The frigid temperatures are proving to be particularly ruthless for bitcoin mining experts – an often overlooked yet integral part of the cryptocurrency industry. Just as a “blizzard of the century” was battering America’s power grid, Core Scientific – one of the largest companies in this sector- filed for bankruptcy on December 21st, 2022, highlighting how tightly bitcoin mining is entwined with energy costs.
An increase in Energy Prices Reduces the Profitability of Bitcoin Mining
The bitcoin miner‘s economic model is straightforward. By running thousands of computers and being the first to solve a specific mathematical equation on the Bitcoin network, they receive a reward in virtual currency. Consequently, their income stays directly linked to the worth of cryptocurrency while electricity costs determine their expenses. In 2022 however, this situation caused double trouble, with both crypto values plummeting and energy costs skyrocketing.
Profitability has been plummeting, forcing some players to modify their strategies. “The increasing energy costs have caused a major shift from bitcoin mining based on electricity from coal and gas to more sustainable methods such as wind and hydroelectric energy,” states Nicolas Louvet, CEO of Coinhouse. According to the University of Cambridge’s (UK) index that tracks Bitcoin’s electricity consumption, renewables amounted to 26% in early 2022 – a share that is expected to keep growing, according to cryptocurrency advocates.
To Deal With This Situation, Bitcoin Miners Are Developing New Methods
To remain profitable, bitcoin miners have had to become increasingly creative. Alexandre Stachchenko, director of blockchain & cryptos at KPMG France, notes that “computers used for mining are more often than not placed in containers for easy movement.”
These innovative individuals understand the need to be mobile when competing with others in this demanding market. Placed at the base of sustainable energy sources, which are often unreliable, they can act as a regulating element by using electricity created during times of low demand and energy cost. In cases with too much tension on the grid, however, they can switch off quickly and easily move to another source of power production.
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