Bitcoin mining is becoming more challenging and less profitable as the network hash rate reaches new records and the revenue per terahash drops to near-historic lows.
What is Bitcoin mining and why does it matter?
Bitcoin mining is the process of validating transactions and creating new blocks on the Bitcoin blockchain. Miners use specialized hardware to solve complex mathematical problems and compete for the right to add a block to the chain. The miner who solves the problem first gets a reward of newly minted bitcoins and transaction fees.
Bitcoin mining is essential for the security and decentralization of the network. It ensures that transactions are verified and that no one can tamper with the history of the ledger. It also regulates the supply of new bitcoins according to a predetermined schedule that halves every four years.
How is hash rate related to mining difficulty and revenue?
Hash rate is a measure of the computing power of the Bitcoin network. It indicates how many hashes (possible solutions) are generated per second by all the miners. The higher the hash rate, the more secure and competitive the network is.
Mining difficulty is a parameter that adjusts every 2016 blocks (about two weeks) to keep the average block time at 10 minutes. It depends on the hash rate of the previous period. The higher the hash rate, the higher the difficulty, and vice versa.
Revenue per terahash is a measure of how much money a miner earns per unit of hash power per day. It depends on several factors, such as the price of bitcoin, the transaction fees, the mining difficulty, and the mining efficiency. The higher the revenue per terahash, the more profitable mining is, and vice versa.
What are the current trends and challenges for Bitcoin miners?
According to Blockchain.com, over the past week, Bitcoin network hash rate topped 414 exahashes per second (EH/s) on Aug. 18 marking a new peak for the metric. The peak has seen network hash rate surging 54% from what it was at the beginning of 2023 and 80% over the past 12 months.
However, while the network looks good in terms of security, things are not so rosy for Bitcoin miners as revenue has fallen sharply, hitting levels when BTC fell to a market cycle low of around $16,500 in November 2022. According to HashPriceIndex, revenue is just $0.060 per terahash per second per day, around half of what it was in early May when the Bitcoin Ordinals inscription frenzy caused a heavy demand for block space.
Market analyst Dylan LeClair commented on the falling revenue and hash rate peak stating that more efficient new rigs will keep being produced, “but it’s almost time for the price to outpace,” meaning that prices need to adjust upwards to keep mining profitable at such high hash rates.
How are Bitcoin miners coping with the situation?
Bitcoin miners have reportedly been relying on funds from stock sales in the second quarter to keep them afloat during the bear market. On Aug. 24, Bloomberg reported that the 12 major publicly traded miners raised about $440 million through stock sales in Q2.
However, some analysts have warned that this strategy may not be sustainable in the long run. Rho Rider, a crypto researcher, tweeted that “Major $BTC miners are in BIG trouble heading to the halving”. He explained that miners are hoarding bitcoins instead of selling them, but they are running out of cash and other sources of funding.
Mark Jeftovic, who runs the Bitcoin Capitalist newsletter, said “Some mining companies are diluting shareholders at an excessive rate,” before adding “If they are diluting you faster than Bitcoin is going up, then you are going the wrong way on a treadmill”.
What are the implications and expectations for Bitcoin mining?
The current situation poses some challenges and opportunities for Bitcoin mining. On one hand, it may lead to some miners exiting the market or relocating to regions with lower electricity costs or more favorable regulations. On the other hand, it may also incentivize innovation and efficiency in the industry, as well as increased adoption and investment in renewable energy sources.
Some experts have predicted that Bitcoin mining will become more profitable and environmentally friendly in the future. For instance, Michael Saylor, the CEO of MicroStrategy, said that Bitcoin mining is “the highest value use of intermittent energy” and that it will “drive the green revolution”. Similarly, Jack Dorsey, the CEO of Twitter and Square, said that Bitcoin mining will “incentivize more renewable energy” and that it will “change everything for the better”.