In the last few days, Bitcoin’s hashrate metric has experienced a significant downward contraction due to the recent reduction in mining activities in Texas, as the country is facing an unusual cold wave.
The ERCOT, which stands for the Electric Reliability Council of Texas, has asked large miners such as FoundryUSA, Luxor Mining Pool, and Marathon Digital to reduce the amount of electricity used in their digital currency extraction processes to address this emergency.
This is not the first time that a similar event has occurred: in the past, ERCOT had incentivized the mining company Riot to drastically reduce its energy consumption during summer heatwaves, donating over 2 million dollars in energy credits.
Meanwhile, Texas is increasingly emerging as the main hub for miners, surpassing CHINA in terms of the number of companies present and the amount of hashrate produced.
All the details below.
Bitcoin mining hashrate drops by 25% due to freezing temperatures in Texas
In the last 7 days, the hashrate of Bitcoin, which is the collective computing power of the cryptographic network, has experienced a 25% decrease after mining operators in Texas were forced to limit electricity consumption during certain hours of the day.
The ERCOT, the regulator of the Texan grid, has asked several companies to reduce energy usage due to the recent wave of freezing weather that has put a strain on the country’s operational reserves.
Indeed, Texas, as part of its power grid, heavily relies on a mix of renewable sources such as solar and wind, which were not enough to meet the demand of its citizens during the recent weather emergency.
In the crosshairs of ERCOT’s requests, we find companies operating in the field of Bitcoin mining such as FoundryUSA, Riot, Luxor Mining Pool, and Marathon Digital, which typically have a high energy consumption 24/7.
The pressure exerted on these companies has led to the cut of over 4 gigawatts of energy capacity, as reported by the newspaper “TheMinerMag”.
The electrical council’s warning was followed by official appeals for conservation on Sunday, Monday, and Tuesday. These were the words spread in a recent “conservation appeal”:
“It is expected that operational reserves will be low tomorrow morning due to the ongoing freezing temperatures, record demand, and unusually low wind. We ask businesses and residents of Texas to limit their electricity usage, if it is safe to do so.”
It is worth noting that in conjunction with the arrival of freezing temperatures in Texas and the requests from the electrical grid regulator, Bitcoin’s hashrate dropped from 610 EH/s on Friday, January 12th to 450 EH/s on Tuesday, January 16th, experiencing a sudden decrease of 25%.
In particular, the pool managed by FoundryUSA seems to have contributed to 50% of the recent drop, with its hashrate dropping from 155 EH/s to 77 EH/s on Friday, and then managing to recover in the following days.
Regarding the news, Charlie Schumacher, vice president of corporate communications at Marathon, mining operator affected by the Texan reduction, clarified that:
“Bitcoin miners are, among other things, a technological solution for the energy sector. In Texas, they serve as a base load that can be reduced in a few minutes to free up energy for others in a time of crisis. This is exactly what we have seen playing out in recent days.”
While Texan miners collaborate with ERCOT to support the country’s energy emergency, some Bitcoin supporters may be concerned about the sharp drop in the network’s hash rate, as it is a measure of security and resilience against cyber attacks.
Anyway, it is important to understand that these dynamics are not new in Texas and have already happened in the past: it is very likely that in the coming days the hashrate metric will return to regular values.
Texas surpasses China as the top mining hub
Despite the difficulties of Texas in meeting the demand for electricity from its citizens during weather alerts, it is worth noting how the country is positioning itself as a global hub for the Bitcoin mining sector, where a large part of the network’s hashrate is produced.
That role that until recently was occupied by China, before the Eastern regulatory authority forced the reduction of cryptocurrency mining activities, is now occupied by the Texan country.
In recent years, the low cost of electricity, the tax incentives from ERCOT, and the favorable regulatory environment have prompted many companies to relocate their machinery to the southern state of the United States.
To date, the numbers of Texan miners are growing rapidly: a report by Foundry in September stated that Bitcoin miners based in the United States using its pool in Texas account for 28.5% of its hashrate in the country, the highest share among states by a significant margin and more than twice the 8.4% in 2021.
This trend seems to be destined to grow, since outside of Texas the costs to keep a mining farm running 24/7 become extremely higher.
Furthermore, it is important to keep in mind that we are approaching the fourth halving of Bitcoin, an event that will halve the rewards for our miner friends: this means that if the price of the cryptocurrency does not increase in conjunction with the April halving, continuing to produce blocks in the network will become increasingly expensive in terms of economic return.
All of this is added to the fact that the profitability of miners, calculated in TheBlock’s graph as “Revenue per TH/s”, has experienced a 30% contraction since December 22 onwards.
In Texas, given the low cost of energy, the fears of seeing skyrocketing bills are alleviated, and those who operate in delicate businesses like mining manage to survive.
In addition, the country’s electricity network council, in order to incentivize mining farms to interrupt operations during emergencies (by requiring the cessation of BTC extraction), helps these companies by offering demand response energy credits.
In this regard, a few months ago Riot obtained a total of 31.7 million dollars in credits for reducing its energy consumption by 95% during a summer weather alert.
In the same month, Iris Energy also received $2.3 million in energy credits, mainly thanks to voluntary reduction at its Childress site in Texas.