The worst seems yet to be over as bitcoin [BTC] took new lower positions this weekend, going below $4,000 for the first time since September 2017. This means that the most dominant cryptocurrency lost about 40 percent of its price in about two weeks.
This sudden downtrend has taken its toll on bitcoin miners, who make most of their income by mining blocks of bitcoin. Mao Shixing, founder of the third-largest mining pool F2pool has estimated that 600 to 800 thousand miners have now suspended bitcoin mining operations in the midst of this latest crises.
According to a report on crypto news outlet Coindesk, Shixing noted that the hashrate have dropped drastically in since Mid-November when bitcoin price took a major downturn.
Bitcoin miners, those who confirm transactions on the bitcoin blockchain, earn revenue by mining blocks on the blockchain. To stay profitable, the miners must balance the price of energy, mining gears and facility maintenance with the amount of BTC earned. At a much lower price, the miners have seen their profits slashed drastically.
The worst affected in the face of a price crisis like this will be miners with old mining machines which are less energy-efficient compared to the more recent Application-Specific Integrated Circuit (ASIC) mining chips. As Shixing noted, the older mining machines are having a hard time generating profits. He further explained that these older mining gears like Bitmain’s Antminer T9+ and AvalonMiner 741 built by Canaan Creative typically manage an average hashing power of about 10 Tera hashes per second (TH/s).
He said noting that his firm took this declining hash rate into account in its miner revenue index. The index shows that the bitcoin hashrate on F2pool equally dropped from 11.4 percent to 10 percent of the entire bitcoin network.
The assertions were corroborated by data from blockchain tracking site blockchain.info which shows that that bitcoin’s entire hash rate has dropped about 13 percent—from 47 TH/s on Nov. 10 to 41 million TH/s on Nov. 24.
“It’s hard to calculate a precise number of miners connected to us that had unplugged. But we saw over tens of thousands of them [shut down] in the past several days based on conversations we had with larger farms that we are in regular contact with.”
Reasons for Reducing Hash Rate
Besides the well-documented slump in bitcoin price, Mao Shixing identified a number of recent incidents that may have discouraged bitcoin miners. He said that these factors “overlapping” right now led to the drop in mining revenue and ultimately bitcoin hash rate.
Firstly, an increased electricity cost in China—the hub of bitcoin mining—played a key role in the present situation. Winter season (or dry season) in China usually come with a hike in electricity tariffs due to the reduced output from hydropower sources during this period. The electricity cost in China has doubled as fossil fuels become the more reliable energy source in the region. Furthermore, older mining machines are quickly being phased out as manufacturers churn out newer specialized gears makes them uncompetitive.
In conclusion, Shixing expressed some hope for the miners based on bitcoin’s hashing principle. “Bitcoin mining is always a dynamically adjusted process,” he noted as he explained that mining difficulty tends to drop whenever hashrate drops to encourage miners who do not give up easily.
“The change of bitcoin’s mining difficulty normally has a lag of about 14 days. After this wave of shutdowns, those players who opted to stay in may have a better life,” he explained.
Solomon Sunny is the market reporter for Smartereum, one of the global leaders in Ethereum, blockchain and currency news. He produces technical price updates on digital currencies and writes recent developments about blockchain.