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Digital shovels: Exploring the state of US mining — 07/15 (Part 2)

The first part of the event revolved around the China mining ban and its repercussions on the Bitcoin network. That included hashrate drop and migration, the subsequent difficulty adjustment, and the opportunity it brings to retail miners. This next part will address the environmental FUD surrounding Bitcoin, the role of Bitcoin miners, their relationship with mining pools, and the economic fundamentals of mining.

Bitcoin’s true environmental impact

The debate about Bitcoin’s energy usage and its impact on the environment is one of the oldest and, by this time, most pointless. We say that because, although miners have provided ample proof that Bitcoin has close to zero effect both in the global energy consumption and in the environment — the most recent one being the Bitcoin Mining Council’s report — , the media still brings it to the table.

Ryan knows this, and that is why he couldn’t address the subject without giggling a little bit. Our CEO has years of experience in the matter, which is why he enjoys extensive knowledge too.

Most power grids generate more energy than they can consume, leading to overloads and collapses. To maintain the balance, the energy production has to match the consumption.

As an example, Ryan explained the case of California: “During the winter, when we were producing a ridiculous amount of solar energy but no one was running their AC units, there was a moment where we had to pay Arizona to take energy off our grid. So rather than selling energy, we were paying people to take it to balance the grid.” This could’ve been avoided if Bitcoin mining was an option: “If we had large mining facilities, that could counterbalance the solar production where we could do production following rather than load following. We could scale renewable energy in this country to maximum power all the time.”

Indeed, he believes that environmental FUD keeps happening for a reason: People don’t understand how energy grids work. “I think it’s just a matter of education because once people understand the basics of the energy grid and what Bitcoin mining can do with renewables, we can solve the scalability issue with renewable energy using Bitcoin mining.”

But why do the media keep spreading misinformation instead of doing the research? According to Whit Gibbs, it’s one of the last things Bitcoin opponents have to keep fighting: “I think that what’s happening is that we have non-state money that is now coming into an era where more people are understanding it, more people are accepting it. We’ve moved past this whole «It’s shady, it’s the dark web, it’s for illegitimate causes.» Now, it’s being seen as a viable asset class, and you’re going to have the stragglers that are going to throw out the FUD and the smear campaigns and try to get those last-ditch efforts to kill it.”

The role of Bitcoin miners on the network

After each speaker gave their opinion on the energy and power grid topic, Dan Held asked a question that most Bitcoin newbies struggle with: What’s the role of the miners in the Bitcoin network? This dilemma came up recently in social media when some accounts questioned the power miners held over Bitcoin and whether or not they could “control” it.

Whit was made sure there were no doubts on this: “No. The miners don’t control Bitcoin one by one.” He clarified that miners work together to secure the network and ensure that new blocks containing new data and validated transactions are added to the chain, allowing the blockchain to progress.

Dave Perrill then contributed to this definition, stating that miners “are providing the security and the enhancement to run” the Bitcoin network. He explained that the role of miners is to verify that a transaction is legit. Every time a new transaction appears on the Mempool, miners have to confirm that the money went from A to B.

The relationship between miners and mining pools

Derived from the previous question came the subject of mining pools, what they are, and how they are different from regular miners.

Ryan explained that mining pools are essentially hashrate buyers: “A lot of the miners sell off their hashrate to mining pools and the mining pools technically are the ones that will do the voting on the protocol, the choosing the transactions, the creation of the blocks. So simply put, a mining pool purchases hashrate from miners at a profitability calculation and then uses that hashrate to mine blocks.”

But why would miners sell their hashrate instead of mining themselves? The answer is profitability. Small miners can’t compete with the big guys on their own, so they sell their hashrate to secure a profit.

Although you may think that discourages miners from setting up their small operations, Russell Cann believes the opposite. New miners are joining the network, driven not to sell the Bitcoin for profits but to hold it in the long term: “People are choosing to mine as holders and using mining as a way to acquire Bitcoin at less than spot.” Of course, this is highly positive for Bitcoin’s future and price, as it shows the commitment miners have to the network and reduces a lot of selling pressure.

People are becoming miners not to earn dollars, but to earn and keep BTC.

Miners’ most significant issue: Profitability

As you may have noticed, the deeper you dive into Bitcoin mining, the more aspects you have to consider. Mining pools, energy consumption, hardware, government regulations, and the list goes on. Dan Held wanted to keep it simple, so he brought up one of the most important questions for undecided miners: What are the basics of mining economics? What does a miner have to consider?

Dave took that one, explaining that the main costs of how miners make their money is somewhat simple. It’s composed of three main factors:

  • The cost of the acquisition of the equipment, usually measured on a “per terahash” type basis.
  • The cost of the electricity you’ll need to run your operation.
  • The operation expenses, or opex.

However, we can’t ignore other external aspects. The most obvious one is the price of Bitcoin, as that will determine the dollar value of your revenue. Another essential metric to look at is one we’ve mentioned in the first part of this recap: mining difficulty. This changes every two weeks approximately and will also affect the amount of Bitcoin your current computing power can mine.

But as we said, those factors are external and independent. That is why, according to Dave, you need to put all your efforts into what you can control, namely using cheap energy, lowering your operational costs, and finding the best price-quality ratio for your hardware.

The future of mining: As bullish as ever

Dan gave Whit the chance to close the panel, and he decided to do so with an optimistic take on the future, adding to what Russell and Dave had said earlier: “Bitcoin miners are more bullish than they ever have been. They are holding their coins; they are not spending them. They’re raising capital; they’re taking on debt in order to make sure that they don’t have to sell their Bitcoin.” He stated that this is a new dynamic because, up until recently, miners were selling some coins to pay for their monthly expenses. Now, there are different and creative structures and financial products that enable miners to hold their mined tokens, and that’s working in favor of Bitcoin and the bitcoin mining community.

That last commentary perfectly summarized the whole sentiment and general perception of where the industry is going: Towards a brighter, more decentralized, and efficient future. One where Bitcoin mining is not only seen as a way of making money but as the support for the next global financial network.

We want to thank the organization for inviting us to this enriching conversation and letting us share our insights and opinions with some of the industry’s brightest minds.

We are looking forward to the next talk!

The Titan Team

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