Why is mining power getting smaller (why mine)?

Why is mining power getting smaller? Editor’s note: This article is from Carbon Chain Value (ID: cc-value), author: Gu Yanxi, authorized reprint by Odaily Star Daily.

In the ten years since the birth of Bitcoin, mining power has been decreasing. Why is mining power getting smaller? This phenomenon is due to the need for more effort and computational work in mining, which is difficult for those who do not understand computer technology to comprehend the risks and dangers involved. Therefore, they have to seek reasons for this. Why are many mining farms shutting down now, causing many companies to close their operations or even stop running, but these companies still maintain a stable workload?

Although most people are interested in the construction of mining farms, many people are not really concerned about the maintenance and updating of mining machines, so they decide not to participate in any research in the network anymore. For example, a recently launched “China’s first Ant S19Pro” ASIC miner can only operate with one machine because it did not get enough hardware. And there are various difficulties:

1. Due to high costs, ordinary investors cannot enter this industry; 2. Fierce competition in the mining industry makes it difficult for people to use mining machines and gain income. With the price drops, we have also seen some well-established brands go bankrupt. Currently, there are many small enterprises choosing to leave this industry or withdraw. However, such situations are indeed rare. But considering the current price trend and future development prospects, this situation is unlikely to happen again, as they may only sell their tokens on the market or purchase new products to avoid losses.

3. Due to factors such as tight power resources, the overall profitability of the mining industry is damaged, and the mining business still faces prominent issues, especially severe insufficient expenditure on electricity bills. To maximize profitability, the mining difficulty adjustment mechanism is also gradually changing, and it is expected that a large number of miners will shut down in the second half of 2020, which will generate a large number of new computing power suppliers to re-enter the field and make it more efficient. In addition to traditional cloud storage solutions, the same applies to blockchain, which can provide data processing services for the entire economic activities.

4. The Bitcoin network can accommodate approximately 2 million transactions per second, which means it is much less efficient than networks in other regions of the world. Of course, all of this is based on the past year. When you mine digital currency, the fewer the total number of blocks in your mining pool, the larger the hash value you generate. This is the reason for the so-called block reward halving. According to data statistics from bitinfocharts, the average block time for Bitcoin in 2017 was 17 minutes, which reached 18 minutes on January 14, 2018, and reached a new high in the first quarter of 2021 in two months. Based on historical records, the growth rate of the average network hash rate of Bitcoin exceeded the levels at the end of 2017 and the beginning of last year around the end of June this year.

Why Mine?

Mining is essential for human survival and progress, and it also has its special significance in the field of blockchain.

The value of cryptocurrencies such as Bitcoin mainly comes from the consensus mechanism rather than practical applications. Because these algorithms are designed by mathematicians, we need to estimate the mining system reasonably: if we want to calculate the proportion of a digital asset, we need to calculate a block as a reward (also called work proof) using a calculator first, so as to determine whether the computing power is required and how much revenue it can generate. If we want to verify a complex set of data in the network and reach a consensus to ensure that all data are correct and valid, we must have enough information to ensure that each item of account is recorded to the corresponding time node before we can complete the transaction. Why is mining considered the most important? In order to solve this situation, the author of this article believes that one of the main purposes of mining is to increase the security and improve the performance of the network. At the same time, a new incentive measure is proposed – to provide funding support for decentralized projects that people want to support, thereby enhancing the reputation of the entire industry. This can not only encourage everyone to participate but also prompt others to participate, such as those already established industry organizations or foundations that will help them achieve this goal. However, there are still many problems in how to use this new incentive method to promote the development of next-generation technology, such as whether to adopt the “mining + voting” model, which makes some early investors unprofitable or abandoned, and so on.

Therefore, from an economic perspective, the fundamental problem of mining lies in its cost and difficulty, that is, the so-called inflation rate. So for miners, the first thing to remember is that no one can control their income share, and when you have a large amount of cash reserves, you can use your idle resources to make profits. Secondly, you need to understand your financial situation and then decide when to invest more energy to mine Bitcoin and which currencies may become the future wealth passcodes. In addition, due to the fact that the governments of most countries around the world do not allow the electricity costs incurred by mining activities, it is difficult for most ordinary investors to accept such power consumption, which affects their investment decisions. Of course, this is also the biggest advantage of mining, but it also brings a huge challenge.

1. Mining BTC requires a large amount of energy, especially in places like Sichuan, China, where hydroelectric power is abundant, which has led to restrictions and shutdowns for a period of time. On the other hand, due to the large load of the power grid in our country, there are problems such as power shortage. In addition, the generous salary due to the epidemic has brought certain pressure to the pay of the mining field personnel. The fluctuation of 2 the price of mining equipment is large. Due to the expensive manufacturing price of mining equipment and the susceptibility to hacker attacks and hardware failures, some mining machines have experienced abnormal damage. 2. The price of ASIC miners is high. According to data from Coinmarketcap, the current global hash rate of Bitcoin is about 91.3 EH/s, far below the historical high point of 20.5 EH/s in December 2018. 3. The threshold for choosing chip manufacturers is very low.