Why, despite the advent of POS mining and other algorithms, does Bitcoin continue to work on the POW algorithm and burn megawatts of electricity? Maybe you should switch to another algorithm, disable mining farms and enjoy the silence and the environment?
In this article, we explain why bitcoin mining is important and it will continue to develop. We will also figure out if there is still an opportunity to enter this market for private miners. Is it worth it to mine bitcoin or is it time to turn your eyes to other cryptocurrencies? We will separately discuss what mining prospects are for 2020 and beyond.
Picking up the pace
Let's start with the bitcoin hashrate. We open the chart and what do we see?
After setting a new record at 114 EH / s, the network capacity literally collapsed to 78 EH / s, however, then it recovered slightly. Let’s think why it happened?
The bitcoin hash is constantly jumping and this is normal. The fact is that miners do not mine only Bitcoin, on the same ASIC miners you can also mine, for example, Bitcoin Cash with the same success. The main thing here is that the hashing algorithm coincides, and switching to mining another cryptocurrency will not be difficult. Which, in fact, is done by many of them, especially those that are tied to the mining giant Bitmain, because this company has long and openly supported Bitcoin Cash. Therefore, as soon as the price of one or another cryptocurrency with similar algorithms goes up or down, miners simply choose the network in which you can make big profits at the moment.
Another reason for such a sharp decrease in the hashrate could be some natural disaster or another reason that led to the shutdown of a large mining farm, most likely a Chinese one. After all, there are concentrated the main world bitcoin mining capacities. This already happened when a flood washed away a large mining farm or when one of them was destroyed by a fire. This time there were no reports of such natural disasters, but we do not forget that in China they were going to withdraw all the miners from the shadows, for which they were satisfied with the checks, maybe some objects temporarily turned off their power for this purpose.
But in general, and this is both good and bad, the development of the mining industry is in full swing. The good old Cihan Wu returned to business again, who again took over as CEO of Bitmain:
As they say, not even half a year has passed, although approximately the same amount of time has passed since Cihan left this position. Then the company thought to switch to developments in the field of artificial intelligence, but now again a course has been announced on the production of new ASIC devices. In addition, the company again decided to issue shares and become public, for which it applied for an IPO in the United States and even attracted the German financial holding Deutsche Bank as support.
This behavior of Bitmain can be called expected, because competitors from Canaan Creative swung at their leadership on the market. At first, they boasted that they had pre-orders for 500,000 new ASICs of their own production. And then they applied for an IPO in the United States, they plan to bid on the NASDAQ stock exchange and are planning to raise $ 400 million.
Well, the main news from the world of mining. Most likely, you also heard a story about how the Russian Internet ombudsman Dmitry Marinichev helps to build the largest mining farm in the country on the basis of an idle aluminum plant in Karelia. I wonder what relation the Internet ombudsman has to mining, which is in the country on unclear what rights. Hmm ... the roof?
Indeed, the main latest news from the world of mining, we will call the statement of an influential Chinese official stating that in the Sichuan province, where the most bitcoins are mined, there are still reserves in the form of an excess of the generated electricity.
This fundamentally erases previous news about the desire of the Chinese authorities to squeeze miners out of the country. Apparently, they decided to use the principle that if you can’t stop, then it’s worth to head. And now, from the TOP-1 miner in the world, China can try to become a monopolist in this market.
Private mining
Is it possible to compete with those whose mining farms occupy areas comparable in size to industrial plants? Clearly, no. And no matter how sad it was, but Satoshi Nakamoto conceived everything in a completely different way.
Initially, it was believed that everyone would mine on their home PC, thereby maintaining network security. But as the price of the first cryptocurrency increased, there were those who made mining their business, as a result of which the industry came to the appearance of ASIC devices. These powerful processors are no longer capable of anything but to calculate the hash of the next block of bitcoin, but they do just fine with this task.
And what about those who have worked in this market before or just now found out about it and decided that they want to try? There is an answer and it may well be profitable.
To begin with, there are mining pools. After all, a lone private miner does not shine to get a block of bitcoin, and with other less popular cryptocurrencies, the same ether or lightcoin situation is about the same. You can’t survive alone, but you can connect to the pool and receive a portion of its earnings, depending on the share of your mining farm in the total pool capacity. That is, working is still real, but the issue of profitability is important. Therefore, in 2020, a modern miner will definitely need the skills of a businessman who will calculate how much to invest, what will be the cost price and what kind of profit can be obtained at the exit.
As for the earnings strategy, there are actually two of them:
- The first is to constantly switch from one cryptocurrency to another, depending on the current capacity of their network and the cost of the market. Minim what we profitably sell right now and right there. In this case, we collect the farm from video cards in order to have maximum flexibility in the selection of the extracted cryptocurrencies.
- The second strategy involves working for the future and is suitable for those who believe in the same Bitcoin, Ethereum, Litecoin or Bitcoin Cash in the long run, even if your farm is now working in the red and you provide it at your own expense. But after the growth of the cryptocurrency market, all this will be compensated with great return. Of course, such a strategy is suitable if your mining farm does not make a profit, but you still get cryptocurrency cheaper than it costs on the exchange. And if suddenly not, then unplug from the outlet and just invest in the HODL strategy.
- There is, of course, the third option, when you have the equipment for mining in the property and you just rent it out for a fixed amount. You have earned yours, but whether the tenant makes a profit from it or not, this is not your concern.
Mining won't die
And in conclusion, let's talk about why you should not write off mining and give in to the promotion of ideas that it is expensive, we spend a lot of electricity and in general it's time to change something.
So, here are three reasons why classic mining using the Proof-of-Work algorithm will not go away.
Firstly, Bitcoin clearly proves that this is the most reliable defense mechanism against possible attacks on the network.
Secondly, the issue of cryptocurrency through POW mining is actually the generation of its value from recycled electricity, which you have to pay for. You can consider this the biggest stone for cryptocurrencies using the Proof-of-Stake algorithm, but where do the new coins come from? Just because you're done, do you have cryptocurrency on your account and now do you have more for it? Only this resembles the printing of paper money by the Central banks, because they have such a right, and they print it.
And the third argument in defense of mining. When once again they will tell you how much it requires electricity. Remember that in the world it is now produced more than consumed. And everything is known by comparison, because lighting and household appliances in bank branches spend much more electricity, but for some reason no one blames them for the unnecessary consumption of resources. And how much electricity do we spend on servicing the offices of officials? ... but this is a completely different story.