Despite the cryptocurrency’s wildly volatile price, it increased regulatory scrutiny, and environmental impact, Bitcoin mining opportunities continue to emerge in North America. The state of Texas, in particular, has become the epicentre since 2021, when China banned the industry and sparked an exodus of miners from the country which reportedly reduced China’s control of Bitcoin mining from about two-thirds of the global industry in April 2021 to zero in July 2021, created a new opportunity for North American companies, particularly those in the energy industry, to become more familiar with Bitcoin mining and how to incorporate it into their business models.
For those unfamiliar with Bitcoin’s inner workings, “mining” is how transactions are validated for a blockchain. It’s essentially a cryptographic competition to add blocks, or records, to the cryptocurrency’s ever-expanding blockchain network. In exchange for this service, winning miners are paid in Bitcoin (BTC), which reached a record price of more than $68,000 for one Bitcoin in November 2021.
The bitcoin price has reached a new record high, breaking through $68,000 (£50,000), and analysts predict that the world’s best-known cryptocurrency will rise further in the coming weeks.
This beats the previous record high set in late October, when bitcoin reached nearly $67,700 before falling back again when investors discovered a new cryptocurrency, shiba inu. Other cryptocurrencies have also risen to record highs, such as ethereum, which soared to $4,837.
Bitcoin has always been volatile but remains the world’s largest digital currency, with a market value of more than $1.1tn. Five years ago, a single bitcoin was worth about $700. Investors are buying it because they are worried about rising inflation – as an alternative to gold, a traditional inflation hedge – and as bond yields are falling.
Bitcoin Is Resilient
Bitcoin has inspired thousands of cryptocurrencies since it launched. Despite the volatility of its price, its monetary policy builds in a measure of stability by limiting mining to 21 million Bitcoins across a predefined schedule. Although there are almost 19 million now in circulation, the reward for mining is periodically cut in half so that it will take until 2140 to exhaust production of Bitcoin.
While other crypto networks also manage supply, none has been able to replicate Bitcoin’s popularity. As investors embraced the asset class, Bitcoin’s futures and exchange-traded funds became the first to be introduced in regulated US and European markets. It soon appeared on the balance sheets of companies like Tesla and Overstock. This demand helped push Bitcoin’s market cap past $1 trillion in November 2021. By way of contrast, the second-most-popular cryptocurrency, Ethereum, had reached only about half that value the same month.
The largest crypto facilities with the most advanced technology are focused primarily or exclusively on Bitcoin, like the Iceland-based Genesis Mining farm, which consumes more electricity than any other company in the country. One of the biggest farms in North America is Riot Blockchain’s Texas facility, which occupies three large warehouses on 100 acres of land containing 60,000 mining computers focused only on Bitcoin.
NORTH AMERICA’S LARGEST BITCOIN MINING FACILITY BY DEVELOPED CAPACITY
Riot’s Rockdale Facility has a total power capacity of 750 MW, with 450 MW currently developed. This facility is believed to be the largest single facility, as measured by developed capacity, in North America for Bitcoin mining. The Rockdale Facility is currently undergoing a substantial expansion project that is nearly doubling the site’s Bitcoin mining capacity to 700 MW. This expansion includes four new buildings, totaling approximately 240,000 sq ft. and adding 400 MW of capacity. Once this expansion is complete, it is expected that Riot’s Rockdale Facility will be the largest Bitcoin mining facility in the world, as measured by developed capacity.
In addition to Riot’s self-mining operations, Riot currently hosts Bitcoin mining operations for two institutional clients who, utilize up to 200 MW of aggregate power capacity. In addition to hosting revenue, Riot generates engineering and construction services revenue from hosting clients on site, including revenue derived from the fabrication and deployment of immersion-cooling technology for Bitcoin mining.
Basics of Bitcoin Mining
Blockchain is the root of every cryptocurrency. which is essentially an electronic ledger sustaining a continuously growing list of records. The blocks in the chain are basically files in which data such as Bitcoin transactions is recorded, including which miner successfully created that particular block. Each block also includes a hash, a unique 64-digit hexadecimal value identifying it and its contents, as well as the hash of the previous block in the chain.
The consensus mechanism used by Bitcoin is known as proof of work, or PoW. Because this algorithm ultimately relies on the collective power of thousands of computers, it’s a particularly robust way to maintain a secure and decentralized network. Still, it has drawbacks. Most significantly, it’s exceptionally energy-intensive. As more computer power is used for mining, the amount of electricity required to both earn cryptocurrency and maintain the network rises.
as part of Bitcoin’s supply management system or monetary policy, the reward for mining a block is set to be cut in half, from 6.25 BTC per block mined after the most recent halving in May 2020 to 3.125 BTC around April 2024. The bullishness around mining, even in the face of that planned drop, says a lot about the profitability of the industry and the expectation that the original cryptocurrency will keep appreciating.
Mining Setup
Whether you’re setting up at home or in a warehouse, the mining framework will be similar, regardless of scale.
You’ll first need to acquire an ASIC miner optimized for Bitcoin, such as one produced by Bitmain or Whatsminer. New top-end ASICs start at about $3,000 to $5,000, though older secondhand models can be purchased for less. All else being equal, newer versions generate more terahashes per second (TH/s) so look for the newest and therefore most efficient ASIC you can afford.
The next priority is power, which is needed to run and to cool the ASICs. Given the relatively low overhead and variance in equipment costs, the price of electricity becomes the most significant factor in calculating your bottom line. The University of Cambridge’s Centre for Alternative Finance produces a global map that shows how the industry searched for cheap power after mining was banished from China, and how countries like the US, Canada, and Russia saw significant increases in hash rates.
Then, of course, you will need to account for the cost of housing and maintaining your operation, keeping it cool, connecting it to a fast, reliable internet provider, and staffing it if you don’t plan to manage it yourself.
In terms of revenue, miners can expect to earn the block reward and a transaction fee (the fee with which the network reimburses successful miners and incentivizes them to continue confirming transactions) if and when they win a block. Transaction fees can vary based on network conditions and how much the transactor is willing to pay for expedited processing. As of June 2023, the fees have averaged about 0.31 BTC, or about 5% of the block reward.
Bitcoin Mining Economics
To illustrate the financial considerations involved in Bitcoin mining with a hypothetical example, let’s look at the estimated costs and revenue for mining with one ASIC miner.
These tables represent typical costs and revenue based on values from June 2023.
CALCULATION WHICH IS LOOKS LIKE THIS:
Hashes required to mine one Bitcoin:
= Network hash rate * Seconds per day / Bitcoin mined per day (including fee)
= 375 EH/s * 86,400 seconds / 945 BTC = ~34,000 EH / BTC
Time taken for an ASIC miner to mine one Bitcoin:
= ~34,000 EH * 10^6 / (141 TH/s * 60 seconds * 60 minutes * 24 hours * 365 days) = ~7.7 years
Note: The 10^6 above is used to convert exahashes (EH) to terahashes (TH)
Capital expenses (CapEx):
Bitcoin mined per ASIC lifetime = 2.5 years / ~7.7 years = ~0.32 BTC
Effective price per Bitcoin = Price of ASIC miner / Bitcoins mined in its lifetime
= $4,600 / ~0.32 BTC = ~$14,300
Operational expenses (OpEx):
Electricity cost per Bitcoin = Time required to mine one Bitcoin * Energy consumption * Cost = ~7.7 years * 365 days * 24 hours * 3,032 W * $0.05 / 1,000 = ~$10,200
Cooling and other overheads per Bitcoin = 20% of electricity cost = ~$2,000
Note: The 1,000 above is used to convert watts (W) to kilowatts (kW).
With these underlying assumptions, the total cost of production per Bitcoin is:
= CapEx + electricity + other OpEx per Bitcoin
= $14,300 + $10,200 + $2,000
= $26,500
Note: Totals have been rounded, and figures are approximate. Cost does not consider network hash rate growth.
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Bitcoin Mining Risks
Operating risks include factors like potential problems with internet connectivity, overheating ASICs, and system hacks—though given the size and security of the Bitcoin network, hacking risk remains low.
The cost of electricity is also a concern: Anything higher than $0.05/kWh will be unprofitable for today’s mining operations. The rise of electricity costs across the country in 2022 led to a cascade of increased overhead throughout the industry, sending many companies into danger—and in some cases, bankruptcy.
Even countries that were previously welcoming to miners, such as Kazakhstan and Iceland, have begun to curtail new and existing mining operations in order to manage demand on their energy grids. Like Texas, a number of US state governments have embraced Bitcoin mining, with some going so far as to offer incentives to producers. But the US federal government is paying closer attention to the industry now, with new tax reporting requirements set to begin in 2023 and heightened scrutiny.
crypto regulations in both the US and around the world are still very fluid, miners need to remain vigilant and watch for changes that could undermine their bottom lines.
Bitcoin mining’s energy demands result in another concern: the environmental impact of mining, which carries both ethical and reputational risks. The New York Times recently equated the total power consumed by Bitcoin annually to what’s used by Finland in one year. The fact is that even the most efficient Bitcoin mining operation takes roughly 155,000 kWh to mine one Bitcoin. By way of comparison, the average US household consumes about 900 kWh per month.
You can check the details and the use of electricity
According to a recent Deloitte report, reducing carbon emissions is now essentially a universal priority, and brands are responding. Climate is not a niche issue any more. In May 2021, Tesla, which had been a major investor in Bitcoin, announced it would suspend purchases using Bitcoin due to environmental concerns. The company has since said it would resume accepting Bitcoin once it could confirm that at least 50% of Bitcoin mining operations used renewable sources.
During the first quarter of 2021, Tesla bought $1.5 billion worth of “digital assets,” then sold $272 million worth. According to a financial filing from Tesla on April 26, profits from bitcoin sales specifically allowed the company to notch a $101 million “positive impact” toward profitability.
Musk has been a very public fan of bitcoin and dogecoin, tweeting and joking about these with his millions of Twitter followers over the past year.
This past weekend, the Tesla chief made his hosting debut on “Saturday Night Live” and devoted part of his opening monologue and one sketch to talking up dogecoin. Instead of helping drive up the price of the meme-inspired token, dogecoin actually tanked 30% over the course of the hour that Musk was hosting SNL.
Many of the larger producers are committing to transition to renewable energy, either through direct purchases or by acquiring carbon credits. Companies such as Great American Mining and Crusoe Energy have also developed ways for mining farms to utilize power that would otherwise be wasted, like flared natural gas at oil fields, excess solar or wind power that can’t be stored, or hydropower generated by overflows from dams. This strategy is only effective, of course, as long as crypto mining doesn’t increase demand in the process.
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