JAKARTA- The world has known for months that more than half of the world's bitcoin miners will disappear. This is because the Chinese government has started cracking down on the mining.
After that happens, the bitcoin algorithm has been adjusted to ensure miner productivity doesn't continue to decline. The adjustment, which took effect Saturday 3 July, could mean that more money is now flowing to bitcoin miners who remain online.
“It will be a revenue party for the miners. They suddenly have a bigger piece of the pie, which means they get more bitcoins every day,” said bitcoin mining engineer Brandon Arvanaghi.
Bitcoin miners usually run programs on computers to try to solve the puzzle before someone else does. Solving the puzzle is what completes a block, a process that creates new bitcoins and updates the digital ledger that tracks all bitcoin transactions.
China has long been a bitcoin mining hub. It is estimated that 65% to 75% of the world's bitcoin mining occurs in China. However, the crackdown by the Chinese government has expelled the country's crypto miners.
“For the first time in the history of the bitcoin network, we are stopping mining completely in a targeted geographic area that affects more than 50% of the network,” said Darin Feinstein, founder of Blockcap and Core Scientific.
More than 50% of hashrate, the collective computing power of miners around the world, has now been off the network since its market peak in May 2021.
Less people are mining, which means fewer blocks completed each day. Normally, it takes about 10 minutes to complete a block, but Feinstein told CNBC that the bitcoin network has slowed down to 14 to 19 minutes of block time.
On Saturday, the bitcoin code automatically made it about 28% easier to mine. This is– an unprecedented network decline.
According to Mike Colyer, CEO of digital currency company Foundry, the bitcoin algorithm is programmed to handle mining engine upgrades or downs. “This is a self-regulating market that doesn't need an outside committee to determine what to do. It's a very powerful concept," said Colyer.
Fewer competitors and less difficulty means that every miner with an installed engine will get a significant increase in profitability and more predictable revenue.
“All bitcoin miners share in the same economy and mine on the same network, so both public and private miners will see an increase in revenue,” said Kevin Zhang, former Chief Mining Officer at Greenridge Generation, the first major US power plant to start mining in large scale.
Assuming fixed power costs, Zhang estimates a revenue of 29 per US dollar a day for those using the latest generation of Bitmain miners. Previously it was estimated at only 22 per US dollar a day.
In the long term, although miners' earnings can fluctuate with coin prices, Zhang also noted that mining revenues are down only 17% from the bitcoin price peak in April, while coin prices have fallen by around 50%.
“We expect a period of much higher mining profitability for Compass Mining clients. We expect mining to be about 35% more profitable,” said Whit Gibbs, CEO and founder of Compass, a bitcoin mining service provider.
This decrease in bitcoin mining difficulty has benefited all miners. Moreover, those who used the new generation of equipment benefited the most.
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