In eleven weeks we will experience the fourth of 32 “halvings”. At block number 840,000, bitcoins will become much rarer.
Bitcoin halving and Hashrate
Every four years, the protocol halves the quantity of bitcoins issued with each block. These bitcoins are distributed to miners who contribute energy to secure the network. The famous “Proof-of-Work”.
Initially 50 bitcoins per block, the reward increased to 25 BTC, then 12.5 BTC. We are currently at 6,225 BTC. It will be just 3,125 BTC starting in April.
Bitcoin will then officially become twice as difficult to create as gold. This is easily measured using the Stock-to-Flow ratio.
All things being equal, this supply shock should propel bitcoin to a new equilibrium level. We hope so for the miners who will see their margins brutally halved.
Not to mention the hashrate has increased by over 100% in the past year alone. In other words, the impact on margins is equivalent to a halving.
Knowing that the hashrate is already 380% higher than in May 2020, the date of the previous halving. And this growth shows no signs of stopping.
Many North American miners intend to double their hashrate in the coming months. Riot plans to go from 12 EH/s to 38 EH/s within 18 months. Marathon aims for a minimum of 30 EH/s given the energy capacities of its recent site acquisitions.
BitFarms and CleanSpark will not be left out. The two miners ordered tens of thousands of machines in an effort to double their hashrate. 20 EH/s line of sight.
Fortunately for miners, technological advances make it possible to increase the efficiency of their machines.
Efficiency and price of electricity
Efficiency is a ratio between the amount of energy and the number of hashes generated by ASICs. Producing more hash with equal energy consumption is efficiency.
The miners with the most efficient ASICS parks are Marathon, Riot, Cleanspark and Iris. Once its S21s are delivered, BitFarm will also be in the big leagues with an average efficiency of around 20 J/TH.
A latest generation ASIC S21 (17 J/TH) is twice as efficient as an S19 Pro released in May 2020 (34.5 J/TH). This means that an S21 requires half as much energy as an S19Pro to earn the same amount of bitcoins.
Over a three-year period, with a kWh at $0.04, an S21 ($4,320 per unit) will bring in twice as much money. More than $8,000 versus $4,000 for the S19 Pro.
Knowing that the S21 costs $4,320 compared to $1,500 for the S19 Pro. The S21 certainly takes ~370 days to reach breakeven (~290 days for the S19Pro), but at the end of the day, the gap is glaring.
The second most important parameter is the price of energy. Few miners enjoy a kWh for less than $0.04.
Terrawulf is among the best-off with an average price of $0.035 per kWh. It is 30 % less than the industry average. Cipher is doing very well with an average price of $0.027.
Other miners like Riot, Argo, Iris and Bitdear pay more for their electricity, but benefit from demand response agreements. In other words, when electricity is too expensive, they stop their operations in exchange for energy credits. Riot obtained $71 million through this in 2023.
Terawulf has made available on its site a tool allowing you to calculate the margin made for the production of a bitcoin according to your ASIC model, the price of electricity, the efficiency of the ASIC, the hashrate, etc.
Brainins also offers a similar tool.
Here is a summary of the most important metrics regarding North American miners. Efficiency, hashrate, etc.:
Predictions for 2024
-The hashrate will be scattered around the world
Too many miners are crowding the American power grid. It is estimated that miners in the state of Texas alone consume 2 GW. Knowing that all miners consume something like 18 GW, Texans represent around 10% of the global hashrate.
North America’s dominance is expected to fade in 2024. Following the second halving, China had 70% of the hashrate, or even more at its peak. The hashrate then moved to North America which represents almost 50% of the hashrate.
After this halving, there is a chance that miners will go out again in search of cheaper electrons. Especially if the situation deteriorates in the Middle East. A new energy crisis could cause a new exodus.
BitFarms took the lead by banking on South America and its hydropower surpluses. In Paraguay in particular.
-Accommodation for small minors will suffer a hard blow
In North America (and elsewhere), hosting for small customers is likely to decline.
In 2023, the average all-inclusive accommodation rate was $0.078/kWh in the United States and $0.072/kWh in Canada.
Halving will decimate margins. The price of hash will be around $38/PH/day. Which gives us a break-even point of $0.069/kWh for an S19 XP and $0.0515/MW for an S19j Pro.
It is unlikely that hosted miners with average hosting costs will be able to stay afloat. Unless the price of bitcoin gains altitude, of course.
-Good deals
There is a chance that some struggling miners will throw in the towel and sell off their ASICs following the halving.
2022 was a prelude to what this year could bring. With the hash price dropping like a stone, we saw the bankruptcy and liquidation of Compute North, one of the largest hosting providers. Several companies such as Argo have been forced to sell off ASICs.
Here is a good interview with the CEO of Marathon, the largest miner in the world. Fred Thiel returns to halving and all the major topics that have taken place in recent months:
Registrations and pools
Transaction fees were equivalent to 7.1% of rewards in 2023, compared to 1.5% in 2022.
Transactions with registrations brought in just over 8,100 bitcoins last year. That is 34% of all transaction fees, but only 2.3% of all profits earned by miners.
The lucrative registration fees will probably disappear in 2024. This spam is increasingly seen as a DDos attack that must be stopped via filters or a soft fork.
In the absence of consensus, miners anxious not to graft a casino on the back of bitcoin transactions will change pools.
There is a good chance that the Ocean pool will cut corners from other pools thanks to its policy of filtering ordinals and other stamps which clog the blockchain and cause a premature increase in transaction fees.
Finally, let us note that Bitaxe continues to appeal to Sunday miners. 2024, the year of the democratization of pleb mining?
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