Block Halving Has the Potential to Wreck Small Mining Operations, Centralizing the Hashrate into the Hands of Big Players Like Bitmain

January 22, 2020 / by Zachary Mashiach

The Bitcoin (BTC) block halving is projected to occur on May 12, which is less than 4 months away, and it has the potential to cause a seismic shift in the mining industry which could ultimately lead to the rout of numerous smaller mining operations, which would cause the Bitcoin (BTC) mining hash rate to become more centralized than ever before.

During an interview at the North American Bitcoin Conference, Troy Houtman, the VP of Mining Risk & Strategy at the Blockchain & Crypto Mining Association, discussed how the May block halving “could be rocky” for Bitcoin (BTC) miners. Essentially, Bitcoin (BTC) would have to double in price for mining revenues to stay the same as they are now, meaning Bitcoin (BTC) would have to be worth over $17,000.

Houtman goes on to detail how older machines will make zero profit once the block halving comes if market conditions stay about the same, and even now top of the line mining technology like the Antminer S17 is making only $4-5 per day even though it costs $1,800.

Essentially, at this time even top of the line mining rigs are not really profitable, at least for miners who have to pay full price for rigs, and the reason that Bitcoin (BTC) miners are continuing to mine is that they believe that the price of Bitcoin (BTC) will increase significantly in the future.

Indeed, the Antminer S17 makes $4-5 per day of profit now, but due to the rapidly rising Bitcoin (BTC) mining hash rate that profit will quickly approach zero unless Bitcoin (BTC) has a major rally, especially when accounting for the May block halving.

When asking Houtman about what specifically could happen when the May block halving comes, he details how smaller mining operations which have older technology, like the Antminer S9, might have to shutdown all at once, causing a drop in hash rate and difficulty. However, this drop in difficulty could be so steep that these older mining rigs get turned back on.

Zooming out, it seems a variety of scenarios are possible, ranging between all the old mining rigs and smaller farms shutting down, to no rigs shutting off at all. Which scenario occurs depends on the price of Bitcoin (BTC) around the time of the block halving.

Houtman goes on to discuss how the ‘bigger guys’, like Bitmain, will be the winners in this situation, with smaller operations, like people mining in their house, being disenfranchised. Indeed, companies like Bitmain can manufacture rigs for themselves and pay much less for hash rate than people who have to buy mining rigs at retail or wholesale prices, and therefore Bitmain has a much bigger profit margin to work with and will likely become more dominant following the May block halving.

Thus, it seems the May block halving will cause the Bitcoin (BTC) mining hash rate to become more centralized, and will make the mining industry more corporate in general, since the ‘small guys’ in the industry could be wiped out to an extent.

Further, Houtman thinks that the mining industry is intractably heading towards conglomeration and centralization in the future, especially as each successive block halving happens.

Of course, nothing is set in stone yet, and if Bitcoin (BTC) rallies over 100% in the next 4 months small mining farms and older mining rigs will still be profitable. However, if Bitcoin (BTC) decreases in price, stays the same price, or only modestly rallies, the mining hash rate will likely become more centralized than ever before, raising doubts about the decentralization of Bitcoin (BTC) in general.

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