16.05.2021

Up to 30% of Bitcoin Miners Close Shop as Business Turns Unprofitable After Halving

The third Bitcoin halving – consummated earlier today – reduced supply of the pioneering cryptocurrency, cutting the bonus paid to miners for solving mathematical puzzles that underpin the network by 50% to 6.25BTC per block.

About a third of Bitcoin mining firms may already be switching off their machines as the business becomes unprofitable due to a reduction in mining rewards.

According to Alejandro De La Torre, VP at mining pool Poolin, miners who make up between 15% to 30% of the entire BTC network hashrate are already in the process of shutting down as profit margins come under pressure.

Those companies operating inefficient “old generation” mining rigs, such as Bitmain’s S9 miner, on higher electricity costs, will be most affected, he opined.

“The … final difficulty adjustment with the 12.5 BTC block subsidy will occur one week before the halving (1008 blocks), and the difficulty is projected to increase”, De La Torre wrote in a recent analysis, adding:

We expect that the first 1008 blocks after the halving will be mined slowly as huge numbers of unprofitable miners drop off the network. We estimate around 30% of the entire Bitcoin network will be squeezed considering that the first 1008 blocks will have the pre-halving difficulty, but half the reward.

Miners are facing pressure from the periodic halving, as the event will affect revenues for mining companies a great deal.

Some experts argue that the revenue decline might be compensated by a spike in the price of BTC – a feat generally associated with previous halving events. However, if the price drops, less efficient miners will be squeezed out faster.

De La Torre said “mining is a long game about survival” and firms that fail to move to more efficient mining machines or to find cheaper electricity will “capitulate”.

“While we expect most of these miners will shut down after the halving, it is likely that some of them have cheap enough electricity to survive in the near future”, he stated.

The Bitcoin mining reward has dropped from 50 in 2009 to 25 in 2012; 12.5 in 2016 and then to 6.25 this year (all in BTC), in a pre-determined, inalterable supply cut every fourth year, meant to keep inflation in check.

US Bitcoin Miner Aims to Repatriate 30% of Hash Rate Citing National Security

Bitcoin mining startup Layer1 Technologies has begun operations at its West Texas facility, with an ambitious roadmap to secure 30% of the hash rate.

Layer1, which raised $50 million in November from Thiel, Shasta Ventures and Digital Currency Group, said it has now brought multiple 2.5-megawatt liquid-cooled mining containers online.

Its short term goal is to scale up to 100 megawatts and 2% of the hash rate over the coming months.

But it’s the long term goal that’s raising eyebrows: the company roadmap lays out a vision of repatriating 30% of the hash rate to the United States by the end of 2021, citing national security considerations. On current figures, that would make Layer1 the largest mining outfit in the world.

More than 60% of Bitcoin mining operations are currently located in China but less than 5% of the hash rate and none of the hardware for Bitcoin mining come from the U.S.

In a statement, Layer1 claimed that bringing almost a third of the hash rate back to America will enable the U.S. “to offset China’s dominance in Bitcoin mining and improve the country’s national security efforts for an asset class with the potential to be a reserve currency”.

Layer1 is building sustainable Bitcoin mining

Layer1 is designing and producing its entire mining infrastructure, using proprietary ASIC chips and liquid-cooled mining containers that the company claims enables it to “unlock warmer climates” where low-cost, sustainable energy is available. However much of its custom mining equipment won’t be ready until mid-2020 and it is using third-party machines in the interim.

Co-founder and CEO Alexander Liegl said the company was already profitable in the short term and would thrive when others faltered as a result of the Bitcoin block reward halving in May.

“From hardware to energy, we’ve redesigned Bitcoin mining from first principles to control every profit and cost lever across our technology stack. Far too many mining operations still work from a playbook stuck in 2017; the halving will be a death knell for many of them.”

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