This article was published in Bitcoin Magazine “Primary issue” and sponsored HELL DIGITAL TECHNOLOGY LIMITED As part of Bitcoin Magazine's “Buy the Numbers” content series. Click here For your annual subscription to Bitcoin Magazine.
Click here to download a PDF of this article.
We're less than 30,000 blocks away from halving, and the stakes couldn't be higher. For many Bitcoin mining operators, this will make or break bets made during this Bitcoin era. Did you grow up too quickly? Can I handle a catastrophic drop in retail price? Will my operations be reorganized under my existing energy contract? Bitcoin itself remains indifferent. The halving is inevitable, as it was coded by Satoshi at Bitcoin's inception and is enforced by nodes around the world. The lumps will continue to flow and there will be blood. The big question many are asking is how to overcome this looming battle. Perhaps a better question is where you will be placed on the board when the battle occurs. Knowing how to build and operate an efficient fleet of Bitcoin miners is one thing, but the critical success factor remains the cost of energy. It's about your location on the map. To find the high ground, you must perform a re-segmentation process.
This half event will challenge even the most battle-hardened veterans. They will need to improve their operations at all costs. For inexperienced operators, energy cost may seem like a variable you can overlook. They only focus on accumulating as much hash as possible and tend to completely forget about efficiency – the energy consumed per hash produced. In the long run, energy cost is the most important variable. Sure, your dollars per terahash matters, the price of Bitcoin matters, and so does the network hash rate. Everything is important. But energy cost is the kingmaker. After all, the legendary 7-year-old Antminer S9 is still profitable today thanks to enough cheap power.
At the heart of miners' considerations are two key elements: mining revenues and energy expenditures. These two variables are used to quickly run the numbers on mining profitability. It is important to note that this does not take into account additional operating costs such as labor and other expenses associated with operating a mine. This remains a useful formula for keeping the lights on.
Mining operators come in different sizes, and the easiest way to tell them apart is based on how much power they use. Here in the United States, the Energy Information Administration (EIA) is responsible for monitoring energy trends and categorizing consumption and energy costs into residential, commercial, and industrial customer energy rates. We will focus on how mining operators can benefit from the rates applied across each of these three categories:
- Residential: Less than 30 kW — Home miners include 1 to 10 Bitcoin mining machines. Typical homes cannot handle much more power than this and will require the installation of additional electrical infrastructure. The residential range has the highest energy rates within the same state.
- Commercial: 30 kW – 1 MW — covers small and medium-sized businesses and Bitcoin mining operators with 10 to 300 mining machines. Commercial scale has greater energy consumption than residential scale but is not quite industrial. This range is typically up to 1 MW in size. While commercial-scale miners have better rates than customers residing within the same state, they are not large enough to successfully negotiate with energy companies.
- Industrial: > 1 MW — operations using more than 300 mining machines. Industrial-scale operators are large enough energy consumers that they can negotiate energy costs through power purchase agreements and obtain energy at the lowest cost within the same state.
Despite these differences in size, the three categories of mining operators are united by a shared need for cost-effective energy. While some miners may be constrained by geographic constraints, aggressive miners actively explore areas with reasonable energy prices – we'll call that leverage arbitrage – while others try to expand into situations where they are large enough to have a seat at the table to negotiate lower prices. .
War games
Now that we have a better understanding of what different processes look like at scale, let's run the numbers. Since we don't have the benefit of a crystal ball, we will simulate a war game using the following data points:
- Bitcoin price is $30,000.
- Network hash rate at 400EH/s.
- Bitmain Antminer S19j Pro 100TH/s at 3kW per module.
- Residential scale: 10 bitcoin miners.
- Trading range: 100 bitcoin miners.
- Industrial scale: 1000 Bitcoin miners.
- Energy rates for 2023 to date (Environmental Impact Assessment).
Let's apply a simple mining profitability equation (mining revenue minus energy cost) to see how mining operators would handle this scenario across the U.S.
Reading the numbers is very alarming, as you immediately see how unprofitable mining is under our scenario. Only 40 states are profitable at industrial rates, 18 at commercial rates, and six at residential rates. If you ran the same simulation but forced halving, cutting your daily mining revenue in half, suddenly it would be a doomsday scenario where no mining operation would be profitable. Of course, Bitcoin does not exist in a vacuum, and this does not take into account changes in the network hash rate and the price of Bitcoin.
The war game looks bleak for residential operators. Under the circumstances described, profitability at residential energy rates appears elusive and mining operations are likely to be at a loss nationally. While some may follow this path to accumulate a free KYC balance, for many, this does not justify operating on a deficit.
Commercial rates provide a more promising outlook for operators, as lower energy costs bring increased profitability to many states. However, only a few states offer a profitable environment for small and medium-sized miners, especially in a potentially challenging 2024.
The landscape is changing more at the industrial level, where miners have more influence and a proper seat at the table. Power producers take notice when operators' demand approaches or exceeds 1 MW, reflecting the shift from being a rounding error to a meaningful consumer. While profitability is possible in 40 states for industrial-scale miners, many states remain a challenge.
The question is whether mining operators will be able to survive the battle to fight another day. Withstanding the onslaught of increasing competition, a halving, and a completely unpredictable Bitcoin price will not be easy. Operators will need to find efficiencies wherever they can. This basic principle holds true: profitability can be achieved with low hardware and energy costs. The headline throughout this entire article is that the geographic location of your operation is probably the most important success factor in running a mining operation. For the majority of countries, this means that you should not connect Bitcoin miners. However, there are still opportunities out there if you are ambitious enough to get into the trenches and do re-segmentation. This is where the lines are gained and the high ground is claimed.
This article was published in Bitcoin Magazine “Primary issue” and sponsored HELL DIGITAL TECHNOLOGY LIMITED As part of Bitcoin Magazine's “Buy the Numbers” content series. Click here For your annual subscription to Bitcoin Magazine.
Click here to download a PDF of this article.
