With Bitcoin Mining Becoming More Industrialised, What Will This Mean for the Future of the Bitcoin Blockchain?

Profitability was always a challenge for smaller bitcoin miners, and the recent downturn in the crypto markets has put a huge amount of pressure on the bottom line. With bitcoin prices hitting two-year lows in 2022, and energy prices rising rapidly across the continent, profit margins are getting hit from both sides. Bitcoin profitability has almost halved over the past month (from $0.0822/THs/day to $0.056/THs/day), so it’s no surprise that a number of retail Bitcoin miners have been forced to close their rigs. These issues are further exacerbated by increased selling pressure in the markets; those miners who don’t run lean operations need to cover their operational costs and so, when the price of bitcoin does recover, there is even more of an incentive for these miners to sell their reserves.

Is Bitcoin decentralisation under threat?

The good news is that, despite the difficulties faced by miners, the hashrate of the bitcoin network remains at record-highs. This means that, while prices are low and many miners have to turn off their operations, the largest miners have been able to continue mining, thus ensuring that the blockchain network is more secure than it has ever been before. Of course, if all of the smaller mining operations were acquired by larger entities, then we could see a network that is less decentralised and more vulnerable to attacks. It should be noted, though, that for this to happen one miner would need to control in excess of 51% of all mining operations. Technically this would be extremely difficult to maintain, and the financial costs would be huge.

Energy in industrialised Bitcoin mining

It doesn’t matter who is mining bitcoin, or what resources they have to do so; mining is always going to be extremely complex, and energy intensive. The restrictions of fossil fuels globally will inevitably trickle down to bitcoin mining, and it won’t be long before we could see sanctions on those miners that haven’t made the switch to renewable energy. Those who are using sustainable energy in mining will be able to show provenance for their bitcoin, and it wouldn’t be surprising to see this as the only differentiator in years to come, particularly as it is so closely tied with environmental, social, and governance (ESG). At the very least, non-sustainable mining will be priced out by the increasing cost of traditional energy.

One other factor to consider with bitcoin mining becoming more industrialised is that localised energy outages could have a larger global impact on the blockchain. If there are fewer miners owning more of the hashrate, there is an increased threat to transaction verification activity if they were to have a power outage.

The creation of better practices

As bigger actors occupy more of bitcoin mining operations, we should expect to see larger scrutiny with regards to ESG factors. This, in turn, should lead to more investment in bitcoin mining going greener; especially given that larger companies have more financial and technical resources to do this. They will also have better negotiating power to implement themselves on local grids, as well as generally better access to renewable energy. Retail bitcoin miners are largely governed by regulation imposed upon them, but the introduction of bigger players creates the opportunity for self-governance and, hopefully, the implementation of better, more-responsible practices.

The industrialisation of bitcoin mining seems more and more inevitable as we see smaller miners shaken out by the volatility of prices in both crypto and energy. While this could pose a risk to decentralisation, it should make it easier to apply and monitor regulations, especially regarding green energy use. As long as bitcoin mining remains open to all, and isn’t monopolised by too few players, then we should embrace this evolution of the industry.

About the Author
Robin Vaks is Head of Mining Operations at COWA, the largest zero-carbon bitcoin mining company in Europe. He has a strong background in electricity analysis, and oversees COWA’s efforts to make bitcoin mining more sustainable.

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