Updated: Feb 27, 2020
By Rahul Prakash, TF Blockchain Contributor
This post is part of TF4 learning series based on various sessions conducted as part of TF4 TF Blockchain conference held on November 14, 2019 at The Triple Door in Seattle, WA.
Why are the Enterprises Betting Big on Bitcoin Mining?
(Thanks to Kristy-Leigh Minehan for her contribution to this article)
In the last two years, big names and a lot of capital has snuck into the bitcoin market with a sole focus on mining. The last four months saw ~$550M get committed to the bitcoin mining ecosystem.
For enterprise miners, there is a different need and user base:
· Security standards are higher and much more critical
· There is less focus on cheap electricity, and more focus on regulation and stability
Mining is a very specialized field, and is an infrastructure play. And, thus, is being served by some notable names. Some key players are:
Whinstone US with 300MW facility in Texas
*Interestingly all of this activity is all focused in the US and Canada.
Mining has also started going public in capital markets.
Why are Enterprises Getting into the Mining Game? (rather than just purchasing and holding it?)
Roughly 65% of crypto liquidity belongs to Bitcoin. If you are blockchain custodial service (Bakkt, Fidelity, BitGo) or exchange (Coinbase, etc.), you want to ensure that you have a steady supply of bitcoin to serve the market that is mined below market cost.
~1800 BTC is mined every day, and these virgin coins are becoming important in the enterprise ecosystem. These are coins with no previous transaction history. Institutional investors request clean bitcoin on their books. If your bitcoin has a fingerprint of illegal activity, it gets flagged by exchanges and nodes, may be subject to additional inquiry, or get blocked altogether from trading on exchanges. Companies would prefer to avoid this altogether, hence, mining.
With such competition, infrastructure will become a price-war. The enterprise mining infrastructure companies will come in and level the playing field for existing advantages. Each infrastructure provider is also working on its own supply. If you control the hardware, you control the supply and issuance of bitcoin. Sixty percent of the hash rate for bitcoin is in China. Less than 5% is in the US. The immutability advantages of bitcoin come provided no one party has control of the network. Proof of Work only works if the system is sufficiently decentralized. So investors in mainstream mining have started diversifying their footprint.
Options for Individuals to Participate in Mining Ecosystem
Setup as Mining Node (or mining farm if you are ambitious)
Buy the needed Case, RAM, motherboard, processor, power supply, graphics card, risers & SSD, and set up a mining rig. The mining operation will need to be pointed to a mining pool to aggregate the hash power, since an individual mining operation is not going to be strong enough to mine directly.
Use a HashRate Marketplace
Hashrate Marketplace would be an option to buy or sell hash rate. If one sells the hash rate, this would be a pick-and-shovel play and would be akin to selling pickaxes during a gold rush. On the other hand, it could be a way to scale-up or scale-down mining activity. No capital expenditure is needed, and one relies only on operating expenses. Example market places are NiceHash and Mining Rig Rentals. Participation depends on how smooth the process is. Since it is a marketplace, this should allow for price discovery as opposed to cloud mining (see below) who set the price unilaterally.
Cloud mining is another option to buy hash rate without any CAPEX expenditure. Price is set by a company as opposed to price discovery, like in a hash rate marketplace. These would also limit an individual to mining the altcoins that are part of their catalog. So, if one wants to start mining a new project - that will not be likely to work in this case. But, it would provide an easy onramp into cryptocurrencies. Examples are Genesis Mining, Bitdeer.
Smart Miners provide the easiest on-ramp to learning about cryptocurrency mining. No need to worry about hardware or any of the details of blockchain technology itself (hash rate, energy consumption, project-specific mining software, etc.). Signup and leave your computer running - which it probably would be anyway. Examples Honeyminer, Cudominer
Rahul is a technology advisor with a deep background in enterprise IT. With a driving-need to learn, he is always exploring how technology can help make our lives better. Rahul is currently busy following the breadcrumbs down the Blockchain rabbit hole, picking up shinies along the way. Brilliant minds have an open invitation to connect @ rahulprakash.blog. And, have a coffee break over a scintillating conversation on Blockchain - or travel, or climbing, or diving, or Seahawks, or...
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