Changing Realities of Crypto Mining – Alternative Solutions To Integrate

https://dailyhodl.com/2023/09/01/changing-realities-of-crypto-mining-alternative-solutions-to-integrate/

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At the end of July 2023, the Bitcoin network passed its 800,000th block.

While this marks a major milestone in the blockchain’s history, it also reminds us that only eight months are left until the next BTC halving event, which is set to take place on April 26, 2024.

Similar to major Ethereum hard forks, Bitcoin halving is among the cryptocurrency industry’s highest-profile events.

On the one hand, acting as a potential catalyst for future bull runs, they bring good news for investors.

But the next halving’s impact on the mining industry is a more complex matter, seeing as how miners will need to adjust their strategies to make up for the reduced rewards that the halving will bring.

In this article, I would like to explore what some of these strategies can be.

A historical bull run catalyst

Occurring roughly every four years, Bitcoin halving is a deflationary mechanism that reduces the new coin supply by 50%.

In April 2024, the next event will decrease the block rewards amount from the current 6.25 BTC to 3.13 BTC.

Based on historical data, I believe it is very likely that the halving event will be followed by a major bull run taking place around late 2024-early 2025.

Reducing Bitcoin’s inflation rate to half generally comes with positive supply and demand dynamics, driving the cryptocurrency’s price to new highs.

After the last halving, the Bitcoin price increased from $8,970 on May 11, 2020, to $56,670 on May 11, 2021, representing a 533% ROI.

Considering the decreased inflation rate and surging demand, I expect April 26’s upcoming halving to push the BTC price up significantly.

As I see it, it is safe to assume that Bitcoin will reach the key psychological level of $100,000 in 2025.

Halving’s impact on miners’ behavioral patterns – adapting to the new normal

Crypto mining involves a healthy competition for block rewards, as miners compete to mine a limited amount of BTC in each block.

This is due to Bitcoin’s block time – the time it takes for miners to produce a new block – being set at around 10 minutes on average on the protocol level.

No matter if the network’s hash rate is only one kH/s or increases massively to 200 million TH/s, the same amount of block rewards will be distributed among miners.

This competition incentivizes miners to become both energy- and hardware-efficient.

By reducing block rewards to half, each halving significantly accelerates the progress of this trend.

As it will take roughly double the costs to produce a single BTC shortly after the next halving, miners will have to look for ways to optimize their profitability.

To achieve this goal, they have to focus on three crucial factors in this field.

Cost-efficient strategies to keep in mind

The first and most important factor to come into play is the cost of electricity.

With a one cent per kWh change causing an estimated $4,300 difference in BTC production cost, signing sophisticated contracts and relocating to countries and regions with lower prices could significantly increase the post-halving profitability of miners.

As I see it, they will need to negotiate an electricity price of five cents/kWh or less to remain profitable after April 26.

Secondly, miners should also consider their equipment’s power efficiency.

Based on TheMinerMag’s data, the daily hash cost of BTC mining can be reduced by over 63% by upgrading from a rig with a 60 J/TH efficiency to one with a 22 J/TH rate.

In the end, the miners with the greatest mining efficiency and the lowest electricity prices will be the most profitable.

Thus, they are the ones that are expected to remain in business the longest, even after a significant market event like the next halving.

Another strategy miners could leverage to minimize the next halving’s negative impacts is accumulating excess capital in mined BTC during profitable periods.

After the post-halving rally takes place, this reserve can be utilized to make up for the losses caused by reduced block rewards by selling the mined assets at a greater profit margin.

Alternative solutions on the horizon

Next year’s Bitcoin halving will significantly increase miners’ BTC production costs, forcing many to shut down their operations.

While lower electricity prices, more efficient mining equipment and the smart usage of reserve capital can minimize the event’s negative impact, chances are that alternative solutions will also be considered.

One potential opportunity that miners can make use of is earning greater income through transaction processing fees rather than through block rewards.

The recent hype around Ordinals – a protocol empowering users with the ability to mint NFT-like assets (inscriptions) directly onto Bitcoin – is an indicator that alternative sources of income for miners could come to play a much bigger role in the long run.

With record-high network demand and over $55 million of transaction fees paid for inscriptions to date, Ordinals pushed the profitability of transaction processing above block rewards for miners for the first time in many years.

I believe it is reasonable to expect that further developments will take place on the foundation of Bitcoin’s blockchain network that could further shift the scales, allowing miners to adapt to the post-halving environment more seamlessly.

Didar Bekbauov is the founder and CEO of Bitcoin joint mining company Xive. He is an entrepreneur with 10 years of leadership experience and a Bitcoin miner. Didar has a strong financial background, attaining a UK Master’s degree in financial management. He also acts as a mentor at the Founder Institute startup accelerator program in Houston, Texas.

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Ordinals deserve a red carpet welcome

https://blockworks.co/news/bitcoin-miners-ordinals-halving

In the past month, the crypto community has been going wild over Ordinals, a protocol that enables users to mint NFT-like assets called inscriptions directly onto Bitcoin.

With nearly 12 million inscriptions now created on top of the BTC blockchain, the hype around this new tech has led to a surge in demand for computing power. As the latter is required to validate transactions in the Bitcoin network, this sudden increase in demand has significantly raised transaction fees as miners compete for available resources.

Some experts have spoken out against Ordinals, emphasizing the protocol’s vulnerability to scams and issues with slower speeds. But I maintain that this network overload will likely be transitory, and viable layer-2 protocols will emerge to improve transaction speeds and security.

I’m strongly in favor of Ordinals, regardless of any temporary issues currently at hand — because I believe they will have a net positive effect on the profitability of BTC mining in the long run, especially considering the upcoming 2024 halving.

New testing opportunities for Bitcoin applications are an innately worthy trend, adding more meaning to the cryptocurrency in the grand scheme of things.

Raising the stakes for bitcoin mining

As a Bitcoin ideologist, I see why so many users are attracted to Ordinals. It’s safe to say that Bitcoin has one of the most powerful brands in the crypto industry. BTC is still the largest cryptocurrency by market capitalization, and Bitcoin has the most extensive history among all blockchains. It’s a big deal that it finally became possible to launch NFT-like assets on the network.

For miners like myself, the rising popularity of Ordinals has been more than welcome news. With Bitcoin’s scalability limited to around seven transactions per second (TPS), a sudden increase in demand for computing power often translates to higher fees. As each halving reduces block rewards (validators’ primary source of revenue) by 50% every four years, this shift in profitability away from rewards is something that should be welcomed by many miners.

Why 2017 has little to do with 2023

For a long time, the 2017 bull market was the last time Bitcoin transaction fees surpassed block rewards for miners. This changed in May 2023, when multiple mining pools mined blocks where fees exceeded the 6.25 BTC block subsidy.

But don’t you worry that 2017 has much in common with the 2023 situation.

Six years ago, Bitcoin transaction fees were higher than block subsidies due to the overall crypto market hype and massive bull run, which significantly increased demand for regular transfers. Since then, several improvements have been made to the Bitcoin protocol to enhance its TPS capacities, such as SegWit, transaction batching and intra-exchange transactions.

Read more from our opinion section: Decentralization is a zero-sum game

Now, for the second time in history, we see that miners are not fully dependent on block rewards. Most importantly, the current period of high transaction fees changed the perception of the sustainability of bitcoin mining. Practically speaking, I see that transaction fees will most likely become the main source of revenue in the future’s mining industry. And as Bitcoin’s adoption and usability increase, miners are expected to earn more from commissions than via block rewards.

Bitcoin miners learn to adapt

The hype around Bitcoin Ordinals came with a number of changes, and we, bitcoin miners, will need to adapt to remain profitable. We need to upgrade our mining infrastructure and software and optimize energy efficiency to address the challenge of reduced block rewards.

I expect that more applications will be written on top of the Bitcoin protocol now that Ordinals have paved the way, and we will see more use cases and a greater boost in Bitcoin adoption in the next couple of years.

Regardless of the concerns raised with how Ordinals as a technology exists now, I still believe that experimenting with the Bitcoin network’s capabilities can only help support the overall ecosystem, both now and in the future.

Didar Bekbauov is the dounder and CEO of Bitcoin group mining company Xive. He is an entrepreneur with 10 years of leadership experience and a Bitcoin miner. Bekbauov has a strong financial background attaining a UK Master’s degree in Financial Management. He also acts as a mentor at the Founder Institute startup accelerator program in Houston, Texas.

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Follow The Trends: Bitcoin Is On The Path To Becoming The Money Of The Future

https://bitcoinmagazine.com/culture/these-trends-show-bitcoin-is-becoming-our-futures-money

This is an opinion editorial by Didar Bekbauov, the founder and CEO of Bitcoin miner hosting company Xive.

The financial industry as a whole is continually shifting toward the digital space, with the global digital payments market generating almost $100 billion in revenue last year, with projections to reach $303 billion by 2030. The penetration rate of digital payments among general consumers is also growing, as a McKinsey survey from 2022 found that nearly 90% of U.S. residents are using some form of digital payments.

And the Bitcoin market in particular is gaining greater attention, as the recent U.S. banking crisis and the negative outlook of the global economy serve to drive more individuals and businesses toward this sector. Bitcoin is seen by many as a sound store of value, independent from governments and banks, providing an attractive alternative to traditional financial investments.

But can it realistically replace fiat currencies to become the money of the future?

Bitcoin Attitudes: Progress To Date

Ten years ago, only a small niche community was interested in BTC. Now, it is estimated that 425 million people across the world own cryptocurrency, following a 39% growth in digital asset holders in 2022.

Up until the last few years, it was the norm for many to deride Bitcoin and call it a fraud. But after 2020, a drastic change in attitudes has taken place, with BTC’s perception evolving from a speculative investment to a legitimate store of value and medium of exchange.

The main reason behind this shift is the increasing institutional adoption of Bitcoin. Since 2020, institutional investors have entered the market en masse, fueling a major bull run and accumulating more than 7.8% of the total BTC supply as of May 2023. Consequently, bitcoin has become a legitimate asset class that is taken more seriously by more people.

Moreover, a 2022 Deloitte survey revealed that 75% of polled retailers are planning to accept cryptocurrency payments within the next two years.

Besides that, bitcoin has become legal tender in multiple jurisdictions including, most notably, El Salvador.

Sustainable Bitcoin Mining Is Shifting The Narrative

Due to the fact that they require significant computational power, Bitcoin mining operations are often associated with high energy consumption. And estimates that suggest these operations consume enough power to rival the annual electricity needs of some entire countries have resulted in Bitcoin facing harsh criticism in recent years, presenting a major barrier to mainstream adoption.

However, Bitcoin’s inherent energy consumption can actually offer significant benefits by stabilizing electricity grids and reducing the cost of power for consumers by balancing supply and demand.

Monthly and yearly electricity consumption is spread unevenly throughout the day. Peak demand often occurs in the morning and evening hours, while at night and on weekends, it is significantly reduced. In many places, Bitcoin mining may consume only the spare electricity that is not used up by local residents, thus allowing power plants to operate at full capacity. Meanwhile, the average consumers are spared from greater expenses meant to cover the production of that “excess” electricity.

Moreover, the fierce competition among validators and Bitcoin’s deflationary nature incentivize miners to find more efficient and sustainable ways to mine. As the mining process becomes more competitive, miners will likely continue investing in more advanced hardware and software to increase their chances of successfully mining new Bitcoin blocks. In addition, they will also take further steps to use renewable energy sources, such as wind and solar power, thus reducing mining’s environmental impact even more.

As a result, I expect the public perception of mining to become more positive in the next five years, and mining itself to become more sustainable as a business.

Following the Salvadoran Example

In recent years, there has been a growing trend toward accepting bitcoin as a legal payment method. Several countries have legalized using BTC for various purposes, such as buying goods and services or paying taxes.

In September 2021, El Salvador took this trend further by becoming the first country to make bitcoin a legal tender currency. Despite a somewhat troubled start, the nation’s experiment has come with many positive results, especially if we consider the Salvadoran GDP growth of over 10% in 2021 and the 30% increase in tourism since BTC’s adoption.

I believe more nations will follow El Salvador’s footsteps to find an alternative solution to protect their economies against the current economic uncertainty. For example, similar plans to make BTC a legal tender have sprouted up in Mexico, Arizona and Switzerland. Meanwhile, Liechtenstein’s upcoming legislation plans to enable Bitcoin payments for government services.

However, while the legalization of Bitcoin as a payment method has many advantages, independent cryptocurrencies have always been seen as a threat to fiat. Crypto adoption increasing worldwide is surely the reason why many governments are committed to developing their own central bank digital currencies (CBDCs). These are essentially national currencies with state control over their issuance and payment networks.

Arguably, CBDCs stand a greater chance of gaining mainstream adoption than Bitcoin in the coming years. This is due to their potential for integration with existing financial systems and regulatory frameworks, as well as the backing and support of central banks around the world. However, both Bitcoin and CBDCs are still in the early stages of development, and their adoption will depend on a variety of factors.

Is Bitcoin The Currency Of The Future?

With a shift in consumer and business attitudes, growing use as a store of value and a medium of exchange, as well as positive developments in the mining industry and among national governments, Bitcoin is gradually progressing toward mainstream adoption.

As bitcoin use cases continue to expand, I believe more individuals and organizations will realize its potential as a long-term investment tool.

This is a guest post by Didar Bekbauov. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.