I've always been hyper curious on the profitability of bitcoin mining and how it would look when block rewards drop to near zero value.
Not to criticize bitcoin mining as the average no-coiner would but to write about various solutions we could employ to balance cost and profitability in the industry without sacrificing security.
Whilst most chain analysts have made several attempts to assert that miners will continue to be in profit, just as I have a couple of times, merely looking at it without all the bias speculation of increased developments leading to high chain value and expectations, it more often that not appear to be that miners may lose more than they gain even if fees were to spike and that would naturally be counter-productive as it would significantly impact it's usage.
Some have argued that mining difficulty may drop to offset high energy demand and make mining more accessible and effectively profitable. How true this is, is something I can't say, I have zero knowledge of how the chain handles the adjustment of mining difficulty.
That said, we mustn't forget that increased mining difficulty is in itself a security measure and if that were to be drastically reduced at peak volume, it should be common knowledge that an event of such could pose security threats to the network.
Sadly, the more we look at this in this way, the more it seems like mining could effectively become “centralized” due to low income and increased energy usage.
Surely, the cost of mining 1 bitcoin has often been reported to be about $10k-$11k+. Data of this nature makes mining appear highly profitable as it suggests that miners earn over $50k on each $10k+ they spend to mine 1 Bitcoin.
Notwithstanding, some reports suggest that actual energy usage data have been hidden over the years and mining, at least in the US specifically, may not be very profitable.
Bitcoin miners increasingly rely on government handouts to compete - reports
Many Bitcoin miners rely on favors from state and municipal governments. Lobbying for governmental handouts like zoning rights, noise variances, and subsidies has become a major business priority.
Bitcoin mining in the United States uses as much electricity as the state of Utah. Wherever they set up shop, miners add a heavy load on power grids. A power grid in Texas, for example, failed during unusually frigid weather in February 2021. State governor Greg Abbot asked Bitcoin miners for help at that time, and soon instituted policies to pay them to stop mining during future emergencies, on demand.
Many miners obscure their otherwise loss-generating mining business through cleverly crafted earnings announcements, and reporting blended revenue that includes subsidies.
To put it bluntly, many Bitcoin miners are profitable because the government pays them not to mine Bitcoin. These so-called “load balancing” or “grid stabilization” payments incentivize miners to turn off their machines during heavy electrical usage elsewhere in nearby cities.
Again, take Riot Blockchain as an example. The company collected $31.7 million from selling already purchased energy and turning off mining rigs in response to rising demand during the summer of 2023. During that same period, it earned just $10 million through bitcoin mining.
Surely, I know not to trust the media blindly, that said, the purpose of demanding more transparency in Bitcoin mining activities is crucial for the security of the chain, this cannot be overstated.
The report above sheds light on what appears to be recent events of miners filing a case against the US Department of Energy, in an attempt to prevent the release of survey data about Bitcoin miners’ energy usage.
The lawsuit filed by the Texas Blockchain Council (which has Bitcoin miners as members), claimed that the survey would cause irreparable harm to their business. Furthermore, Council members alleged the Department of Energy violated the Paperwork Reduction Act by failing to provide 60 days’ notice and by threatening “criminal fines and civil penalties” against Texas Blockchain Council members.
Their lawsuit worked. Government officials have promised to destroy all data that the Department of Energy collected in an apparent settlement with the Texas Blockchain Council. A court order also blocked any attempts to continue the survey until the matter could be litigated or settled.
Honestly speaking, it makes absolutely no sense to be fighting an energy department over publishing energy usage reports, and winning such a silly case just makes me have reasons to believe that for a fact, the miners are trying to hide something, not like they are being secretive about the operations anyways.
The lack of transparency in the Bitcoin mining industry can pose a significant threat to Bitcoin and crypto. Bitcoin mining as an investment does not appear to be very profitable at the moment and probably in the future, it however seems that to stay in profit, miners need to merge their mining business with one thing or the other to generate extra income.
For example, I once came across a mining facility that would use the heat generated from the Bitcoin mining machines to grow Tulip flowers and now, in the case above, government subsidies are another way to offset the unprofitability of mining.
Surely, the list of bankrupt miners now makes sense, it wasn't really all roses as one would look at the raw reported stats and think.
Several other layers of factors affect the profitability of this investment and it's unclear if the future of bitcoin mining is profitable and immune to centralization.