Crypto miners seek financial lifeline with intense battle for bitcoins


Cryptocurrency miners are turning their machines back on as the rising bitcoin price offers a vital lifeline for their cash-strapped businesses.

The token’s value has come out of the doldrums to skyrocket by more than a quarter this year against the dollar, giving owners of huge mining server warehouses an incentive to speed up their use in the battle for more bitcoins.

The average hashrate, or computing power directed at bitcoin mining, rose to a record 280 exhash, or quintillion, operations per second on Jan. 20, according to data from the Hashrate Index, a mining information service.

The rebound in activity is a sign that the battered sector it may be coming back to life after being hit by soaring energy costs and falling cryptocurrency prices. The level of activity has more than doubled from a low point in July, when the crypto market was hit by a credit crunch.

Miners compete against each other to solve cryptographic puzzles that validate batches of transactions and create new blocks on the blockchain, a book of transactions. That makes them the guarantors that bitcoin transactions are trustworthy in a system that bypasses third parties such as banks and exchanges. The winner is rewarded with new coins.

Many are sitting on vast amounts of mining equipment and capacity, purchased with cheap money in 2021 and early 2022 in anticipation of profiting from rising coin prices. But bitcoin prices fell 65 percent last year and energy prices soared, forcing many companies to shut down servers to save money. Others, like Core Scientific, couldn’t take the pressure and declared bankrupt.

“Sentiment among miners is better than it has been in a long time,” said Jaran Mellerud, an analyst at Hashrate Index. “For many players threatened with bankruptcy, the sudden increase in the price of bitcoin is a lifeline.”

The rally has bolstered investor optimism in publicly traded companies such as Marathon Digital Holdings, which is up 155% this year, and Hut 8, which is up 134%.

But the miners still face a long way back from the brink. Powering up your servers is expensive. An algorithm adjusts the “difficulty level” of bitcoin mining as new computers enter or leave the network, to ensure that the token is mined at its regular interval of approximately every 10 minutes.

The influx of miners has raised that level. It now takes miners a record 37 trillion hashes, or guesses, before verifying a block, according to BTC.com, so losers expend increasing amounts of energy for nothing.

They also face pressure from politicians around the world, who see miners’ computers consuming vast amounts of energy, depleting local resources, or damaging the environment. Others view the earnings they earn as a taxable asset.

The Canadian provinces of British Columbia and Manitoba have banned new connections to their networks for 18 months, while Hydro-Québec, Quebec’s public service provider, has submitted an application to reallocate 270 megawatts of power that it had set aside for the mining industry.

In December, the lower house of Kazakhstan, home to the world’s third-largest mining activity, approved a bill that would impose a corporate tax on miners and reduce their energy use.

Paraguay, which has an abundance of cheap hydroelectric power, has rejected legislation that would have capped fees imposed on miners at 15 percent.

“Miners are getting very selective about where they build their infrastructure,” said Joe Burnett, an analyst at mining advisory firm Blockware Solutions. “A few years ago people were really focused on cheap energy, but now it has become much more critical to see which political jurisdiction is most favorable and will not shut down our operations.”

The miners say they have become an unfair target. The Bitcoin Mining Council, an industry group, estimated in July that just under 60 percent of global mining energy use was sustainable, though the Cambridge Center for Alternative Finance puts the figure at around 37 percent.

“A bogus environmental argument is being made against the mining industry,” said Samir Tabar, chief strategist at Bit Digital, a mining company with operations in New York, Texas, Nebraska and Georgia. “It seems that no matter what bitcoin miners do, even if we use 100 percent renewable energy, nothing is right.”

Ercot, the organization that runs the Texas power grid, will launch a voluntary reduction program for large power consumers like bitcoin miners to reduce their power use during periods of high demand, until it develops a permanent regime to deal with it. to scarcity.

But that critical point can provide an unexpected opportunity. Miners with power purchase agreements, which lock in the price they pay for power, can sell power to the grid. Riot and Hive Blockchain earned $4.9 million and $3.1 million respectively in December.

“Reduction is the future of mining,” Burnett said. “If it doesn’t make financial sense for mine, you might as well sell [energy] return to someone.”

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