The economics of Bitcoin mining are changing. While bitcoin is trading close to an all-time high, it no longer has the same effect on Bitcoin miner profits given the network’s hashrate also sitting at record levels.
Hashrate refers to the computational power being used to mine transactions on a proof-of-work blockchain network such as Bitcoin, Bitcoin Cash and Ethereum Classic. Data from Bitinfocharts shows that Bitcoin’s hashrate is currently around 635 exahashes per second (EH/s), while bitcoin’s price is at $64,500.
In contrast, the average Bitcoin hashrate was just 161 EH/s in November 2021 when the price of bitcoin was trading at a similar level. Data from Hashrate Index shows Bitcoin’s “hash price” sitting at its lowest levels over a five-year period.
On July 16, the daily “hash price” was $51.13, which is the amount a miner can expect to earn amount daily at that specific hashrate. The landscape for mining Bitcoin is far more competitive because the cost to mine a single block is significantly higher while the amount of profit a miner stands to make is reduced.
According to Kurt Wuckert Jr.,the CEO and founder of Bitcoin SV mining pool Gorilla Pool, mining profitability for SHA256 blockchains is nearing a six-year low. In his view, some of the largest US-based Bitcoin miners are still profitable because they are publicly traded, and the value of their stock is included in total profitability.
“I can’t in good conscience ask you to spend your money on blockchain assets or mining equipment because of what is transpiring in the background right now,” said Wuckert Jr. to an audience in Miami at Crypto Connect Palm Beach.
He alluded to miners being a large consumer of electricity by hashing, which creates profit opportunities in power arbitrage, and further muddies the waters of Bitcoin’s hashing economics.
And while the increased hashrate and competitive environment has been associated with a greater degree of network security, a more concerning statistic is the fact that just two mining pools — Foundry and Antpool — were responsible for mining 54% of all Bitcoin blocks in the last year, according to a press release from GorillaPool. A report from Bitcoin.com in June demonstrated how Foundry and Antpool have become dominant players in the past year.
Bitcoin miners are banding together in mining pools to increase their odds of successfully mining a block. However, with this comes an increasingly centralized mining operation, which poses a risk to the integrity of the network.
“With a pressing need to replace existing mining units, along with the decline in block rewards miners can earn following this spring’s ‘halving,’ more and more miners will choose to call it a day … rather than continue to operate at a loss,” said Wuckert Jr.
July 16, 05:21 a.m. ET: This story was updated to add additional information on the current hash rate.
