Christopher Bendiksen, the Head of Research at CoinShares, published a blog on Medium about the truth and myths concerning Bitcoin (BTC) mining aptly he titled it as ” An Honest Explanation of Price, Hashrate & Bitcoin Mining Network Dynamics”.
The article covers several facts surrounding BTC mining including one of the most talked about issue currently, that miners are shutting shop due a decline in mining profitability, and hash rate. It goes on to elaborate, how mining is not environment threatening as many critics claim it to be.
Bitcoin Mining is Clean Industry
While covering the integrities pertaining to BTC price, hash rate, and mining network, Bendiksen claimed:
“Bitcoin isn’t dead. Not this time nor the 326 times before.”
To start off he cleared off BTC from being an environmental hazard. It is an energy-intensive industry and some non-supporters often argue that mining BTC poses threat to the environment. However, the latest research by CoinShares, crypto products, and research company, illustrates that BTC mining is not as harmful as it has been made to believe. It is rather,
“By inference, that makes bitcoin mining one of the cleanest industries on the planet, a far cry from the dubious claims put forward by less researched, and more opinion-based sources.”
He shared this insight in his official Twitter page as well:
— Christopher Bendiksen (@C_Bendiksen) November 29, 2018
He goes on to compare the amount of energy consumed in mining to point that it isn’t really much of consequence:
“…the combined power draw of global PS4, Xbox One and Wii U units running four hours a day (4.9 GW) is higher than that of the entire #bitcoin mining network (4.7 GW).”
Hash Rate and Bitcoin Price
Bendiksen further clarified that while Bitcoin miners are shutting down their hardware and making an exit, ”this is not going to cause a “death spiral.” He explains that the two cutoff levels for prices matter most for bitcoin miners, one of them is the all-in ROI (Return on Investment) breakeven. This level dictates whether the miner is earning profits or going through a loss.
The second is Cash-cost breakeven, in a scenario where the pointer is above this level, the cash flow is positive but potentially loss-making. While below this means mining gears are likely to be shut down depending on risk appetite, industry view, and capital levels. Bendiksen states:
“We are currently near the cash cost level and the recent drop in hashrate suggests that we’ve been above it during the recent price fall, causing a significant amount of mining gear to be removed from the network.”
Hash rate, on the other hand, lags during price increases but responds much quicker to the price decreases.
“…price doesn’t follow hash rate, and never did. It’s the other way around as only increased prices can pay for additional hash power.”
“Many miners are currently feeling the squeeze, with inefficient mining gear and high-cost electricity miners likely to be forced off the network.”
Indeed miners are struggling with the current price point when the gear is running below cash cost shutting down is a viable solution. The report claims that this does not decree the end of mining, it will gain its traction as and when BTC gain its.