Bitcoin Mining Could Become Unprofitable for the Majority with Centralization Looming on the Horizon

With Bitcoin’s price back above USD 8,000 that still doesn’t promise a bright future for the cottage industry of miners. Miners use GPU‘s or ASIC‘s to solve an algorithm and contribute to the verification of transactions on the network. A reward is issued in the form of digital currency for the hashing power they have supplied. If Bitcoin was to re-visit these prices again for extended periods we could see the industrial-scale mining operations take a tighter grip on the market. With smaller mining solutions rendered unprofitable, this could lead to centralization of the system moving away from the ethos of cryptocurrencies.

Mining verging on unprofitable

Using whattomine.com and a single 1080 ti as a reference Hush(HUSH) Equihash was the most profitable at the time. Over a 24 hour period, it was estimated you could generate anything around USD 2.46 revenue which compared with earlier this year you could have been earning in excess of 3 times more.

If you were to take on average the cost of electric to be USD 0.12 kWh that would reduce profit to USD 1.91.

If you were lucky enough to purchase before the price hike seeing the 1080ti soar way past USD 1000, it would still equate to at least USD 2.49 per day if you were aiming to pay the card off over a year. Whereas earlier this year, GPU’s were taking anything from 6 to sometimes as little as 3 months to hit ROI. This is an oversimplification of the expenditures associated with mining but the figures aren’t positive.

According to Lucas Nuzzi, miners hold between 20 percent and 30 percent of all bitcoins. With reduced profitability miners are forced to sell more, boosting availability, and further depressing bitcoin’s price.

Possible Causes

Centralization around mining can cause issues. Companies have started to produce ASIC’s which are available in large quantities and organizations can also take advantage of bulk purchases on power.

Bitmain is one of the main manufactures of ASIC miners. Looking at Blockchain.info, Bitmain’s BTC.com and Antpool mining pools also make up in excess of 45% of the hashing power on the network.

The market is open to forms of manipulation through the dominance of hashing power and holdings of currency. Drawing on the previous fact that miners account for between 20 percent and 30 percent of all bitcoins, holding currency creates false scarcity.

Reducing the hashing power available leads to the network’s transactions building up, leading to higher transaction costs to encourage mining.

Selling large holdings at inflated prices creates large profits not only off of bitcoin trades but the transaction fees as well. As the price decreases, you can then buy back in and re-invest profits to increase your market share. Rinse and repeat, each time gaining more of an ability to influence the market.

Bitmain has seemed so assured of the rising value of bitcoin that it stopped accepting USD and is only accepting bitcoin as payment.

Bitmain is set to be building a mining facility near Port Walla Walla, Washington called ‘Ant Creek.’, with ideas of expanding its bitcoin mining operations into Quebec among other countries.

The future

It’s important for the crypto community to continue to support the ethos of decentralization. Hopefully, developers will continue to support this by building in resistance to ASIC’s or forking currencies. In the technologies infancy with little regulation, we may have to hold on and stay strong.