Solo mining is dead. Sure, there may be a random altcoin out there somewhere that is worth breaking out the pickaxes for, but all of the modern profitable coins (BTC, BCH, LTC, ETH, etc) are out of reach for those who mine by themselves. The dust is settling, but can we point fingers at the killers yet? Was it the price of the mining rigs, or perhaps the increasing cost of electricity that is the culprit? Perpetual increases in hashrates certainly share some of the blame, but at the end of the day it doesn’t change the simple facts – the mining game has changed. With so many players on the field, i.e. energy providers, local governments, and huge mining pools… is it still possible for the average crypto enthusiast to make money mining?
Mining and Electricity – Where’s the Spark?
In the most simple of terms, miners need electricity to power their mining equipment – regardless of the type of machine they’re running. Therefore, miners basically have one golden rule:
Seems simple, right? Of course it is a bit more complicated than that, since there are many factors to consider (what rig to use, electricity prices to run and cool the rig, software and pool choices, selling vs holding, etc.), but at the end of the day it boils down to earning more than what you spend.
There are various ways that miners go about their business: individual, pool, and centralized techniques. In essence, individual mining is when you run a rig at home, pool mining is using that same rig but being part of a team, and centralized mining (sometimes also known as cloud mining) is when you pay a fee to use mining equipment that is owned by someone else. If you are thinking about mining and want to know where to start, check out this piece we wrote on the topic, otherwise move forward with me now that you’ve got a gist of the topic.
Earlier, we briefly mentioned that miners need electricity. This was a bit of an understatement. Miners cannot function without electricity, as it is the most crucial part of their operations (unless they want to do the calculations by hand, which would take about 16.5 trillion years per BTC). Some miners choose to set up operations in countries/areas where electricity is cheaper, but not everyone has that luxury. According to a study completed by EliteFixtures.com, “South Korea comes in as the most expensive country for mining a single coin at $26,170. From there, Niue, Bahrain, the Solomon Island, and the Cook Islands round out the top five, respectively. On the flipside, Venezuela came in as the cheapest nation at $531.” (Their numbers are based on calculating the number of days, as well as the electricity costs by country, that it would take for the top three mining rigs to mine a single Bitcoin.)
Most of us probably don’t live in those countries, however, and ElixeFixtures goes on to explain that “the United States came in as the 41st cheapest country for mining at $4,758. Russia, a major mining hub, was just a little below the U.S. at $4,675. China came in as the 17th cheapest nation at $3,172.”
The Actual Cost of Cheap Electricity
Regardless of the price consumers are paying for energy, the bottom line is that the environment is ultimately footing the bill – and because of this environmental strain, many governments and cryptocurrency critics are starting to push for a decline in traditional mining.
Frances Coppola at Forbes, for instance, points out that the electricity used for crypto mining is a serious threat to the environment, and they aren’t wrong. Aside from being a threat to the globe, the dependency on cheap electricity also creates a dependency on local governments, essentially making Bitcoin a tad less “decentralized” and “independent” than it appears. Coppola explains that “without access to abundant electricity, Bitcoin mining can’t continue, and without mining, Bitcoin is dead. And ultimately, electricity supply is controlled by governments.”
This quasi-government control, coupled with a push from cryptocurrency critics towards more environmentally friendly practices, leaves miners with a few options. After all, it doesn’t matter how cheap the electricity is if you are banned from using it to mine.
Find Renewable Energy Options
Moving mining operations to a country or region that is already being serviced by renewable energy options is the most simple solution to the problem, but the case in Washington, USA is reflective of the story everywhere; the current grids weren’t designed for the strain that cryptocurrency mining puts on them. Suzanne Hartman, the Chelan County Power Utility District communications manager, says, “It’s a dilemma for us, we do have power available, but the requests we’re seeing of more than 200 megawatts is equivalent to our normal average load. We have to weigh those requests against the needs of our existing retail base.”
Turn to Private Energy Companies
Government controlled energy providers are starting to shut off services to many miners around the world (ENEL in Europe, PBOC in China, etc), and turning to private companies can help preserve decentralization. This isn’t always easy, given that a handful of companies provide service to a large portion of the world, and for the average miner this is all but impossible since they won’t be building huge facilities.
Create Their Own Energy
This is arguably the most difficult option, but also the most secure. In many places across the world cheap energy is coupled with unreliable service, and time spent not mining is money lost. However, building hydroelectric dams, wind farms, and the like take time and funding, both of which many cryptocurrency miners do not have a surplus of. Brookstone Partners, for instance, is trying to raise $100 million USD to launch a cryptocurrency wind farm mine in Morocco, a project that could potentially cost upwards of $3 billion USD to complete.
If miners were able to find a source of renewable energy that was not only guaranteed by a government (thus unable of being manipulated), but was also reliable and cheap, it would create the ideal situation for mining.
The Future for Mining and Electricity?
It is obvious that the situation has to change, but where exactly that change will occur isn’t clear yet. Allowing for BTC (or any other cryptocurrency) to become partially centralized through energy provider stiff-arming isn’t at all desirable. If the price of BTC increases then the amount of energy used to mine it will increase as well, given that miners will have more liquidity in profit to spend on electricity. Alex de Vries published an extensive research article through Cell.com, where he concluded that “the Bitcoin network consumes at least 2.55 GW of electricity currently, and that it could reach a consumption of 7.67 GW in the future, making it comparable with countries such as Ireland (3.1 GW) and Austria (8.2 GW). Additionally, economic models tell us that Bitcoin’s electricity consumption will gravitate toward the latter figure.”
The general feeling towards mining energy consumption seems to be turning negative, and miners who can get ahead of the game and adapt renewable energy practices early on are sure to benefit. If energy usage for mining is going to increase then we need to find a solution, and some are easier than others.
Switch to Proof-Of-Stake instead of Proof-Of-Work for BTC
One common suggestion to fix the BTC energy problem is to switch from POW to POS. This would be a great fix because using POW protocols (compared to POS) wastes an immense amount of energy everytime a block is mined, since everyone is competing and potentially solving the same incorrect hashes. This switch is unlikely to happen anytime soon because POW is currently more lucrative and mining pools already have the rigs to run the protocols. As Brian Schuster points out on Quora, “The six largest Bitcoin mining pools control about 95% of the resources on the blockchain. That means that in order for any change to be accepted, these pools have to adopt a new standard… no one can force it on them.”
Incentivize Miners to use Renewable Energy
If it is impossible to encourage the Bitcoin blockchain to switch to Proof-of-Stake, perhaps we could instead encourage miners to use renewable energy to save themselves money. Considering that 76% of global BTC mining profits were spent on energy, it’s easy to see that any reduction in the cost of energy would greatly increase mining profits.
Company Provided Solutions
The easiest solution would be turning to companies that are already providing them, and one such company is the Dutch startup Securix – a token-driven, sustainable mining operation. Being located in the Netherlands gives Securix access to some of the cheapest and most reliable energy in Europe. Aside from being a leader in Europe, the Netherlands are also world leaders in energy equity, environmental sustainability, and energy security, according to a study completed by the World Energy Council.
The Netherlands clearly offers more than just cheap energy, and a majority of the energy that Securix will use will be renewable and purchased through an EAN-to-EAN platform. This platform allows Securix (and other companies) to buy only the cleanest energy by providing an exchange through which they can deal directly with solar, wind, and hydro providers. This keeps energy costs down, since there are no intermediaries taking a cut, subsequently helping to increase their cryptocurrency mining profits.
Given that Securix is, afterall, a cryptocurrency mining operation, it is important that they focus on profits for themselves and their investors. By using the perfect combination of location, specially designed equipment, and reliable, low-cost energy Securix is able to predict that their total energy costs will only be 28% of their gross profit, a number significantly lower than the 76% industry average we mentioned earlier. Not only will this enable their customers to make more money, it will also help reduce the strain on the local power grids because of their energy-efficient practices.
These types of solutions show forward thinking, and seeing this type of effort from a company brings hope to an otherwise dire situation. Securix isn’t waiting for Bitcoin to fix itself by switching to POS protocols, and it certainly isn’t waiting for individual miners to switch over to renewable energy. Instead, Securix is offering a practical solution that helps the environment while creating a profit for their investors.
Can Renewable Energy Save the Day?
Without a doubt, BTC and altcoin mining are putting a huge strain on the environment and will continue to do so unless something changes. Renewable energy seems like the most obvious fix, but finding the appropriate ways to incorporate sustainable practices into mining is tricky and efforts oftentimes fall short. By turning to companies like Securix and encouraging mining companies to focus on renewable energy we can reduce BTCs energy consumption before it becomes critical. Unfortunately, the era of the solo miner seems to be coming to an end, but the average crypto enthusiast can still certainly make money by investing in the right mining companies.
Thanks to the Howtotoken Agency experts for the information and comments provided for this topic.