Last week’s scenario “felt like a bottom” to Oklahoma miner, and co-founder of Blockspace Media, Charlie Spears.
“Lots of people got really bearish with Bitcoin at $50,000,” he said, adding that combined with the 10% mining difficulty adjustment that sent hash rate soaring to its peak, signals to him that the bottom was in.
Spears explained that after several conversations in the space, it seemed that was the event that “caused the people to be barely hanging on to turn off.”
New Mining Meta
Post halving, which occurs every four years on average, or every 210,000 blocks, miners are feeling the pain of the 50% drop in their revenue.
Harper wondered if this combination of low hash price, record high difficulty, and macro economic factors at play, along with questions surrounding “how much power is available for expansion,” means there needs to be a floor price for hash price.
Power is becoming an interesting area of contention for Bitcoin mining, due to concerns about how much energy the industry consumes, and the transition towards renewable energy sources that might hinder expansion for the industry.
Meanwhile, the new meta is what Spears calls rack space.
Rack space is the physical infrastructure that houses mining operations. With the requirement for only next-generation infrastructure, and only the most capitalized companies offering profitable business models, rack space will become increasingly valuable.
“Rack space is king” is how Spears called the new meta, claiming that the next year will likely lead to miners asking the question, “who owns the rack space?”
