The amount of computing power dedicated to bitcoin mining surged to a record as more companies made use of the energy and data centre space freed up after the upgrade of the ethereum network, likely further compressing profit margins.
Mining difficulty, a measure of bitcoin miners’ computing power for the blockchain, has jumped by 13.6% in the two weeks ended Monday. That was also the largest bi-weekly adjustment since last May. The increase is in part thanks to the decline of ether mining, analysts said.
Known as the Merge, ethereum’s technical upgrade has replaced as many as one million powerful computers with ether holders to validate transaction data encrypted by the network and reduce its carbon footprint by 99%. Ether miners have to unplug their rigs as they no longer get token rewards after the Merge, leaving extra space in data centres to host bitcoin mining machines and more electricity to power the rigs.
“Rack space for bitcoin miners was limited, freeing up the space paves the way for machines previously unplugged to get plugged in,” said Ethan Vera, chief operations officer at crypto-mining firm Luxor Technologies, which has provided services to both ether and bitcoin mining companies. Vera estimated around 4% of the current computing power for bitcoin mining has been flowing from ether mining to bitcoin miners in the past two weeks.
A higher level of computing power will lower mining revenue for bitcoin miners who are already battered by low bitcoin prices and soaring energy costs. The more mining power there is, the less bitcoin each miner will receive as the network only gives a limited amount of the token reward after successfully processing a certain amount of data.
Ether mining consumed about half of the energy used for bitcoin mining before the Merge. While small miners run graphic cards at home, industrial-scale crypto miners operate tens of thousands of the cards in their facilities.
“What’s critically important for bitcoin mining is access to cheap electricity,” said Matthew Kimmell, digital asset analyst at crypto asset manager CoinShares. “If those ethereum operations were built with cheap power sources in mine, then I think well-capitalised bitcoin miners could have seen that as an expansion opportunity to buy those assets and deploy machines.”
More resources from ether miners are only one of the reasons for bitcoin mining power’s surge.
There have been fewer power curtailment from major miners as they head into the cooler months in the US and Europe, said Joe Burnett, head analyst at Blockware Solutions. While electricity cost has fallen month over month, it could rise again as people turn on their heaters in the winter, Vera said.
While bitcoin miners are able to tap into ether miners’ data centre space and energy infrastructure, they can’t use graphic cards. Instead, they operate specialised computers with a unique algorithm to mine bitcoin. — David Pan, (c) 2022 Bloomberg LP