Recent World Bank report Global energy prices could remain “historically high” until 2024. They expect energy prices to “rise by more than 50% in 2022.”Given that energy is the only direct cost to the Bitcoin mining network, this is the future POW Mining?
Talk to Mas Nakachi, Managing Director of XBTOHe told us,
“Rising global energy prices can tighten the profit margins of Bitcoin miners and reduce the overall incentive to mine Bitcoin.”
Hash rate reduction
The security of the Bitcoin network relies on maintaining a hash rate, which is the sum of the computational power allotted to mining new blocks. If the incentive to mine Bitcoin is reduced, this could potentially lead to miners leaving the network. Most recently, in 2021, Bitcoin’s hash rate dropped by 40%. one month Like there was a miner shut down In China. However, as you can see from the graph below, there is only a loose correlation between the Bitcoin hash rate and its price action.However, this is Hotly discussed Topics by Bitcoin Maxis. The drop in hash rate in October 2020 did not stop the immediate Bull Run. In addition, prices have been stable due to a significant drop in hash rates in June 2021, hitting record highs just a few months later.
There is a built-in safeguard in the Bitcoin code called “difficulty”, so the market will not panic if the hash rate drops. As the number of network participants decreases, so does the amount of power required to mine the block. The same is true vice versa. The more power that is added to the network, the more difficult it becomes. This will prevent a sudden influx of mining power and unprecedented events from attacking the network, as it happened in China, leaving many miners out of the network. Kevin Zhang, a leading Bitcoin mining pool foundry, said: CNBC After China’s crackdown on miners
“As more hash rates leave the network, the difficulty is adjusted downwards, and hash rates that remain active on the network receive more for the proportional distribution of mining rewards.”
Increased difficulty
Furthermore, the difficulty level of Bitcoin is Best ever Recently, the amount of power required to mine blocks has increased. The more computing power added to the network, the harder it is to mine blocks. This is a mechanism built to keep Bitcoin’s supply constant. For this reason, it is known that it will take more than 100 years to mine the remaining 2 million Bitcoins.But as Samuel Becker Sofi Learn “The more difficult it is to mine Bitcoin, the more power the process consumes,” he explains.
Participation and profits from Bitcoin mining Expected to rise It will reach $ 4.5 billion by 2026 in the next few years. Increasing the number of miners increases the difficulty and therefore reduces the Bitcoin reward per hash. Currently, the reward per 100TH / s is 0.00042199 BTC ($ 16.20) per day, not considering the electricity bill.
Production cost
The Cost per megawatt Energy for large Bitcoin miners such as Hut8, Greenridge, Hive and Marathon ranges from $ 22 to $ 40. This means for companies such as Hut8 with 2.54 E / H mining power. The company’s electricity bill totaled $ 36.9 million in 2019, with a profit of $ 172,124. Their annual report shows that if this price rose by 30%, it would have lost $ 10.8 million. Indeed, Bitcoin costs only $ 9,300 at its peak in 2019, and they are notorious for consuming large amounts of Bitcoin.
Their 2021 annual information states, “The only seasonality the company experiences is related to potential changes in electricity prices due to fluctuations in natural gas prices in the market affecting all Hat 8 facilities. I have reported. “
Natural gas prices have risen 100% since December 2021, while Bitcoin prices have fallen 25%. The cost of fueling mining operations has increased by 100% (assuming this cost has been passed on to miners), but revenue has decreased by 25% when valued in dollars.
In addition, Hut8 states that in terms of risk factors resulting from the business model, “we may face the risk of power supply interruptions and rising electricity prices.” However, it does indicate that some contracts have been signed, indicating that fixed-price contracts have been signed to mitigate this risk. Another large miner, the marathon, Annual report Pay a fixed cost of $ 0.042 per kWh for electricity consumption.
overview
Therefore, the major miners who partially assist in the protection of the network may have entered into fixed-price energy contracts that do not bear the risk of bearing the increased energy costs reported by the World Bank. However, as we have seen in some UK energy companies, there is still the risk that the energy companies themselves may not respect the agreement. I became a bust In 2021.
Anyway, the worst-case scenario is needed for Bitcoin miners to leave the network and actually make an impact. If losing 65% of Bitcoin’s mining power in 2021 was just a speed bump, the energy crisis could have a similar impact.
Natural gas prices were currently at their highest levels since Bitcoin was founded, but in 2008 they were 100% higher than they are today.Finally, according to Ark Investments, 76% of Bitcoin’s mining power is Renewable energy.. The sun and wind don’t care about global economic instability, nor do they care about the production costs of renewable energy miners. The only miners who are likely to be affected by the energy crisis are private private miners who rely on traditional energy grids. Those who mine Bitcoin using ASIC miners at home may need to move to renewable energy or incur high costs within the next 24 months.
