Bitcoin's Global Mining Outlook

Bitcoin's Global Mining Outlook

In what seems like a never-ending bear market, the base cost of mining popular cryptocurrencies is never far away from interviewers talking points. Reputedly a ‘measure’ of how low Bitcoin and other major PoW cryptocurrencies can fall, the profitability and sustainability of maintaining these networks has never been more important.

Mining, a Recap

The narrative of cryptocurrency mining has largely centered around profit potential and growing underlying costs. However, it’s important to remind ourselves of what mining was originally intended for; achieving network consensus. One of Nakamoto’s strokes of genius was to include a free market mode of rewarding users who contributed to the safety and validity of network transactions. Miners (and mining pools) are therefore collecting ‘rewards’ for each successful validation.

But why is this important to remember? Unsurprisingly, people are generally only interested in mining cryptocurrencies such as Bitcoin if they can make money from it. If it becomes financially unviable to do so, most individuals and groups will wind down their mining rigs and will cease to contribute to network consensus. If enough people do this, then network safety can be compromised, increasing the chance of something like a 51% attack.

Global Outlook

So what is the global outlook of cryptocurrency mining, in general, looking like? Essentially we have three main factors to examine; hardware costs, electricity costs, and the underlying cryptocurrency.

1. Hardware

Mining hardware providers, such as Bitmain, are producing ever-efficient hardware units, including the soon-to-be-released Antiminer S15. Producing 28TH/s, and costs $1,475 per unit. Profit at current BTC price levels only equals roughly $70 a year, representing a poor ROI. Other units such as Bitfury’s Tardis produce 80TH/s, but cost $7,000 each, increasing the size of return required to break even.

2. Electricity

Location-dependent. Stories of entire mining setups relocating to jurisdictions of geothermal electricity and sub-zero temperatures to reduce cooling costs are rife. China’s source of ‘cheap’ electricity, through various means, has contributed to further centralization concerns of hashing power. With the increasing demands from hardware to contribute to network consensus, electricity costs will only increase. Current calculations of Bitcoin’s network usage equals around 343 megawatts, enough to power 285,000 US homes. These power demands and solutions to satiate them are only likely to become increasingly important.

3. Underlying Price

And finally the cost of the underlying asset – Bitcoin itself. To return a profit, miners need Bitcoin to be worth more than the cost of hardware and electricity. The ‘floor’ of how much it costs to mine 1 BTC has fluctuated dramatically but points to somewhere between $4,500-$6,000. This is fine when Bitcoin is trading at $15k, but not so fine at current price levels.

Conclusion

Bitcoin’s global mining outlook is therefore currently negative. Production costs are constantly increasing, whilst the underlying price performance of the asset have dramatically decreased. Miners will, therefore, have to take on considerable losses in the hope of regaining costs and turning a profit if and when the market eventually turns around.

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