Bitcoin miner, open up the future with their own hands | CoinDesk JAPAN | Coin Desk Japan

Bitcoin (BTC) mining difficulty is still in the billions (currently about 50 trillion), and there are as many Bitcoins that can be mined in the future as there are in circulation, and equipment that is readily available. Remember when you could run a profitable mining business on (GPUs) and consumer power rates, with little fear of regulatory crackdowns?

It’s been less than 10 years, but it feels like a long time ago.

Now, every aspect of bitcoin mining is getting tougher, from cost to competition to scrutiny from politicians to outrage from climate change activists.

But if the financially revolutionizing mining industry can adapt to the new environment, good times may come again. To do that, different types of mining businesses and leaders are essential.

We have a few more months to decide on the challenge of continuing mining in a very different reality. If they do, they can play a key role in the future success of Bitcoin mining.

The issue of “half-life”

Due to the “half-life”, the number of Bitcoins that can be mined decreased from about 900 to 450 per day. It would increase Bitcoin’s scarcity and add deflationary pressures that underpin its nature as a store of value.

Bitcoin investors are holding bitcoin because they believe it will increase in value, and if history is any guide, next year’s halving could be the trigger. . Bitcoin has historically seen its price rise in the year before the halving. Up 19% in the 12 months before the last halving on May 11, 2020. The previous 12 months leading up to the halving in 2016 saw a 142% rise.

The roughly four-year halving is still a year away, but bitcoin already seems to be factoring its impact into its price.

Bitcoin has not been as isolated from traditional financial markets as many in the industry hoped, and the current rally may simply reflect a temporary relief in the stock market. Still, it feels good to have some temporary relief from the fuss around FTX and the doldrums of aggressive Fed rate hikes.

How to survive the half-life

A halving that is likely to increase Bitcoin’s value will also reduce the profitability of mining. Fewer bitcoins that can be mined means less profit. Rising operating costs will challenge profitability, and miners will suffer from both costs and profitability.

Even with a sizable bitcoin holding, mining companies must prepare for an environment of reduced cash flow and shrinking margins given the post-rise price and new cost levels. The fortunes will be divided between those miners who maintain a clean balance sheet and run a good and efficient business, and those who optimize for short-term profit only.

Bitcoin’s slump in the second half of 2022 sparked a cascade of bankruptcies in companies that were chasing high growth while carrying too much debt, but something similar is about to happen again. Miners should prepare for the disruptions ahead by keeping more cash on hand, streamlining their operations, and acting cautiously.

good times are coming

Miners can control their own fate in the next cycle. Wealth creators must not only have strong balance sheets, but must resist the temptation to overextend or take unnecessary risks.

With broader economic uncertainty and regulatory uncertainty, market conditions can change quickly, so it’s important to remain conservative. Miners should operate towards the middle of the cycle, not the peak, and be flexible enough to thrive in bull markets and survive bear markets.

Bitcoin miners could also take inspiration from the rapid innovation happening on Web3 and find ways to diversify their income streams beyond mining.

Freed from harmful maximalism, the Ethereum network, for example, presents many opportunities. One example is the flywheel model. You can exchange bitcoins earned by mining into Ethereum (ETH) and stake them to earn rewards. Instead of simply thinking of them as rivals, Bitcoin and Ethereum can work together to build a prosperous future less swayed by cycles and the whims of regulators.

By avoiding future risks, operating efficiently and nimbly, and diversifying revenue sources, miners can adapt to new environments and secure their position as an integral part of the cryptocurrency community. can.

We are responsible for building and maintaining a healthy industry. Miners must ditch harmful maximalism, hold bad guys accountable, and show that our enterprise benefits communities and nations.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original: The Crypto Miner Reckoning: No Fate but What We Make