The bears of Bitcoin mining: How miners are adapting to the threat of shut down.
I would argue that the 2018 Bitcoin bear market has been positive for miner innovation and efficiency.
It is easy to get caught up in the short-term hype created in such an exciting and volatile market. However, for Bitcoin and other cryptocurrencies to survive and prosper, negative incidents are a natural precursor to development and streamlining of the global crypto industry.
Not only have we seen some of the weaker ICO based cryptocurrency projects being found out, we have started to see the strain on miners, from hobbyists through to the largest corporations. I have noticed many people selling off their mining rigs on the community groups I am involved with and a general apathy developing towards mining in general.
Obviously this is a negative for our industry but as I mentioned earlier, I believe it is essential to the evolution of Proof of Work (PoW). For starters it re-ignites a healthy debate around Proof of Work, Proof of Stake (PoS) and other consensus ideas (read more about PoW v PoS here). Due to the astronomical gains seen during the bull run of 2017, many miners went along for the ride and over capatalised. Furthermore, once set up, the miners would just watch the cash roll in.
This created two problems, first the over abundance of hardware that was made redundant due to electricity costs when the Bitcoin market entered its downward trend, secondly it did not encourage miners to innovate or streamline their system.
“What is interesting is seeing the innovation that has since taken place during this lull in trading activity.”
No-one can predict the future and it is understandable that people sought to join in the mining boom while it was showing clear profit. What is interesting is seeing the innovation that has since taken place during this lull in trading activity. Many smart operators have invested in off-grid solar set ups that have them profiting again and with a lower environmental foot print long term. They have negotiated lower electricity costs, locked in low-cost long term network and hosting contracts and looked to make their setup as efficient as possible. These operators will have a solid advantage come another bull run in the future.
The bigger companies, such as Bitmain, have started to trim some of their more elaborate activities. For example Bitmain had a new mining pool, AI research, super computers, data centers and security chips all in development. The market price dropping has unfortunately led to these ‘non-core’ activities to be downsized. Some would say that Bitmain was starting to lose its focus, which can be a pre-cursor to financial trouble. The current market forces them to re-evaluate their position, along with other large mining operators in the space. In the future we may look back at this period of time as a lesson in how to stay grounded and efficient in all market periods.
In conclusion, the market can be brutal, but the market is a person’s most honest critic. If miners are to continue to effectively run the Bitcoin network, then they must adapt. At a higher level, we should all be asking whether mining is still the best way to reach consensus, especially with all the smaller players leaving the mining space; and if it is, we need to focus on streamlining operations to future proof investment.
