The Good, the Bad and the Ugly: Wild West of Crypto Mining

“Bitcoin mining” is a phrase that has been tossed around for over a decade now and even people with no knowledge of crypto have encountered it at least once. The crypto market has evolved a great deal since 2009, however, the regulations of crypto trading and mining are still considerably lagging behind. This gray area is leaving plenty of room for trading manipulations and causing a Wild West of crypto mining.

Wild West Crypto Mining – no Pickaxe required

When a typical person hears “crypto mining” the thought that comes to mind is a gamer using his rigged PC to mine Bitcoin while offline. In actuality, according to a new study, half of all Bitcoin mining capacity is controlled by 0.1% of miners.

A typical Bitcoin miner is a corporation operating “mining farms” – numerous warehouses full of ASIC (Application-Specific Integrated Circuits) mining computers. These organizations make it impossible to compete against them for lucrative Bitcoin hashrate, practically pushing an individual miner out to the curb.

However, Bitcoin, even though the most recognized, is not the only proof-of-work (PoW) crypto. Despite some arguing that proof-of-stake (PoS) is the new norm among the blockchains, there are still quite a few cryptos that can be mined.

Deciding Whether to enter the Wild West of Crypto Mining

Despite numerous arguments against it, PoW seems to be here to stay, at least for the time being. For those who are interested in making some easy passive income on the side, once they dismiss the idea of mining Bitcoin, the next stop is Ethereum.

Ether’s price has lately made its mining an extremely lucrative endeavor. It attracted many first time miners, so it is no wonder Ethereum’s hashrate is at its all time high. Miners’ only concern is Ethereum’s eminent transition to PoS, which is expected to take place by 2023.

Ethereum Network Hash Rate Chart by etherscan.io

Honorable mentions of PoW chains include, though are not limited to:

  • Ethereum Classic
  • Monero
  • Ravencoin
  • Dodgecoin

Mining each of them comes with different equipment requirements and fluctuating hashrate difficulty. Anyone looking to get into crypto mining needs to weigh out the current hardware availability and prices against the potential gains.

Miners versus Gamers

Lately, hardware scarcity has been one of the burning topics among the miner community. Various weather incidents, trade war of the US and China and the consequences of the pandemic as well as the increasing hardware demand by miners resulted in a worldwide semiconductor chip deficit. 

The surge in demand and prolonged chip shortage culminated into a market of online purchasing bots, scalpers, hardware company lotteries, skyrocketing prices and overall equipment unavailability. At one point, the consumers were forced to either pay double and triple the MSRP, or settle for the equipment they already own.

This affair primarily affected the gamers and the miners as they were the pool competing for the severely limited supply of the medium and high performance GPUs. Since the miners were using the hardware to acquire generous income, they were ready to pay high prices to the scalpers thus further deepening the issue. 

This trend prompted manufacturers to put a lid on the GPUs’ hashrates making them less appealing to miners. However, the short term solution was just an implemented driver on the existing GPUs. Consequently, as soon as they hit the market, crypto miners’ forums were overflowing with advice on how to go around the restrictions. It was back to square one for the manufacturers and just another day in the Wild West of crypto mining.  

The Big Miner Migration

Besides the chip shortage, 2021 was significant as the year of the big miner migration. With the release date of digital yuan approaching, the Chinese government saw crypto as direct competition to their CBDC. This triggered one of the world’s biggest government crackdowns on crypto, effectively shutting off power to all Bitcoin mining farms on Chinese grounds overnight.

Bitcoin mining hashrate contribution of China up to that point had been steadily declining in the anticipation of such an event. It went from 75% in 2019 to 44% in May of 2021, however, the ban has suddenly brought all Bitcoin mining in the Republic of China to a screeching halt.

All of the miners had to quickly find an alternative combination of crypto friendly grounds and affordable power. Russia and Kazakhstan were appealing and initially quite popular options because of their proximity. However, over time, they have shown to be risky choices due to governments’ inconsistent policies and electricity shortages. 

Evolution of country hashrate share by Cambridge Bitcoin electricity consumption index

Transporting the equipment to the US and Canada was logistically challenging due to the pandemic imposed shipping strain. Nevertheless, Texas has become the fastest growing destination for crypto mining in the world.

Green is the New Black of the Crypto Wild West

The narrative constantly finding its way back to the headlines of the crypto news section is that of Bitcoin’s “poor effect on the environment”.

Total Bitcoin electricity consumption data by Cambridge Bitcoin electricity consumption index

It is a fact that Bitcoin mining is a highly energy intensive process. According to Cambridge Bitcoin electricity consumption index, monthly Bitcoin electricity consumption has increased from 0.09 to 310 TWh, or close to 350,000% over the past decade. This trend has brought about numerous critics of mining impact on the environment and just about every major news post on the topic resulted in a price hit to Bitcoin.

One of those price hits was in May of 2020 when Elon Musk announced that Tesla would no longer be accepting Bitcoin as payments due to its environmental impact. The news caused a Bitcoin price drop of 15%. The epilogue of this episode was only a month later when Tesla’s CEO tweeted that the company would likely reinstate the bitcoin payment button once miners shift to more eco-friendly energy sources.

Probably unrelated to Mr. Musk’s actions though, Bitcon’s mining industry is showing an overall trend of moving towards more sustainable energy consumption. During June quarter, the share of green energy reached 56%, making Bitcoin mining one of the most sustainable industries in the world according to Bitcoin Mining Council (BMC).

This shift perfectly correlated with the big miner migration into the US. Not coincidentally so, since in Texas, miners shut the rigs upon power use surges and buy electricity when the demand is low. This way, they are efficiently acting as a new green energy shock absorber. Some even anticipate that recent mining activity will catalyze wind and solar energy production in the area to alleviate the power strain.

The demand for green Bitcoin is so high that even hardware manufacturing companies are jumping on the bandwagon, one of which being Intel. There has been a great deal of marketing and fan-fare surrounding Intel’s new “Bonanza Mine” chip and the community expected the new miner to deliver on speed as well as energy efficient performance. However, this turned out to be a letdown, as this chip only has about 40% of the hashrate power of the typical antminer, leaving the consumers to choose between hashrate and sustainability. 

Crypto is here to stay and, despite its drawbacks, PoW is not going anywhere any time soon. However, anyone looking to get into mining has to be aware of the kind of cut-throat business they are entering. Until some serious regulations are in place, this market, as a whole, will be referred to as crypto Wild West among serious investors.