As a digital asset, Bitcoin has enjoyed remarkable growth since Satoshi Nakamoto created the Genesis Blockback in 2009. From an ambitious concept aimed at decentralizing finance, Bitcoin has become a sought-after digital asset that heads the trillion-dollar crypto market.
Inevitably, the popularity of Bitcoin led to the growth of the Bitcoin mining industry – a market expected to be worth $5.3 billion by 2028.
With a projected compound annual growth rate (CAGR) of 28.5%, Bitcoin mining has attracted institutional money and institution-grade players, with companies lining up to reap the rewards of processing transactions and completing blocks on the blockchain.
Bitcoin mining company Core Scientific today boasts a market capitalization of $1.29 billion, while Marathon Digital Holdings holds a market cap of $1.18 billion. Similarly, shareholders of Hive Blockchain Technologies (CVE: HIVE) have enjoyed 609% growth over the past 5 years.
Even with the recent economic downturn and bearish state of the larger crypto market, the Bitcoin mining industry is displaying signs of resilience.
Growth in the face of adversity
According to data produced by full-stack Bitcoin mining solutions expert Braiiins, a new record high was set for Bitcoin mining difficulty for the sixth time this year, reaching 31.25 trillion.
Mining difficulty increases as the computing power of the Bitcoin network – also known as hash power – increases. Hashing power is increased through the introduction of newer, more powerful Application-Specific Integrated Circuit (ASIC) machines to replace older ones, or through the sheer increase in volume of computers connected to the network.
As Bitcoin mining companies continue to plug in more computers to process transactions on the blockchain, the chances of being rewarded for successfully processing a single block becomes increasingly slim for each competing miner, which translates to rising mining difficulty.
The new record highs in mining difficulty set this year reflect the steady, resilient, and bullish growth of the Bitcoin mining industry, even with the crypto market going through a tumultuous period.
One phenomenon that is seen as a potential growth driver is the emergence of home and small-scale miners. The crypto bull market saw the launch of retail-focused products and services that enabled micro-scale Bitcoin mining. Now, a quick search of social media platforms would reveal a growing number of posts pertaining to at-home mining rigs built by aspiring crypto entrepreneurs.
Large mining firms are also actively expanding their capacities by building out new farms. Riot Blockchain, one of the world’s largest Bitcoin mining companies, officially announced in April the initiation of a 1-gigawatt development in Navarro Country, Texas to expand its mining and hosting capabilities. The company looks to pour in $333 million into the first phase of the expansion plan, which will include land acquisition, site preparation, transmission construction, and substation development.
Meanwhile, on the other side of the pond, it has been revealed that some miners in China have managed to continue operations despite Beijing’s orders of a nationwide crypto ban.
Once the world leader in Bitcoin mining, China’s hash power dropped to zero in July and August 2021 in the wake of a government sanction against crypto mining. This resulted in the mass exodus and dispersal of China-based miners into other countries such as the United States and Kazakhstan, as well as the consequent fall of China as a global Bitcoin mining powerhouse.
However, recent reports indicate that some miners have managed to keep their operations under the radar and are now taking care to work around the blanket ban. As of today, China has managed to re-establish a semblance of its former dominance in the space, rebounding to second behind the United States in total hash rate at 21.11% of the global market share.
Institutional adoption marches on
On the investment front, the growth of Bitcoin as an asset class has also led to a number of significant developments and movements, not only in finance and investment but also in policy.
For example, in the absence of a hotly anticipated spot Bitcoin ETF, investment firms such as Grayscale Investments, LLC and Valkyrie Investments have moved forward with the creation of sophisticated institutional-grade investment products such as the Grayscale Bitcoin Trust (GBTC) and the Valkyrie Bitcoin Strategy ETF (Nasdaq: BTF) to give investors alternative exposure to Bitcoin.
Launched by Grayscale Investments, GBTC is one of the pioneering securities that solely derive value from the price of BTC. Available to investors only through OTC trading, the Trust is a financial instrument that makes it possible to trade shares that are linked to the current price of Bitcoin, without holding the crypto itself in a crypto wallet.
On the other hand, the BTF is an exchange traded fund that invests primarily in Bitcoin futures contracts, creating a secondary market for investors to gain further exposure to the crypto market.
The approval of financial instruments such as these by the U.S. Securities and Exchange Commission is considered a major milestone in crypto, as these products are likely to draw in institutional investors that have remained on the fence when it comes to the cryptocurrency asset class.
However, the lack of a spot Bitcoin ETF in the U.S. continues to be a significant pain point for investors with interest in the space, especially since countries such as Canada and Australia have already launched similar products in their respective markets.
In fact, Canada has recently seen the Purpose Bitcoin ETF – the world’s first exchange traded fund backed by physical settled Bitcoin – make its one-year anniversary after launching on the Toronto Stock Exchange on the 18th of February last year. As the first of its kind in the world, the ETF proved to be immensely popular amongst investors, hauling $1 billion in assets under management (AUM) within a month of its launch. Today, the fund has approximately $1.5 billion in assets.
Despite such a successful precedent, the SEC has shutdown all applications for a spot Bitcoin ETF thus far, citing asset volatility and potential for market manipulation as reasons. Furthermore, SEC Chair Gary Gensler has indicated that a spot BTC ETF will fail to be a reality until a robust regulatory framework is in place around crypto exchanges.
While without a direct link to mining activities in general, the acceptance and adoption of financial products such as these serve as signals that drive the Bitcoin bull cycle.
As the first Bitcoin futures ETF in the U.S., the launch of the ProShares Bitcoin Strategy ETF was closely followed by a 4% spike in Bitcoin price to $64,2016.51 and another hike to a previous all-time high of $66,900 a few days later.
Upward price movements such as these following motions of institutional crypto adoption increase the profitability of ASICS, which in turn impact the economics of Bitcoin mining. When the reward for mining increases, the revenue generation capacity of Bitcoin miners also increases.
On the side of policy, one significant development is El Salvador’s official adoption of Bitcoin as legal tender on the 7th of September 2021. Proposed by incumbent president Nayib Bukele, the country legislated the adoption of Bitcoin to address inefficiencies in international remittances, open the financial world to the unbanked people, and reduce the country’s reliance on the U.S. dollar
Under the legislation, the El Salvador government authorizes the use of Bitcoin to discharge debts, pay for goods or services, fulfil tax obligations and other such functions fulfilled by legal tender.
This is considered a landmark moment for Bitcoin, as it immediately puts the cryptocurrency to the test. Financial authorities around the world are closely watching the country’s actions to understand the impact of this decision and the consequent adjustments that might be necessitated moving forward.
More recently, President Bukele hosted an annual meeting of the Alliance for Financial Inclusion, where he promoted the adoption and use of Bitcoin to 32 central banks and 12 financial officials in emerging economies on the back of the benefits that his country has enjoyed from their own Bitcoin adoption.
Even with push back from the International Monetary Fund, President Bukele has remained unperturbed and unwavering in his support for Bitcoin. And if Bitcoin weathers the challenges and succeeds as a viable legal tender, it can be seen as a success for both El Salvador and the leading cryptocurrency.
On one hand, El Salvador can be forever enshrined in history as a first mover and the first nation to ever adopt Bitcoin as legal tender. On the other hand, it could also fuel even further the bullish case for Bitcoin, and concretely validate the economic viability of the Bitcoin mining industry.
Making Bitcoin Mining Sustainable
Bitcoin mining consumes half a percentage point of all the electricity consumption in the world. According to the Q1 2022 report of Bitcoin Mining Council, the total annual power consumption of Bitcoin is currently 247 TWh. Thus, putting it on par with the usage of some countries like Argentina (121 TWh), the Netherlands (108.8 TWh), and the United Arab Emirates (113.20 TWh).
In the past five years, Bitcoin energy consumption has grown tremendously and is estimated to rise rapidly up to 706 TWh by 2027, according to NYDIG, a bitcoin financial services company. This massive computing power required to mine bitcoins leads to criticism about its environmental footprint. The concern was also exacerbated by the fact that two-thirds of the energy used by these miners was from coal.
Consequently, in 2021, a group of more than 150 crypto companies signed the Crypto Climate Accord. The crypto industry took a big step to fully transition all blockchains to 100% renewable energy by 2025, fully decarbonize and achieve net-zero emissions from electricity by 2030 and full net-zero by 2040.
Solutions are being implemented with the increasing number of eco-friendly mining facilities already operating at a massive scale. A recent report from Blockchain Mining Council (BMC)posits that bitcoin mining has rapidly moved away from non-renewable resources in the past years. Accordingly, the crypto mining industry recorded a 59% increase in the year-on-year utilization of sustainable energy sources to mine bitcoins. BMC members are using 64.6% sustainable energy mix, which comes from renewable sources like hydro, wind, solar, nuclear, geothermal, and carbon generation with carbon offsets.
The survey results indicate that the green energy mix for the global Bitcoin mining industry stands at 58.4% in Q1 of 2022, significantly higher compared to the estimated figure of 36.8% in Q1 of the previous year. The report also shows an increase in the energy efficiency of mining operators by 63% from last year and 5,814% compared to eight years ago. Bitcoin mining power consumption has declined by 23% in the previous year, while the hash rate has increased by 23%, from 164.9 to 202.1.
This trend is expected to continue as more and more mining companies seek ideal locations to relocate and expand their mining company. Immediately after China banned bitcoin mining, crypto mining companies relocated to countries like the United States, Iceland, and Norway. These are excellent locations for bitcoin mining companies because of the accessibility of renewal energy sources. Companies can also take advantage of the competitive rate of renewable energy to power their machines and low temperatures in the countries to help reduce their operational costs by cooling the computer servers naturally.
“Prioritizing some form of clean energy to power the majority of operations is, in the long term, a sustainable model for successful mining operations.”
Mas Nakachi, Managing Director, XBTO Digital
Technological Developments in Bitcoin Mining
Bitcoin mining is the process by which new bitcoins are entered into circulation. It involves validating cryptocurrency transactions on a blockchain network and adding them to a distributed ledger. It is performed using sophisticated hardware that solves extremely complex computational math problems and algorithms to authenticate and protect digital transactions, from which the first computer to find the solution to the problem receives the next block of bitcoins, and the process begins again.
From the traditional GPU-based systems designed to perform multiple functions, bitcoin mining companies are now using application-specific integrated circuit (ASIC) miners – a more specialized and efficient crypto mining hardware product explicitly designed for mining.
Hardware companies continuously innovate and produce advanced and high-end ASIC miners to cater to the increasing demand of bitcoin mining companies. According to Geekflare, below are some of the newest and most advanced models of ASIC in the market.
- Antminer S9 Bitcoin Miner – The Antminer S9 is Bitmain’s latest ASIC miner in a long line of ASIC miners. The S9 has a maximum hash rate of 13.5 TH/s and is set to mine Bitcoin. When operating at top performance, the Antminer S9 utilizes 1323W of power, making it one of the most energy-efficient Bitcoin mining devices on the market.
- QIO TECH Bitmain Antminer S19j pro 100th/s – QIO Antiminer has a maximum hash rate of 100TH and employs the SHA-256 algorithm. The hash rate is so high that it virtually ensures a large profit margin. This type of machine uses a lot of power, up to 2950 watts.
- Nebra Outdoor Helium Hotspot Miner HNT Crypto 915 MHz US – It is the world’s first helium-powered, 915 MHz processor in a compact form factor. It is powered by a cutting-edge ASIC and can mine a range of cryptocurrencies like Bitcoin, Ethereum, and Litecoin.
- Bitcoin Miner Machine Whatsminer M30S / M31S+ – The M30S and M31S have an industry-leading energy efficiency rating of 99.9%, allowing them to harness the least amount of energy possible to optimize revenue. The M30S was one of the first miners to introduce the 3x joules per Terahash generating. It has a maximum Terahash of 88 TH/s and power consumption of 3344W, with a hash rate variation of less than 5% and a power consumption fluctuation of less than 10%.
- Canaan AvalonMiner 1246 85TH/S Bitcoin Miner – Canaan’s flagship product AvalonMiner 1246 employs an SHA-256 designed for the intermediate to advanced user and built for the most profitable and efficient cryptocurrency mining. It has the ability to mine SHA-256 at a rate of 85TH/s, making it most cost-effective option for small- to medium-scale mining operations.
It is a globally acknowledged fact that Bitcoin mining is an energy-intensive and heat-generating process. As a result, mining companies are constantly looking for methods to cool their mining equipment without compromising productivity and profit.
To prevent overheating, companies are using air cooling and immersion cooling technology. The traditional and simple method of managing the heating and cooling of mining rigs is air cooling, which involves using ventilation fans and atmospheric air to regulate the temperature of mining equipment. Heat is dissipated by increasing the flow of air over the mining rig. To increase the effectiveness of air cooling, energy-sapping refrigeration components like chillers and air handlers are often used.
A more advanced and rapidly evolving technique for cooling mining rigs is immersion cooling. It is a practice of completely submerging or immerging the mining rig in a thermally conductive liquid with greater insulating properties than ordinary air. This method is very effective, with 40% of heat recaptured and used to power the mining rig; heat rejection increases ten times compared with air cooling.
Future Outlook for Bitcoin
Clearer regulations and guidelines to make cryptocurrency safer for investors across various jurisdictions are also set to be placed in the coming years. Furthermore, growth in sustainable energy usage in bitcoin mining is anticipated due to increasing environmental consciousness, political pressure, and an eye on the bottom line.
As bitcoin mining speeds up its transition to becoming a zero-carbon future, it also presents an opportunity to accelerate the global energy transition to renewablesby sourcing energy from renewable sources and utilizing surplus renewable energy supplies. This could have ripple effects that extend well beyond bitcoin mining onto power grid systems around the globe.
