From the Bitcoin halving in May to the ongoing price rally today, bitcoin has certainly seen its fair share of ups and downs in 2020. Even as the price of bitcoin sets new highs above those of 2017, observers have remained cautious, fearing that this may very well be a bitcoin bubble 2.0. However, pointing to a maturing market where interest in digital assets is rising among institutional investors, Bitcoin advocates have argued that this rally is not just another speculative frenzy. With such renewed optimism, one can only hope that this time, history doesn’t repeat itself.
At the same time, with miner revenues hitting for the first time this November, much has changed since the genesis block came into being. No longer limited to a network of independent miners, we now see staggering operations at scale, in diverse jurisdictions stretching from lesser-known provinces in China to Kazakhstan and even Malaysia.
Despite this growth, the burgeoning mining industry faces existential risks. And not only the ones related to the long-term sustainability of mining after the last block is .
With its inexpensive electricity, low production costs and readily available labor, China has long dominated the bitcoin mining sector. Yet, the center of gravity has started to shift in recent years, largely due to the emergence of mining pools in other parts of the world. Despite China still holding more than two-thirds of the global hashrate countries such as the U.S., Russia and Kazakhstan are starting to catch up.
In order to carve out space and thrive in the bitcoin mining space, these new contenders need to consider a multitude of factors, namely: competitive energy prices or alternative energy sources, attractive real estate prices and a government supportive of digital assets.
Mining-friendly Kazakhstan, for instance, has seen significant growth in bitcoin mining activities, holding over of the total bitcoin mining hashrate. This is in large part attributed to a where crypto mining will not be taxed until the mined assets are exchanged for fiat money. Then there is the legalization of mining, which saw a recent bill approved by the Kazakh Senate and signed into law earlier in June. The low electricity costs only serve as icing on top.
This approach has certainly paid off, with investments in local crypto mining operations expected to double by the end of 2020 and an additional $738 million expected to pour in over the next three years.
As we look towards 2021, bitcoin mining will continue to move in a positive direction and see continued momentum. For two years now, markets across the Commonwealth of Independent States (CIS), Europe and North America have grown. This trend is only going to be more prominent as miners look to new jurisdictions to avoid regulatory crackdowns while searching for lower-cost electricity.
In Europe and North America, plans for opening mining facilities may have been delayed as a result of the COVID-19 pandemic. But with the gradual recovery of the bitcoin market and the likelihood of a coronavirus vaccine in 2021, we may see a rebound in the demand for mining. The implications of a new on the treatment of cryptocurrencies, on the other hand, still remain unclear.
Despite new markets looming on the horizon, China’s bitcoin mining crown will not be so easily displaced. The Chinese government has called to and financial incentives to advance in .
Bitcoin mining has certainly come a long way since the early CPU days of Nakamoto’s genesis block. From initial innovations like GPUs and FPGAs to the birth of today’s ASICs, miners continue to seek out the fastest, most powerful and cost-efficient machines.
The current competitive state of bitcoin mining means that technological innovation needs to constantly keep up with the industry’s fast-growing demands. If not, miners will no longer be able to compete based on equipment, but instead, look elsewhere – whether it’s in alternative sources of energy or other forms of consensus protocols – to further establish a competitive edge and earn maximum profits.
Since the ASICs revolution, much of the technological progress in bitcoin mining has come from the reduction of chip sizes and higher hashrates to provide miners with greater efficiency gains. However, these improvements have been plateauing with each new iteration. And despite bitcoin mining being the ultimate manifestation of proof-of-work (PoW), questions over PoW’s long-term viability have been raised. Ethereum 2.0’s proof-of-stake (PoS) consensus is arguably a more sustainable and environmentally-friendly model.