Crypto Prices And Hashrates: CoinShares Looks At The Bitcoin Mining Milieu And Environmental Costs
Money makes the world go round and capitalism is based off that notion. However, what happens when there are no profits in sight, and the costs are too high; for the producer as well as for the environment.
One of the big accusations against blockchain has been the high monitory cost of production for the producer and the consumption of energy. Recent studies have largely debunked the myth surrounding energy cost while it has been found that production costing has been overreported.
In a detailed bi-annual report by CoinShares, a crypto asset investment and research platform, there are serval points touching on Bitcoin mining. It explores a range of geographic factors, efficiency and electricity consumption of the entire Bitcoin mining operation. The report goes into concerns of mining profitability, hash rates and the supposed threat to the environment from mining.
BTC Prices ‘Death spiral' Destroys Smaller Miners?
“Bitcoin isn’t dead. Not this time nor the 326 times before,” in a bold assertion, Christopher Bendiksen, head of research at Coinshare, clarified that while Bitcoin miners are indeed shutting down hardware ”this is not going to cause a “death spiral.”
In fact, its the other way round. He shares insights into topics such as hash rates and the mining network. Like any industry, the Crypto industry has two cut-off levels for prices. A bitcoin miner would like to be above the first one; ROI (Return on Investment) breakeven.
This is the amount that needs to be reached so that no loss is incurred by the producer. The second one is the Cash-cost breakeven. At this level, even if the company is in the green, they could still be potentially losing money.
If the miners are not even getting to this level they could potentially shut down operations or even sell off the mining gears. This, of course, will depend on factors such as the individual's risk appetite and the overall industry view.
“Many miners are currently feeling the squeeze, with inefficient mining gear and high-cost electricity miners likely to be forced off the network.”
The struggle is exacerbated by the recent tumble and strong bear perception of the market. The Coinshare man went on to add,
“We are currently near the cash cost level and the recent drop in hashrate suggests that we’ve been above it during the recent price fall, causing a significant amount of mining gear to be removed from the network.”
While the prices hover around the $4000 mark now, for miners to reach the ROI breakeven they need about $6800. This breakeven point is a hike of about 4%, from about 6 months ago. Talking of hash rate, the report was not overly concerned.
“Price doesn’t follow Hash Rate, It’s the Other Way Around,”
Christopher noted. It is natural to see it lag behind when there is a price increase, as people will take time to set up the necessary infrastructure; however, there would be a swift response to falling prices.
Thus additional hash power can only be generated by an increase in prices. Yet, all this hardly means the end of days for bitcoin mining. It simply means that the markets need to stabilize and reset to lower levels. Once the all-in cost of mining falls to a more acceptable level, below bitcoin price, the industry will surge again.
Bitcoin Is A “Clean Industry”, Powered by Renewable Energy
For some time now Bitcoin mining has been accused of causing considerable environmental damage as it is fairly energy intensive. Recently, however, there have bee many new next-generation mining units in the market. These are significantly more efficient both in terms of gigahash-per-joules (GH/J) and terahash-per-second.
While China still supplies more than half the miners of the world, there has been a noticeable recent trend of many miners moving operations to the cooler climes of Scandinavia, Russia and Canada. Apart from the weather, these countries have cheap, abundant electricity, friendlier regulations and fast internet connections. This should most certainly help to lessen the carbon footprint of the industry.
While the report clearly admits that any measure of renewable energy usage for individual mining operations is hard, it does so based on sound ideas and hard data collected over time. This research points out that the process might not be as harmful as first thought. In fact, Christopher commented on this notion by saying,
“By inference, that makes bitcoin mining one of the cleanest industries on the planet, a far cry from the dubious claims put forward by less researched, and more opinion-based sources. We show that #bitcoin mining is predominantly powered by #renewables, with a lower bound of 78% renewables penetration vs the 18% global avg. https://t.co/LzOTwRoxkC .”
He goes on to further point out that the global use of gaming consoles outstrips the entire mining networks electricity needs.
The reports estimates are based off the assumption that the renewable energy penetration and global mining market share are correct. Making use of these contestants it suggests that the Chinese region of Sichuan has a 43.2% share of global bitcoin mining renewable energy usage, while the rest of China has a 5.7% share. The remaining share is made up by the western regions and the rest of the world. This brings them to the grand total of 77.6% of renewable energy being utilized for bitcoin mining.
The firm has noted that at present, given the current market trends, most bitcoin miners are likely mining at a loss. However, if there are a combination of low costs, right equipment coupled with cold climates, some mining operations could still show a profit.
Addressing the long-held concern about the environment CoinShares estimate about renewable energy is good news. increased awareness and focus on environmental and fiscal responsibility is good not only in the short but also the long-term plans of the overall industry.