The challenges of mining Bitcoin on an industrial scale

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By Abdumalik Mirakhmedov, Executive Chairman and Co-Founder of Genesis Digital Assets

Bitcoin is the future of money, but it doesn’t exist without exploiting it.

There was a time when someone could mine from a laptop at home, but competition forced operations to scale and hardware to become faster and more efficient in order to keep miners profitable. This allowed Bitcoin mining to grow into a multi-billion dollar business in just a decade, with mining operations requiring the right architecture, the right sources of power, management software, upgraded hardware, and more. more to stay profitable.

But while this is a large, capital-intensive industry, the returns are also significant, and in just a decade of existence, Bitcoin has grown to a market cap of over $ 1 billion. It is also attracting more interest and larger investments as its adoption spreads.

We have been mining for seven years and have adapted our operations to the growth of Bitcoin, which means that we have been faced with all the issues that we face with regards to equipment, supply, locations, etc. Here are some challenges of large-scale mining, and how we handled them.

6 challenges of large-scale Bitcoin mining

To stay profitable, Bitcoin mining requires operational excellence, a deep understanding of needs, and the flexibility to adapt. While Bitcoin mining helps revolutionize money, technology, and the exchange of value, there are still many operational challenges facing the industry today.

Challenge 1: Access to equipment

Mining operations need the fastest, most advanced technology to stay fast, efficient and profitable. But it’s not as easy as just ordering the latest miner model when they need it. The fastest chips are in limited supply and are only controlled by two companies, so “innovation in space is sort of held hostage to a duopoly,” according to ARK Invest. These chip foundries also only allocate them to certain customers, with batches of equipment only being produced at certain times of the year. And supply shortages lead to frequent sales of necessary equipment, as with the current shortage of Bitmain ASIC miners. This means that if mining operations are able to source the latest equipment, they must place orders in advance and anticipate when the new machines will be available.

Challenge 2: Access to capital

Bitcoin mining is a capital intensive business and requires access to investments as well as sourcing the most efficient locations, energy, and supplies to keep costs down. This often means signing contracts for long-term material agreements over multiple innovation cycles. As CoinDesk reports, debt financing is often the way mining companies get started and operate, but “the mining industry is volatile and loans typically come with high interest rates and strict collateral requirements, which makes it a double-edged sword for those who borrow to grow. “

Challenge 3: Access to energy

Mining Bitcoin requires a lot of energy for miners to operate efficiently, and these costs can add up quickly, which means that for mining to remain profitable, operations need to source not only energy. cheap, which is often sustainable energy. This means turning to wind or hydro power to increase efficiency while having minimal impact on the environment. While the UN issued a statement believing “that cryptocurrencies and the technology that powers them (blockchain) can play an important role in sustainable development and actually improve our environmental stewardship,” many mining operations use more polluting energy sources.

Challenge 4: Access to talent

As mentioned earlier, this is such a new industry that there is no historical precedent for how to execute, scale, and optimize operations. All talent is still on a learning curve, so finding someone with the exact technical expertise is a challenge. While there are no crypto mining degrees yet, universities and educational institutions are expanding course offerings and organizations are creating open source innovation platforms to train newcomers.

Challenge 5: Political risk

Not all countries agree with the future of cryptocurrency. As we have seen recently with Iran’s ban on crypto mining and China’s order to shut down mining operations, countries can change their policies overnight and not just slander it. mining industry within its borders, but can also affect the price around the world. In many ways, it is shown which countries are open to the idea of ​​having mining companies – Canada even deemed crypto mining companies ‘essential’ during the pandemic – and many operations are moving to places where the political risk is much lower.

Challenge 6: Price volatility

Another challenge is the dramatic fluctuation in the price of Bitcoin, which can change with just one tweet. Price cuts mean not being as profitable while maintaining the same level of exploitation, and price cuts often result in miners leaving the industry for good. Surviving price drops until the next price hike simply requires being more efficient with operations.

Overcome the challenges

Bitcoin mining is still a young and evolving industry, and many of these challenges stem from the simple fact that we are creating a new industry as we go. Greater awareness, good problem solving, and collaboration to overcome these challenges will be the way to stay competitive and create the future of Bitcoin.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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