Despite the headwinds in the market, Bitcoin Mining is growing rapidly

Bitcoin according to the latest information, mining has never been so difficult.

The network’s mining difficulty has reached an all-time high 37.59 trillion hashes After posting a rare increase of more than 10% on January 15th, the highest jump since last November – the only time in 2022 that mining difficulty increased by double-digit percentages.

In addition to the high mining difficulty, from the data CoinWarz Bitcoin’s hashrate, best understood as the network’s computing power, also shows a steady rise over the past three years, despite a brief dip following the May 2021 crash of Terra.

On January 6, 2023, the bitcoin hash rate reached 361.20 EH/s (ExaHashes per second).

Bitcoin hash rate since January 2020. Source: CoinWarz.

Taken together, both hash rate and mining difficulty indicate a strong and growing network.

At the same time, there are plenty of recent signs that the mining sector is suffering from serious headwinds.

Compute North, a data center provider for cryptocurrency miners and blockchain companies, has filed for Chapter 11 bankruptcy last SeptemberNasdaq-listed Bitcoin miner Basic Science He did the same before Christmas. Thanks to the Argo mining operation, it managed not to year-end contract with multi-party crypto firm Galaxy Digital.

There were also a few miners They dump their Bitcoin reserves to strengthen their balance sheets.

On top of this mess, Bitcoin’s hash price, a term coined by mining platform Luxor that measures Bitcoin’s mining revenue potential, is 43% below its 2022 average. This decline, combined with energy price inflation, means that mining margins for some miners have never been thinner.

However, Bitcoin mining remains a profitable venture for others, and its global reach is growing.

To separate fact from FUD, Open the password spoke to some of the sector’s leaders to understand why it’s business as usual in the mining industry despite collapsing Bitcoin prices and widespread bankruptcies.

Mining difficulty, hash rate: a quick primer

The Bitcoin network calculates how hard it is to mine Bitcoin, or how much computing power is required to earn it, according to the supply and demand of miners every 2016 blocks (about every two weeks).

The more miners deployed, the more competition there is between them to confirm the block (and win the reward), which ultimately makes mining harder and harder.

But as the difficulty increases, if the price of Bitcoin does not rise, miners may face lower profits because they need more computation and electricity to mine the same valuable asset.

However, increasing difficulty also indicates a strong and growing network, so the temperature of the sector cannot be taken from mining difficulty metrics alone.

To hash rate. Simply put, Bitcoin miners attempt to solve complex encrypted puzzles to validate records of transactions called “blocks” that are then added to Bitcoin’s immutable distributed ledger system. Miners are incentivized to do this through block rewards in the form of Bitcoin.

Each attempt to break the encryption generates a unique code called a “hash”. The first miner to submit a valid hash for a candidate block receives a reward and is added to the blockchain. This way, miners are encouraged to confirm their blocks quickly.

The higher the hash rate, the more attempts (or hashes) Bitcoin miners can make to crack the code in one second – this is a clear indicator of the network’s performance.

according to today’s readingsThe Bitcoin network runs at an astonishing 273.76 EH/s, meaning miners earn about 273 quintillion cracking attempts every second.

The condition of the miners

According to experts, the mining economy has a way of separating the wheat from the chaff.

“The short answer is that most of the over-leveraged miners have already left the network, leaving only quality and cheap miners,” said Scott Norris, co-founder of Bitcoin miner LSJ Ops. Open the password. “They’ve seen a lot of these bear markets before, and they have a model and low energy costs that have carried them through it. So we’re not seeing the same amount of network outages as in the past.”

While troubled operations like Argo and Compute North have made headlines, they haven’t shut down any machines yet and are still profitable, albeit with thinner margins.

Marathon Digital Holdings, the the second largest mining company with market capitalization still exists in the world Increases Bitcoin reserves despite his firm severe exposure To calculate north.

Charles Schumacher, vice president of corporate communications, said: “Obviously we’ve had some hiccups to work through, but all of our miners are still working. That site It used to run Compute North which is where most of our operational miners are today. It is now run by Bitcoin Corp of the USA and it is based on a wind farm in Texas. There are 68,000 miners there.”

“Because we’re outsourced, we can run pretty lean,” he said, noting that the company’s total staff is “about 30 people right now.” He also attributed Marathon’s sustainability to “negotiating contracts and what we’re paying for energy, and a big part of that is our energy efficiency. [mining] fleet.”

Marathon has also done a good job of navigating capital markets and raising money at opportune times: “We’ve never been in a situation where we were forced to sell Bitcoin. We’ve indicated to people that our intention is probably to start selling some to cover operating costs. We wanted to make sure our production was up before we started because we didn’t want to go to the stock markets to pay people’s salaries. This should ideally be funded by the business and then we will use external capital for growth.

Marathon is also one of many miners currently deploying long-prepaid rigs. This is a common practice, says Joe Burnett, chief analyst at Blockware.

“Building mining infrastructure can take years. Some of the infrastructure coming online in 2022 and even early 2023 has been funded by re-raised capital in 2021.” Open the password. “That’s because you can’t source energy, build large mining facilities, manufacture, order and ship mining rigs and connect them very quickly.”

It’s not just the mining economy and low prices that could affect the sector. Mother nature has recently played an unexpected role in recent volatility.

A mining difficulty jump of more than 10%, as seen last week, is “relatively high,” said Colin Harper, head of content and research at mining company Luxor.

However, the recent rapid growth was not the result of a sudden mass deployment of equipment. Rather, a was low A spell of bad weather in North America It led to a negative correction before Christmas, which suddenly turned into an upward correction.

“When a cold front swept across North America, some miners went out of business because the cold caused operational problems, while others limited their power output to feed the grid in response to power shortages,” Harper said.

When the bad weather ended, those miners came back online, raising the hash rate and causing a huge spike in mining difficulty, Harper said.

“The cold weather took 37 EH/s offline – about 14% of Bitcoin’s hash rate before – leading to a significant slowdown in block times and a 3.59% decrease in the January 2nd mining difficulty adjustment. When the bad weather ended, 37 EH/s came back online,” he said. “Block times accelerated, which led to faster confirmation of blocks, which led to the upward correction we saw on January 15th.”

‘Someone, somewhere’ will always mine Bitcoin

While Bitcoin is currently in a bear market, energy is not.

Industrial electricity prices have increased between 2021 and 2022 16% from last year The price of Bitcoin has almost halved compared to this time last year.

So what price does Bitcoin have to be for mining to stop being profitable? Well, it’s complicated.

“Current levels employ a miner S19j Pro producing a hash rate of 100 terahas per second currently ends up with electricity costs of $0.096/kWh,” Harper said. “If the price of Bitcoin is halved from here, it will be $0.048/kWh.”

In principle, the only way that Bitcoin mining is no longer profitable is if it reaches zero.

“Someone, somewhere has enough cheap power to mine BTC even in the most nuclear bearish conditions,” he said.

And with Bitcoin hovering around the $23,000 level, it seems many miners are getting back into the game.

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