It just became a whole lot easier and much more profitable to mine bitcoin.
For months, the world has known that China's crackdown on bitcoin mining will result in more than half of the world's bitcoin miners going dark. Now that it has occurred, the bitcoin algorithm has been updated to ensure that miner productivity does not continue to plummet.
This change, which went into effect early Saturday morning, implies that a lot more money is flowing to bitcoin miners who are still online.
Brandon Arvanaghi, a bitcoin mining engineer, stated, "This will be a revenue party for miners."
“Suddenly, they possess a larger slice of the pie, which means they earn more bitcoin every day.”
Mining has been simplified
A bitcoin miner uses a computer software to attempt to solve a riddle before anyone else. Solving the riddle completes a block, which creates new bitcoin while also updating the digital ledger that keeps track of all bitcoin transactions.
China had long been the epicentre of bitcoin miners, with estimates estimating that the country accounted for 65 percent to 75 percent of global bitcoin mining, but a government-led crackdown has effectively expelled the country's crypto miners.
??For the first time in the history of the bitcoin network, we have a complete shutdown of mining in a specific geographic region that affected more than 50% of the network,” Darin Feinstein, creator of Blockcap and Core Scientific, said.
Since the market top in May, more than half of the hashrate – the total computing power of miners throughout the world – has left the network.
Because there are fewer individuals mining, fewer blocks are solved each day. Normally, a block takes around 10 minutes to finish, but according to Feinstein, the bitcoin network has slowed to block times of 14 to 19 minutes.
This is why bitcoin re-calibrates every 2016 blocks, or roughly every two weeks, resetting the difficulty of mining. On Saturday, the bitcoin code automatically made mining around 28% easier – a historically unparalleled decrease for the network – restoring block timings to the ideal 10-minute range.
The bitcoin algorithm is intended to accommodate an increase or reduction in mining machines, according to Mike Colyer, CEO of digital currency company Foundry. “It is a self-regulatory market that is not regulated by an outside committee. He described it as a "really powerful concept."
Because there are fewer competitors and the difficulty is lower, any miner who plugs in a machine will notice a big improvement in profitability and more predictable revenue.
Kevin Zhang, former Chief Mining Officer at Greenridge Generation, the first major U.S. power plant to begin mining behind-the-meter on a large scale, said, “All bitcoin miners share the same economics and are mining on the same network, so miners both public and and the private sector will benefit from the increase in revenue.”
Zhang forecasts revenue of $29 per day for individuals utilising the latest-generation Bitmain miner, compared to $22 per day previous to the upgrade, assuming fixed power costs. Longer term, while miner income can fluctuate with the price of the coin, Zhang pointed out that mining profits have declined only 17% since the bitcoin price peaked in April, while the currency's price has dropped nearly 50%.
“We anticipate a period of significantly increased mining profitability for Compass Mining clients,” said Whit Gibbs, CEO and founder of Compass, a bitcoin mining service provider. “We estimate that mines will be about 35% more profitable.”
Feinstein, of Blockcap, concurs. “We anticipate an increase in revenue and profit in the near future. This was a pleasant surprise for the network, not only in terms of revenue, but also in terms of decentralisation and sustainable energy metrics.”
Although the difficulty reduction benefits all miners, those who use newer equipment stand to benefit the most.
Feinstein tells, the majority of the equipment that was turned off in China was old-generation technology, which is inefficient and has substantially lower profit margins.
Surge of six months
It's difficult to say how long the hashrate shortage will endure. According to Barbour, it's entirely feasible that Beijing will simply reverse their approach, and that this will only be a temporary setback.
If not, most mining crypto experts think that migrating all of that idle and relocated mining hardware will take anywhere from six to fifteen months. Barbour predicted that finding a home for the surplus would take a long time.
Gibbs thinks, miners should expect more revenue for the rest of 2021.
“Every day, Chinese miners search the globe for sites to restart their equipment. “Right now, there is a scarcity of space,” Colyer explained.
According to Feinstein, part of the difficulty is that there was already a paucity of infrastructure to house the new-generation miners being deployed monthly by Beijing-based manufacturer Bitmain before China shut down mining.
It's difficult to determine how quickly countries will be able to absorb the surge of equipment now that the market is swamped with an oversupply of old mining rigs.
“Some mining companies have everything built and are only waiting for these ASICs to plug in, which should just take a few days,” Arvanaghi stated.
“Others may require the construction of containers, the expansion of warehouses, or the increase of electrical capacity. We won't see the hashrate return to its previous levels immediately, but it will over the following few months,” he added.
The United States appears to be the best-positioned of all the probable destinations for this equipment to absorb any errant hashrate. According to CNBC, prominent U.S. mining companies have already signed agreements to repatriate some of these stranded Bitmain miners.
Bitcoin mining in the United States is flourishing, and startup funding is pouring in, so the industry is well positioned to take advantage of the miner migration, according to Arvanaghi.
“Many U.S. bitcoin miners were funded when bitcoin's price began to rise in November and December of 2020, which means they were already building out their power capacity when the China mining ban took effect,” he said. “The time is perfect.”
Barbour, on the other hand, feels that much smaller competitors in the U.S. home market have a chance of grabbing these surplus miners.
“I believe this is a sign that, in the future, bitcoin mining will be more distributed due to necessity,” Barbour said. “Less mega-mines like the 100+ megawatt ones we see in Texas, and more small mines on small commercial and, eventually, residential lots.” It is far more difficult for a politician to shut down a mine in someone's garage.”
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