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The Bitcoin mining network – June 2019 update.

Trends, average creation costs, electricity consumption and sources.

The undeniable success and lucrativeness of Bitcoin mining have been in the spotlight for years. It is, after all, a highly profitable market despite the increasing difficulties in obtaining the cryptocurrency due to the rising competitiveness. But when we talk about Bitcoin mining, we can’t forget one of its fundamental pillars: the system it’s based on. The blockchain network empowers users so they are responsible for the whole system’s continuity. This breakthrough concept and how this growth will be sustained are still hard to predict, as this user-maintained environment develops, adapts and matures with the market.

A constantly evolving market

According to the June 2019 update from Fidelity Center for Applied Technology about the Bitcoin mining network, miners and manufacturers are constantly uncovering new ways to optimize processes and compete with each other. The blockchain network adapts with new hardware manufacturing trends and evolves.

In the following few paragraphs, we will discuss the factors that influence and drive these innovations.

ROI Break-even level drop

One important factor to consider when entering the cryptocurrency mining business is the time until you get back your investment and the continuous depreciation of your machines and their capacity to mine. Such calculations will help understand when mining is profitable for you, and when to change the course of actions.

For a player in the market, at the current market-wide creations costs, estimating ¢5/KwH and 18-month capex depreciation, the ROI break-even level dropped from $8,500 to $5,600 when compared to November 2018. This assessment might drop even more if the miner has access to cheaper electricity or to preferential pricing on their mining gear. With the recent relief rally in Bitcoin prices, the mining industry is highly profitable with both previous and next-generation gear.

 

Cyberian Mine’s CEO, Max Matrenitski, among the installed machines in our facility.

Electricity Draw

Another important factor influencing the Bitcoin network is its electricity draw. It was estimated that the “current amount of energy required for hashing alone is estimated to be ~4.3 GW for June (possibly drawing the equivalent to ~41 TwH in a year), not considering, on top of that, the energy spent on cooling the equipment (estimation of an additional 10% on electricity usage – but less of an issue with our hosted mining service in Siberia). 

Due to this high energy consumption for Bitcoin mining, miners are driven into looking for cheaper power sources, spread around the globe, gathering especially around “technologically advanced, relatively sparsely populated, hilly or mountainous regions traversed by powerful rivers”.

Renewable Energy is the Future

As power is the only controllable factor in the mining industry (unlike price, or hardware costs/specs), going after hosted mining services that are built upon the cheapest sources of energy can build the competitive advantage that secures profitability to the investor. Low-cost renewable sources of electricity, like Siberian Hydropower, appear to be the perfect solution: making use of the surplus productions in select regions gives some of the world’s lowest prices. Fidelity’s June report estimates the renewable penetration to be 74.1% for the Bitcoin mining network, making it more “renewable-driven” than most of the other large-scale industries in the world.

 

Machines running in our facility powered by renewable energy.

 

Relying on some types of renewable energy, however, exposes the mining industry to seasonal influences. In China, for example, where it is estimated that 60% of the world’s total Bitcoin mining takes place, the wet season in the hydro-heavy Yunnan, Guizhou and Sichuan drives electricity prices down, giving the miners in the region an advantage globally. However, when the dry season arrives, there is a migration of machines to different areas, provoking a marginal decrease on their hashrate and an increase cost to miners in terms of relocation expenses.

Despite all the challenges and barriers involved in the process of Bitcoin mining, the supporters of this network have been able to adapt and take advantage of the technological and natural environments to assure their permanence in the industry, enduring bear markets and benefiting from peak opportunities: “after having emerged from one of the most challenging price environments ever observed in the industry, miners now appear generally healthy and profitable at current price levels”. 

The increase on mining fee rewards on the last few months supported a positive scenario to Cyberian Mine, as we have seen an enormous increase in interest during this period. Long may it continue.

 

You can read the full document from Fidelity Center for Applied Technology, in which this article was based on, here.