Leading Bitcoin mining companies have emphasized the need for efficiency to remain profitable and operational beyond the 2024 halving.
Cointelegraph contacted several mining companies to find out the expected impact of the Bitcoin halving on the industry and the impact on small and large miners.
The Bitcoin protocol is built to reduce the amount of BTC given to miners who add blocks to the ongoing chain. Mining reward halving occurs every 210,000 blocks, and a block is added to the blockchain every 10 minutes, so halving occurs every 4 years.
Related: Bitcoin hashrate reaches new peak, but profitability declines
The next halving, the fourth similar event, will reduce Bitcoin mining rewards from 6.25 BTC to 3.125 BTC. The previous halvings occurred in 2012, 2016, and 2020.
Reducing mining rewards is a good consideration for miners given its impact on profitability, return on hardware investment, and indirect running costs.
Focus on Bitcoin mining efficiency
The efficiency of Bitcoin mining operations will play an important role in the halving. Hut8 CEO Jamie Leverton told Cointelegraph that this event will force miners to streamline their operations in order to continue mining.
Hut8 is actively deploying purpose-built software to increase efficiency at Canadian mining sites. Mr. Leverton added that the company hopes to complete a previously announced bid to purchase four power plants in Ontario for business operations.
The total capacity is 310MW, including the former 40MW North Bay mine site, which had to be vacated due to a long-running legal dispute with Validus Power. Hut8 plans to purchase the above-mentioned power plants from the company after taking receivership in September 2023.
“We have long been bullish on self-mining and the upward trend in the price of Bitcoin over time, and believe that the best-prepared miners are positioned to capture upside after the halving. ,” Leverton explains.
“Therefore, this year we have been strategic in expanding our mining operations organically and have been able to increase our production capacity through mergers.”
Hut8 completed a high-profile merger with US mining company USBTC in November 2023, increasing its hashrate from 2.6 EH EH/s to 7.3 EH/s in November 2023.
Related: Marathon prepares for Bitcoin halving, buys two mining sites for $179 million
Taras Kulyk, founder and CEO of Bitcoin mining infrastructure provider SunnySide Digital, offers a candid view, highlighting the direct correlation between the 50% block reward reduction and BTC price and fees.
“If that is not met by rising Bitcoin prices or increased transaction fees, less efficient miners will have to shut down.”
Kulyk added that existing miner networks will continue to ensure the security of the Bitcoin blockchain as long as economic incentives compensate them for their risk.
“Most of the large miners have the halving built in. They've been anticipating it for years and factoring it into their outlook,” Kulik says.
In an interview with Cointelegraph, Luxor head of research Colin Harper also emphasized the importance of efficiency and the possibility that small-scale miners may have to power down their machines.
“Assuming the price of Bitcoin does not break the hash price, which is a measure of mining profitability, miners with higher cost power and lower efficiency mining rigs will be forced to drop out of the network.”
Harper added that small-scale miners could suffer from reduced profitability in 2024 given the decline in BTC rewards. This leads to the point that multiple commentators have unanimously pointed out that a sharp spike in Bitcoin prices is needed to increase profitability during and after the halving.
Bitcoin price is an important factor
Core Scientific CEO Adam Sullivan told Cointelegraph that the impact of the halving will depend entirely on the price of Bitcoin and will directly impact the number of miners that remain active.
“As the price of Bitcoin falls, more machines will leave the network and the difficulty will be adjusted lower.”
This has led Core Scientific to focus on keeping machines online to maximize the profitability of its mining fleet. On a more technical note, Sullivan says a miner's success will depend on their ability to manage the trade-off between total TeraHash exposure and hardware efficiency compared to the market.
While some miners may be forced to cease operations, Sullivan believes the nature of Bitcoin's protocol will always allow it to continue mining.
“The Bitcoin network is self-healing and will always encourage mining to occur in the long run.”
He added that when certain miners exit the industry or turn off their equipment, the network adjusts, releasing a larger percentage of blocks to reward participants who continue mining.
Leverton echoed this sentiment, saying that if Bitcoin prices rise sharply in the weeks and months following the halving, large miners will continue to expand their operations, maintain their networks, and capture potential upside. I pointed out that it would be.
Harper also believes that the mining ecosystem will not suffer a significant shock after the halving and that the protocol design will always encourage miners to participate.
“There will always be some miners who take advantage of cheaper electricity than others, so as long as Bitcoin has value, someone will be mining it.”
He also highlights the fundamental purpose of the mining difficulty adjustment mechanism as a balancing force to maintain miners' incentives.
“This is why difficulty throttling exists. When mining Bitcoin becomes unprofitable for most miners, they shut down their rigs, the hashrate drops, the difficulty drops with it, and then… Mining is more profitable for the remaining miners,” Harper explains.
Kulyk takes a more optimistic view, highlighting the emergence of Bitcoin ordinal in 2023 and its impact on transaction fees and developer activity. Coupled with the increasing scarcity of new Bitcoins, Bitcoin mining is likely to remain a profitable and sustainable economic activity in 2024.
Forget about Bitcoin's death spiral
Previous halving cycles have also seen headlines touting the possibility of a so-called Bitcoin death spiral. This hypothetical scenario includes miners being forced to leave the network, resulting in significantly lower profitability and subsequent hashing rates.
Given that it takes Bitcoin mining difficulty two weeks to adapt to changes in hashrate, despairers have previously argued that longer block times and an inability to process transactions in a timely manner will disrupt the network. I expected it to be.
Related: $100,000 BTC? Don't underestimate the power of Bitcoin ETFs, says Adam Back
Speaking to Cointelegraph in December 2023, Blockstream CEO Adam Back was adamant that such a scenario is not possible.Cryptographer who pioneered proof-of-work algorithms applied to Bitcoin protocol looks back on past 'catastrophe theories' during previous halvings
He added that these scenarios have never played out in practice and that economic data shows miners are likely to be in a better position in 2024.
“Mine profitability has more than doubled this year. So even if we cut it in half with the halving, we're in a better position than we were in January, and hashrate has increased throughout that period.”
Buck also emphasized that sophisticated mining companies have historically done detailed calculations to factor in the potential impact of halvings, which involve a decline in hashrate and the capitulation of some miners. .
“Those who drop out are the least efficient. Miners with equipment that produces 35 to 40 joules per terahash are literally twice as inefficient,” Buck explains.
Related: Blockstream aims to keep Bitcoin miners profitable with Series 2 BASIC notes
He also claims that Bitcoin's price increase, which will exceed $40,000 in 2023, has more than doubled compared to the hashrate increase. Buck believes that the next halving could occur without a drop in hashrate, and that miner profitability will simply drop to mid-2023 levels.
“Maybe the overall upward trend in hashrate will continue until the halving.”
2023 will be a challenging year for the Bitcoin mining sector. The rise in hashrate in the first half of this year led to some miners shutting down due to the slump in BTC prices.
Larger companies with healthy balance sheets and reserves have managed to stay in business, but some companies are still struggling with the 18-month Bitcoin halving and historic We have increased our production capacity in anticipation of price increases.
2024 will largely depend on Bitcoin price performance and efficiency of mining operations, experts suggest
Magazine: Recursive Inscription: Bitcoin “Supercomputer” and BTC DeFi Coming Soon
