Bitcoin Miners' Survival Strategies Ahead of the 2024 Halving: Efficiency, Low Electricity Rates, and Bitcoin Ordinals
Summary:
As the next Bitcoin halving approaches in April 2024, it will bring significant changes for miners. The halving reduces new Bitcoin production by 50%, affecting the mining industry by halving block rewards, a primary income source for miners. To compensate for these reductions, miners need to focus on strategies to improve efficiency and secure low electricity rates. A promising alternative income source can be 'Bitcoin Ordinals,' which have driven transaction fees within the Bitcoin network to new highs. Miners are advised to focus on these strategies and alternatives to optimize their profitability post-halving.
As we count down to Bitcoin's (BTC) next halving in April 2024, a mere seven months away, it's crucial to understand the impact of this deflationary event. Occurring roughly every four years, the halving reduces new Bitcoin production by half, a notable occasion for cryptocurrency enthusiasts as historically it has been a catalyst for Bitcoin price hike. It also generates a significant effect on the mining industry by slashing block rewards, miners' prime income source, in half. The upcoming halving will see a reduction from 6.25 BTC to 3.125 BTC, compelling miners to alter their tactics to offset the losses from this reward reduction. This article delves into possible strategies and alternative income avenues that could assist Bitcoin miners in these challenging market conditions.
Bitcoin mining, a competitive race for block rewards, is driven by Bitcoin's block time, generally about ten minutes per block at the protocol level. Despite fluctuations in the network's computing power, the same block rewards get divided among miners. This competitive nature pressurizes miners to prioritize energy efficiency and cost-effective hardware selection. Every time halving cuts rewards by 50%, the pursuit of efficiency strengthens. As the cost of mining a single Bitcoin is expected to nearly double shortly after the next halving, miners have to look for ways to optimize their profitability by focusing on three essential factors.
The three whales shaping the future of Bitcoin miners include the cost of electricity, the efficiency of their equipment, and capital accumulation in mined Bitcoin during profitable times, which can be used as a buffer against the effects of reduced post-halving block rewards. Small changes in electricity cost, even around 1 cent per kilowatt-hour (kWh), can hugely impact the cost of BTC production - a difference of about $3,800 according to JPMorgan. Hence, securing electricity rates at or below 5 cents/kWh could be crucial for the profitability of miners beyond April 2024.
The efficiency of mining equipment also plays a significant role. Daily Bitcoin mining expenses might be reduced by over 63% by upgrading from a 60 J/TH efficient rig to a 22 J/TH one. Miners obtaining benefits from superior hardware efficiency and cheaper electricity are the most profitable and hence, more likely to endure major market events like the approaching halving.
The option of Bitcoin Ordinals, similar to nonfungible tokens (NFTs), offers a promising additional income source for miners. These Ordinals have recently gained considerable attention for boosting transaction fees within the Bitcoin network. As more Ordinals are produced (over 25.5 million and counting), the revenue from transactions also increases, currently exceeding $53 million.
Keep an eye on new developments within the Bitcoin network as the halving approaches. Miners should focus on strategies we've discussed to boost their profitability, and also stay open to alternatives in the pipeline.
Didar Bekbauov, co-founder of Bitcoin mining firm Xive, holds an undergraduate degree from Kzak-British Technical University and a Master's degree in financial management from the Robert Gordon University in the UK. Also working as a mentor at the Founder Institute startup accelerator program in Houston, he previously served as a managing partner at Hive Mining.
Published At
9/19/2023 10:58:22 PM
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