Much like the cryptocurrency field itself, crypto mining profitability can be wildly affected by global economic and political shifts, governmental regulations, and advancing technology. With the challenges created by jolts in these areas in early 2022 have arisen improvisational answers in this innovation industry. The temperamental clouds hovering over the sector have revealed their silver linings: altcoin mining is growing as Bitcoin mining becomes more difficult, mining rigs arrive more quickly, regulation actually helps miners, and Texas becomes the mining hotspot.
Altcoin mining grows
The halcyon days of Bitcoin (BTC) mining for individuals are dimming. The game is increasingly going to the strong: enormous corporate groups investing in huge, centralized banks of the most advanced equipment. As the calculations required to mine a single coin grow far more challenging, and the dedicated mining machines become more advanced, it’s becoming more difficult for individual miners to earn a decent living mining BTC.
“. . mining difficulty will continue to increase . . as miners continue to expand their operations, but also due to the increased efficiency of the latest generation of mining machines.” — Juri Bulovic, Digital Currency Group
Experts expect the Bitcoin blockchain “hashrate” — a measure of the computation power necessary to mine a coin — to increase substantially in 2022, perhaps doubling. As hashrate and difficulty rise, surviving miners must invest more in the newest equipment to remain profitable — unless coin prices once again soar.
“If our top-end scenario of 300 EH/s comes to pass, the effective doubling of the global hashrates would mean that mining rewards will be cut in half.” — Rob Chang, Gryphon Mining
Many smaller operators have shifted their focus to Ethereum (ETC) as Bitcoin mining profitability has declined. But with the expected arrival of Ethereum 2.0 in 2022, ETC goes from the Proof-of-Work to Proof-of-Stake model — effectively eliminating this alternative digital coin mining opportunity.
Meanwhile, mining “altcoins” has become increasingly attractive for crypto miners, especially those wanting to mine from home. Popular alternatives to mining BTC include:
- Bitcoin Gold (BTG) designed specifically for mining using consumer-grade hardware.
- Dogecoin (DOGE) using the Scrypt protocol, obviating the need for application-specific integrated circuit (ASIC) chips.
- Ethereum Classic (ETC) the forked “unaltered history” (original) version of Ethereum, easily mined at home.
- Litecoin (LTC) also based on the Scrypt protocol.
- Monero (XMR), one of the easiest cryptocurrencies to mine using consumer-grade hardware.
Altcoins can be generated with the help of “mining pools,” which help individual miners compete better against the bigger players.
Mining rigs delivered more quickly
Supply chain difficulties, including a global chip shortage, have greatly slowed the delivery of crypto mining equipment. Before 2021, mining “rigs” ordered directly from manufacturers were generally delivered within a couple of months. These days rig manufacturer order books are filled up years in advance, and they mostly confirm only large orders for their machines.
This delivery bottleneck is expected to start freeing up mid-year 2022. Zach Bradford of CleanSpark said he hopes that “supply chains are going to get better, probably mid-year, call it June, July.” As a worst case, Rob Chang of Gryphon expects the supply chain bottleneck to last until at least mid-2023.
Chip manufacturers expect the global semiconductor shortage to continue through to 2023.
When these twin difficulties are resolved, mining rig delivery should quicken accordingly.
Regulation helps miners
“The process of creating Bitcoin to spend or trade consumes around 91 terawatt-hours of electricity annually, more than is used by Finland, a nation of about 5.5 million.” — The New York Times
What attracted miners to China, Iran, Kazakhstan, and Russia, to begin with, was dirt cheap power. But power outages in a mining region in China, among other reasons, led the country to ban crypto mining completely. Iran imposed a few-month ban due to similar circumstances. Kazakhstan cannot possibly keep up with the power demands of digital miners, and power concerns are a major driving reason why Russia has proposed a ban.
The combination of power and related environmental concerns could lead to bans in other countries and further industry disruptions as a consequence. Regulation can smooth out these possible jolts by addressing these twin concerns upfront. Geographic areas might be designated as crypto-mining friendly, perhaps with incentives provided to encourage mining in certain areas — with reliance on renewable energy sources stipulated.
Much of the regulation that has been instituted so far, in El Salvador and certain U.S. states, has been designed to encourage crypto mining. This pattern can be expected to continue in 2022 and beyond as jurisdictions, regions, and entire nations compete for bigger slices of this ever-growing pie.
What provides incentives, moreover, also creates guard rails for an industry that up till now has been a bit untamed. Where miners know the limits they can make better investment, placement, and operating decisions short- and longer-term, leading to greater stability for all involved.
Texas the hottest mining destination
Texas is the new hotspot for crypto miners relocating to greener pastures since the China mining ban. The Lone Star State offers enormous tracts of open land, much of it solar-friendly desert and plains, and a deregulated power grid, which allows operators to negotiate rates and sign longer-term contracts. In a further beneficial development, natural gas flared off petroleum production projects — otherwise vented (and wasted) into the atmosphere — is being captured and converted to electricity by mobile crypto-mining rigs. This newly-improvised process reduces CO2-equivalent emissions by more than 60% compared to flaring.
In the turbulent world of global crypto mining, hope springs eternal. Bitcoin mining profitability may be crashing for smaller operators, but altcoin mining offers them new opportunities. Endless delays in getting those latest crypto mining machines delivered may be coming to an end. And regulations, once considered the bane of the industry, might actually help miners. Global miners, beleaguered by restrictions and unrest elsewhere in the world, are heading to the wide-open spaces of Texas where they continue to prosper.
This highly innovative industry, beset by massive technological and global shifts, continues to improvise in response, creating a brighter future.
SOURCES:
-“8 Trends That Will Shape Bitcoin Mining in 2022” by Aoyon Ashraf, Eliza Gkritsi, CoinDesk; December 15, 2021.
-“US leads Bitcoin mining as China ban takes effect” BBC News; 13 October 2021.
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-“After China’s Crypto Ban, Who Leads in Bitcoin Mining?” by Sponsored Content, Visual Capitalist; December 3, 2021.
-“Russia’s central bank just highlighted 3 valid crypto flaws that U.S. billionaire bulls are ignoring” by Shawn Tully, Fortune; January 25, 2022.
-“Russia proposes ban on use and mining of cryptocurrencies” by Elena Fabrichnaya and Alexander Marrow, Reuters; January 21, 2022.
-“As Kazakhstan Descends Into Chaos, Crypto Miners Are at a Loss” by Gian M. Volpicelli, Wired; January 12, 2022.
-“Kazakhstan’s huge Bitcoin mining industry is upended by unrest” by Ephrat Livni, The New York Times; January 6, 2022.
-“Kazakh Crypto Miners Cut Off From Electricity Supply Until End of January” by Eliza Gkritsi, CoinDesk; January 25, 2022.
-“Bitcoin & Crypto Mining in 2022: New Locations, Technologies, and Bigger Players” by Simon Chandler, CryptoNews; January 9, 2022.
-“8 Trends That Will Shape Bitcoin Mining in 2022” by Aoyon Ashraf, Eliza Gkritsi, CoinDesk; December 15, 2021.
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-“Cryptocurrency Mining Trends in 2021” by BeInCrypto Staff; 3 April 2021.
-“What Does Hashrate Mean and Why Does It Matter?” by Alyssa Hertig, Ollie Leech, CoinDesk; February 5, 2021.
-“6 Cryptos You Can Mine at Home in 2022” by Najam Ahmed, MUO; January 12, 2022.
-“Ethereum Classic” Wikipedia.
-“Cryptocurrency Mining Regulations: Is Bitcoin Mining Legal?” EZBlockchain; September 24, 2021.
-“Bitcoin Uses More Electricity Than Many Countries. How Is That Possible?” by Jon Huang, Claire O’Neill, and Hiroko Tabuchi, The New York Times; September 3, 2021.
-“These 23-year-old Texans made $4 million last year mining bitcoin off flare gas from oil drilling” by MacKenzie Sigalos, CNBC; February 12, 2022.
