Did you hear?
“The two largest Bitcoin mining pools, BTC.com and Antpool, have lost a large chunk of their hash power over the crypto winter. The two Bitmain-owned pools signaled the mining market’s implosion, culminating in Bitmain laying off 50 percent of its workforce.” (Cryptoslate)
Bitmain’s investment in Bitcoin Cash didn’t help but that alone doesn’t account for its failure. It’s also not the only mining business in rough waters. U.S.-based Giga Watt declared bankruptcy in November. All told, between 600,000 and 800,000 bitcoin miners shut down in 2018.
Bitcoin = Dead?
No. The profitability of miners has anything to do with bitcoin’s success or failure.
To mine bitcoin, you need to guess random numbers based on a mathematical algorithm (oversimplifying). If you’re the first to guess the number, you get bitcoins as a reward.
Bitcoin’s algorithm gets more difficult as more miners or more powerful computers join the bitcoin network. It’s baked into bitcoin’s programming. Don’t take my word for it, listen to its creator, as written in the famous bitcoin whitepaper:
“To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty [increases as the bitcoin network’s overall computing power increases].”
As miners shut off their machines, mining difficulty goes down. As a result, the remaining miners need less powerful computers and lower energy requirements to compete for rewards. A fall in the number of miners leads to a fall in the costs of mining.
At some point, new miners will have enough incentive to enter and latent miners will have enough incentive to turn on again. If bitcoin’s price dropped to $1, you and I could profitably mine bitcoin on our smartphones.
Would we want to? Different question. Suffice to say, huge mining farms would go out of business due to more competition and lower value of bitcoin rewards. Nobody would need to buy powerful ASICs and advanced mining rigs. Yet, bitcoin would continue.
So why are these mining farms going out of business?
For the same reason many businesses fail. They bought too much mining capacity, hired too many people, and spent too much money.