Are Miners Prepared for the Halving of Bitcoin?

Anyone following crypto news has undoubtedly seen numerous articles that forecast Bitcoin’s (BTC) valuation following the upcoming halving slated to take place in May of this year. And although the price of Bitcoin is clearly important to the industry and investors at large, planning for the halving is particularly critical to cryptocurrency miners.

Once the halving occurs, the unfortunate truth is that the profitability of all but the most efficient mining operations will be greatly challenged. To stay in the green, many will either be forced to upgrade their equipment or to shut down their mining operations altogether.

However, careful planning can mitigate these risks, and there are several steps miners should take to set themselves up for sustained profitability in the wake of the halving. To understand all the factors at play, it’s important to review what makes mining profitable in the first place. This includes:

  • Hash rate and difficulty.
  • Power consumption.
  • Power cost.
  • Block reward.
  • And the exchange rate of BTC to USD. 

Hash rate and difficulty

The hash rate is the estimated number of tera hashes per second that the Bitcoin network is performing. It is a general measure of the network’s processing power and of how many times the network can attempt to add a block to the Bitcoin blockchain every second. 

The hash rate is a good indicator of the network’s health, and while it can’t be precisely measured, it can be estimated based on the current difficulty and time of block confirmations of Bitcoin.

Mining Bitcoin is not easy, and it has only gotten harder as more miners have joined the network. The difficulty of mining a block correlates with the overall network hash rate, and thus with the competition. The more people trying to solve a block, the more difficult it is to do so.

Miners can increase their chances by employing high-powered application-specific integrated circuits that are efficient and always running. The ultimate goal is to solve a block that is worth more than it costs to solve. Miners can also improve odds by joining a mining pool, in which profits are shared with the other members of the pool and vice versa. 

It’s not expected for the halving to have a big impact on mining difficulty. It may adjust slightly to make up for no-longer-profitable miners leaving the network, which will allow for the remaining miners to mine more profitably and to drive forward the hash rate, price and difficulty in general.

Power consumption

The electrical efficiency of mining devices has a massive impact on overall profitability. If miners are expending excess energy and paying more in electrical costs than receiving as a result of solving a block, they’re going to end up in the red.

Related: Bitcoin Mining’s Electricity Bill: Is It Worth It?

A more efficient device will lead to greater profits in less time while also expending less energy, thus, reducing costs. Such efficient machines are going to be needed to correct for the reduction in block reward following the halving. Machines, such as the Antminer S9, are going to become essentially obsolete and will need to be replaced with newer, more efficient miners like the Antminer S17.

Power cost

The power cost also has a big impact on profitability and is directly related to the power consumption — as well as to the cost of electricity at the mining operation. As more efficient machines are needed to keep up with the reduced revenue following the halving, miners will need to run operations in a place with low energy costs.

Mining colocation centers offer high power and low costs of energy, along with several other benefits, such as 24/7 security and equipment oversight. It’s strongly suggested that miners consider state-of-the-art facilities throughout the country to help them make the most of their operations at a fraction of the cost and consumption.

Block reward

This is what halving is all about. The current block reward of 12.5 BTC will be halved to 6.25 in the spring, and the revenue of all miners on the network will be cut in half, as well. The only way to make up for this is to increase mining power and reduce operational costs.

Exchange rate of BTC to USD

The price of Bitcoin has historically responded well to previous halvings — for those miners capable of remaining in the market after the fact. However, this has been the subject of considerable debate in the crypto community, and although opinions vary, the outlook is bullish.

Looking ahead by looking back

The bottom line is that when the Bitcoin block reward halves, so will the total revenue generated by all miners. If the hash rate, power consumption and power cost all stay the same as they were before, it’s likely that a mining operation will be unprofitable if the hardware hasn’t been upgraded to remain competitive.

When getting into this space, it’s essential to keep emotions out of the equation. It’s best to rely on the numbers and objectively analyze trends and key indicators to set oneself up for the best chance at success. This is certainly easier said than done in today’s environment, as social media, family and friends have made it easier than ever to become influenced by outside sources. Still, it is important to understand that long-term trends are more indicative of where the market is headed than are random fluctuations.

Looking back at the last two halving events in 2012 and 2016, both led to new market highs for Bitcoin’s price within a year to a year and a half. No doubt that the upcoming halving will impact the market, and although we can’t know for certain what will happen, if the demand for Bitcoin remains the same and scarcity is greater, the expected response would be to see the price increase. By how much, it is hard to say.

For those committed to the long-term play, good planning and investing in the latest hardware seems prudent. Going a bit further, for those who don’t host their own mining equipment, analyzing hosting options and locking in competitive pricing now in a multi-year contract can help manage costs in the coming months.

The best piece of advice for miners: Assess your needs today and well in advance of the halving. As Benjamin Franklin once famously noted, “If you fail to plan, you are planning to fail.”

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Dave Perrill is the CEO at Compute North. A 25-year veteran of the IT and information security industry, Perrill has been keenly immersed in the cryptocurrency mining industry and blockchain technology since its formative days. He founded and subsequently sold two technology companies, including an Internet Service Provider/Managed Security Provider, SecureConnect, which was acquired by Trustwave Holdings in 2012. He also has extensive experience in networking, data center engineering, scaling large IT systems and security.

Source
cointelegraph

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