Bitcoin mining is increasingly becoming an activity for big business as the complex calculations needed to generate the virtual currency require industrial-scale capabilities. As the mining industry matures, the expected consolidation is likely to oust ‘regular folks’ that use their personal computers.
Large Cryptocurrency Miners Are Taking Over the Game
Bill Tai, the chairman of Hut 8 Mining Corp., the North American arm for crypto-mining equipment provider Bitfury Group Ltd., expects only five to 10 of the largest miners to survive and be profitable.
“It’s totally different this year than last year. The bitcoin mining industry was this mysterious dark cottage industry, and it’s about to grow up and about to have elements of institutional scalability at all levels”, Bill Tai told Bloomberg.
Lucas Nuzzi, a senior analyst at Digital Asset Research, says that selling bitcoins to defray operating expenses may depress the price of the digital currency, taking in account that miners hold between 20 percent and 30 percent of all Bitcoins. The concentration of mining power could launch the market into a new era, where a few players would have enough control to dictate the development of the blockchain ecosystem.
“It has the potential of being dangerous from a security standpoint since a single entity could use its power in terms of hashrate to disrupt the network,” Lucas Nuzzi commented.
Smaller miners buy their chips and machines from manufacturers. while industry-scale miners design and make their own hardware. Economies of scale allow them to place orders in bulk, buy electricity at a discount, and be profitable even with Bitcoin at $8,000.
“We can buy and source orders of magnitude more. We can buy silicon in large quantities and commit to the electricity grid in chunk sizes. We have the cash to make the deposits and set them up”, Tai added.
Smaller buyers are also facing a shortage of PC components to enhance their mining ‘rigs’. Increased demand, especially since 2017, wasn’t met with a proportionate response from manufacturers, which led to prices skyrocketing.
The concentration of mining power in the hands of a small number of corporate entities is frowned upon by most people within the ecosystem as it contradicts the very nature of a decentralized network that does not need to rely on users trusting large corporations. The so-called 51% attack – a monopoly/oligopoly of the network’s hash rate with the power to effectively steal money from other users – remains a distant ‘worst case scenario’, but not as distant as before.
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