How is it going to be Bitcoin mining in 2020?
I- What happened in 2019 — Emergence of large-scale corporations:
I already explained in the article “Is bitcoin mining worth getting into for 2019?” that the Bitcoin mining competition in 2019 was way more than what we observed in 2018 due to surge in number of miners either individual-scale or enterprise one. However, the increase in enterprise-scale mining was really significant since we have been observing many new corporate/companies, or even big and famous ones already active in other fields, taking steps into Bitcoin mining and trying to grab a piece of this new-emerging profitable industry into their pocket.
We have also witnessed deploying of renewable energies to supply for Bitcoin farms in many countries including the most significant and suitable one hydro electric energy. Regarding previous articles from 2017/ 2018 ( Is Bitcoin mining still profitable in 2018? ), it was possible to mine Bitcoin with even electricity cost of 12 $cent/Kwh in Europe in those time! However, even in those time we had several companies like Bitmain in China, Bitfury in Georgia, and Genesis-Mining in Island that were sweeping significant profit margins from Bitcoin mining thanks to their very cheap electricity around 5 $cent/ Kwh.
As a matter of fact, emergence of big and industrial-scale players brought a new level of competition into the blockchain industry and made it difficult for smaller players who had access to more costly resources!
Looking at the records in 2018, the ROI (Return of Investment) was around 10 month long which was a lucrative rate but in even decreased into a better rate of 8 month in 2019!
It is worth noting that we had an emergence of lending crypto platforms in 2019 that were ready to lend you Dollar or USDT based on your Bitcoin deposit without even any credit check. This was good news for many average-scale miners to strengthen their computing power of mining through this new stream of fund.
The most used mining machine in 2018 was Antminer s9 which was a legend among its comeptitors. However, we witnessed release of new miner generations in 2019 based on new ASIC chips 7nm. We could name Antminer s11, s15 and s17 from Bitmain and Whatsminer M20 and M21s from MicroBT, two big Chinese manufacturers.
It’s clear that mining Bitcoin is a competition and whoever compete in better resources specially energy will overcome others. Comparing to 2018, the year 2019 this competition was way more bloody tight and costly that put many small-scale miners in hesitance whether they should continue mining in their current way. If the good electricity price for mining was 0.05 $cent in 2018, it was around 0.03 $cent/ kwh in 2019. Therefore, the competition for mining more Bitcoin turned into the competition for obtaining the cheapest source of energy in every corner of the world from Latin America Chile and Paraguay to the north of Europe Norway and Sweden to the farthest cold deserts and mountains in Siberia and Magnolia!!
Actually 2019 was a start for a race to posses all the efficient and cheap sources of energy all over the world -a race to energy!
Actually 2019 was a start for a race to posses all the efficient and cheap sources of energy all over the world -a race to energy!
According to energy price above 10 Euro/ kwh, Europe was already kicked out of competition in 2018. However, some could find good places in in north of Europe like Norway or Finland but those capacities are not that much to make them a hot bed for bitcoin miners. In 2019, the European company Northern Bitcoin developed their facilities in Maloy Norway bu succeeding in attracting new financial investment through selling their stock in Frankfurt Stock Exchange. Their share-value is now around 7.5 million Euro in Frankfurt. They claims they will extend their capacity of mining upto 120 Mw by the time new stream of fund injected.
Two Canadian corporate-scale crypto mining firm Hut8 and Bitfarms have capacity of each 100 MW to supply their miners.
Hut8mining is formed by joint partnership of Bitfury (ASIC producer) and Galaxy digital (owned by Mike Novogratz) in 2017 and has succeeded to add up their computing capacity frequently.
On the other hand, Bitfarms founded by Israili-Canadian investors and owned by the famous millionaire co-founder Pierre-Luc Quimper, have successfully developed their mining facilities in Quebec, Canada. Contrary to Hut8mining, Bitfarms has its own technical team to overhaul and maintaining miners and infrastructures. They already bought and possessed the electrical company Volta with more than 40 person employees to perform the maintenance task and technical support so that they could increase the profit margin for the whole mother company and fast technical repairments to keep the miners uptime in high levels.
Canada has turned into a Bitcoin-friendly country at least for miners thanks to its competitive cheap renewable energy sources mostly hydroelectricity. According to the records in 2019, you could find hydro energy with the cost of around 4 $cent/KWh in various part of Canada such as Vancouver, Alberta and Quebec. Although this price is not the best one, it is a decent price among other competitors. Why not best?! Could you find cheaper than 4 $cent?!….
The answer is yes. You could find lower prices per KWh in United States in Texas, California, New York, Washington state, Montana. For instance, the new Bitcoin company HashChain has some facility of 12000 miner for crypto mining both Bitcoin and altcoins in Montana, US with the cost of 3 $cent/ Kwh. Moreover, thanks to flare gas generators, you can produce significantly cheap prices even below 3 $cent/ KWH in places holding gas wells like Texas — which is awesome!!
Texas has turned into a new heaven for Bitcoin miners till the announcement of some energy firms there to provide very good price electricity to those interested in large-scale Bitcoin mining. For example, we could name Bitmain, the biggest name in ASIC manufacturing, announced in 2019 that intends to establish a big farm of 300 MW capacity in Texas in cooperation with DMG Blockchain company as the contractor and developer of the project. There’s no clue about the energy price in the contract between Bitmain and Texas energy firm but some speculations say, it’s around awesome price of 2 $cent/ Kwh!!
II- Bitcoin Mining in 2020 — A race to Energy!
Year 2019 had very big achievements for crypto mining industry and lead to big flux of investments and funds into this disruptive economy. We have been witnessing several mining companies entering into financial markets like public stock exchanges and accessing to more financial instruments to finance and lowering their risks by hedging techniques. As such, this will continue also to year 2020 with the difference that we will witness new and big hedging instruments available for miners to lower their risks! And maybe you don’t know what this means but I should say this is going to be a “safe haven” for Bitcoin miners!
This revolution has already started at the end of 2019 by the liquidity provider group GSR. They have formed a startup joint with Caanan, big name in ASIC manufacturing, to introduce derivative products to crypto mining companies so that they could vast effectively mitigate Bitcoin market volatility and higher their margin profits. You see?!…Every year this disruptive industry of blockchain is growing their legs in every branch of economy. I would say an octopus growth!
Rich Rosenblum, GSR co-founder, told CoinDesk that the companies were specifically offering two products: “a tailored risk management solution for miners,” which provides an average-priced option or swap contract, and a new type of futures contract that trades based on hash rate.
Apart from the emergence of hedging instruments for crypto miners, year 2020 will be a race-to- energy competition like what we already had in cold war back to 1950–1985 between the Soviet Union and United states. As there are not many energy sources with enough cheap price appropriate for Bitcoin mining as such there will be a tough competition among individuals and companies to possess them before others even if they cannot commission and build all the electrical capacities at the beginning!!
This race-to-energy has already initiated in 2019. For instance, some Korean investment holding has pre contracted for 500 mega watt of energy utilization from renewable energy, hydro electricity, in a region in Paraguay for dedicating to Bitcoin mining. The name of the project is Golden Goose and owned by a Korean foundation named Commons Foundation which has entered into an agreement with Paraguay to construct what it claims will be a large mining hub. The government has provided five 10,000-square-meter plots of land to host five planned mining centers. The land is in close proximity to a massive hydroelectric power plant.
The best spots and regions for Bitcoin mining are typically built around gas power plants as well as hydro plants amongst which the second one is renewable and a better source to rely on for a sustainable future.
Therefore, Canada is one of these spots appropriate for mining thanks to its huge source of renewables including Hydro plants originated from its mountains’ waters. Moreover, regarding its cold climate, it makes it an efficient place for natural cooling of the Bitcoin factory.
United States is also turning into a Bitcoin-friendly region gradually; however, not in all the states for sure. As regarding renewables, there are some large-scale renewable plants in US solar and wind that could be used for Bitcoin mining. The important point to mention is that typically solar and wind energies are not economically justified for mining since their least price for selling is above 9 $cent /kwh and this price means death for miners!! Nevertheless, for large and bigger solar or wind farms usually in range of 500 MW-1000 MW, it is possible to sell the output energy in the way lower prices then smaller renewable farms and even in the range below 3 $cent per KWh! But since there aren’t many places around the world to have such a large farm or capable of building it, then you can find very special places in the world to sell you solar/wind energy cheap enough for Bitcoin mining.
Amongst these places we can name Mojave, California which a good place for establishing solar panels and produce renewable energy. A new company named Plouton mining already started to build a small mining farm of 5000 miner powered by solar energy.
However, this is a small scale solar plant! Is it economical?!…Actually if you have access to good line of credit and long-term loans and other incentives then it could be economical to deploy a small solar farm to be injected into a Bitcoin farm. Hence, they should have obtained a decent finance for their solar farm to the extent that they can bring the production cost of their panels down below 4 $cent per Kwh, otherwise it is not reasonable for them to mine Bitcoin there.
So you see this race-to-energy already reached US lands and it is not even limited to renewables but also gas generators and flare gas plants. Utilizing flare gas, which is a wasted gas, to produce energy has found its economic roadmap into Bitcoin mining solution. As such, we are witnessing some start-ups and new companies have started to develop Bitcoin farms along with their own manufactured generators with very very cheap output electricity around 1.5–2 $cent for each Kwh. Examples could be founds in Texas, Illinois and Canada and it is going to take a huge market in 2020. So we can say flare gas could be a golden waste for bitcoiners in 2020!
Let’s get back to mining machines and their efficiency growth in 2019. Actually ASIC mining started with 28 nm ASIC chips and then by progress of new tech mother manufacturers like TSMC (which is main chip producer for Bitmain, Caanan,…) new generation of 14 nm ASIC introduced into market in 2017 and this continued into newer generations of ASICs 10nm, and 7nm in 2019.
The most famous legendary miner Antminer s9 (by Bitmain) had hashing power of 14.5 Th/s and it was a tech-jump in the time of release in 2017. It’s efficiency was 0.093 J/GH and due to table in the article “What is a good Bitcoin mining hardware?” it would resulted in efficiency of 1% comparing to other ASIC miners. However, in next years the progress in ASIC technology continued till release of new ASIC generations. For instance s11 and a short after s15 succeeded to improve efficiency to 1.5% which was a noticeable improvement with respect to S9.
But this wasn’t the end! Since new 7-nm ASICs showed up and lead to release better machines like Antminer s17 with computing power of 53 Th/s. This was an amazing achievement since it lead to performance of 0.039 J/GH or according to aforementioned article an efficiency of 2% which was a great news for the miners in lack of electrical capacity as well as those with higher energy prices.
In 2020, we are expecting to see even newer ASIC chips of 5-nm with output efficiency of more than 2.5% that could be improved to higher rates with even better controlling firmware. As we see, Bitcoin not only made his way through technological barriers but also has improved the edge-of-science by its intrinsic value and incentivized economy. However, the older version of miners like Whatsminer m3 and antminer s9 are still widely in use by most of miners and the new efficient fleet will replace them gradually.
Another significant factor of Bitcoin mining is how you are cooling your mining machines and environment. Since they give out high temp air and heat so choosing the best and efficient solution for Bitcoin farms is necessary. Although many circles this problem by choosing a region with cold climates like Canada and Siberia, it is still needed the least cooling systems for the hotter seasons or other regions with warm climates.
As I already discussed cooling issues in the articles How is a calculated needed cooling system for a Bitcoin mining farm and What infrastructure is required for Bitcoin mining and How do I configure it? There have been developing several solutions for Bitcoin farm cooling. The most simple and effective one is air cooling and air fans. The advantage is that it is very cost effective in terms of initial and maintenance expenses and the defect is that it could only be used for light and normal cooling best suited with places with medium and average temp climate.
For more warmer places specially in summer you could use evaporative pads beside the air fans so that you can have a more effective cooling system with a negligible cost. For those very fussy in infrastructure designing, datacenter cooling systems and design could be an specific method to be deployed in establishing their Bitcoin farm; however, it exerts much more initial expenses or capex to the owner. Liquid cooling is a way used by some miners round the world but the method was left very soon as resulted in more cost/efficiency in most cases. Actually, liquid cooling or to be more specific 1-phase liquid cooling has a very good effect in circulate or distributing heat out of miners environment but as soon as it comes to heat exchangers or radiators for getting cool, it has nothing to say more than simple air cooling. Nevertheless, there is other method of liquid cooling named 2-phase cooling or 2-phase immersion cooling, which is a real solution to reduce temperature of mining liquid. Bitfury is one of the pioneer companies that has used this method in their mining containers in Hut8 mining farm in Canada. There still remains an issue of cost and effective rate and if its cost deserves to make it deployed as final solution.
III- Hopes and Risks
Interest in cryptocurrencies has surged since 2015 as bitcoin has seen its value rise from about $300 per coin to a peak of about $20,000 per coin in December 2017, then dropping to about $8,000 per coin as of November 2019.
Mining cryptocurrency seems like a no-brainer. Set up a computer to help solve complex math puzzles and you are rewarded with a coin or a fraction of a coin. The first bitcoin miners were able to earn coins relatively quickly just using what computing power they had in their homes.
By 2019, cryptocurrency mining has become a little more complicated and involved. With bitcoin, the reward is halved every four years. On top of that, serious miners have built huge arrays to mine, making it harder for smaller miners to compete. You can join a bitcoin mining pool to be more effective, but that comes with a fee, reducing your profits.
Investing in expensive equipment and spending high prices in energy bills to mine bitcoin only makes sense if you believe the price of bitcoin will rise by the time! The market of Bitcoin is still small comparing to Gold, metals or big companies like Apple and Amazon. Those that decided to invest in this industry, already hopes that Bitcoin will hugely adopted by crowds all over the world and the its market cap will reach easily above 1000 Billion$. So you see it’s about how much faith or hope you have in this revolution (blockchain and Bitcoin) and how much you are going to risk to be an early Bitcoin adopter or miner in the following years. But what the situation is currently for Bitcoin mining is a high-risk high-reward investment. I myself believe that crypto is a revolution of hope, equality, and wealth decentralization and as such I strongly think it will succeed.
The important Halving Event of Bitcoin in 2020:
The current global bitcoin network rewards miners 12.5 bitcoin per block, which is approximately 1,800 bitcoin per day. In May 2020, the bitcoin daily reward will halve to 6.25 bitcoin per block, or approximately 900 bitcoin per day. This halving may have a potential impact on the Company’s profitability at the reward level of 6.25 coins. Based on the fundamentals of bitcoin mining and historical data on bitcoin prices and the network difficulty rate after a halving event, it is unlikely that the network difficulty rate and price would remain at the current level when the bitcoin rewards per block are halved. Bitcoiners believe that although the halving would reduce the block reward by 50%, other market factors such as the network difficulty rate and price of bitcoin would change to offset the impact of the halving sufficiently for the Company to maintain profitability. Nevertheless, there is a risk that a halving will render mining companies unprofitable and unable them to continue their existence . However, according to my knowledge and record we are at the most pessimistic level of Bitcoin price 7000$ in Dec 2019 which could be also valid as the bottom line for Halving time. As matter of fact, I don’t believe in any sudden price change in the time of Halving but I expect a gradual Bitcoin price increase to a more reasonable price which originates from a trade-off between network difficulty and miners expectations as well as growing demands by new bitcoin adopters. I see that price to be around 15000 $ in the following month in 2020.
( you can also find other topics related to Bitcoin mining on Quora here)
Author: Mehran Fa
