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Bitcoin Miners in Trouble due to Market Crash

Cryptocurrency Aug 16, 2022 06:31AM ET
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© Reuters. Bitcoin Miners in Trouble due to Market Crash
 
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  • However, the situation for miners in Texas could improve as the difficulty of mining cryptocurrencies decreases.
  • Bitcoin miners are facing financial difficulties amid an uncertain outlook in the crypto asset market.
  • Rising cryptocurrency prices could spur miners to power up their shutdown equipment again.

The problems of Texas miners began with the collapse of prices in the cryptocurrency market and the arrival of the hot summer this year. To reduce losses due to excessive energy costs and comply with government regulations, many miners had to turn off their machines.

Some of them, like Riot Blockchain (NASDAQ:RIOT) Inc., one of the largest mining companies in the world, have managed to make a good business selling energy to the state that they had bought at very low prices. Others, on the other hand, just closed, because keeping their equipment turned on was very expensive and the prices of the cryptocurrency did not compensate for it.

Bitcoin (BCT) mining has been growing steadily in Texas after China banned mining and launched a fierce crackdown on miners in the middle of last year. The Lone Star State has become a draw for Chinese, American, and other miners who have fled the Asian giant.

The low cost of electricity and a friendly regulatory environment made Texas the preferred place to mine. But, as the state became filled with large mining facilities and the temperature rose to unbearable levels, electricity consumption and utility bills skyrocketed. Also, the blackouts, drew strong criticism from local residents.

Growing Concern

Since then, concern among Bitcoin miners has continued to grow. Many fear they will not be able to recover their million-dollar investments due to the stagnation of the prices of digital assets. Furthermore, the industry shows no signs of full recovery in the short term.

Now the Texas power grid is more prone to power outages. Creating new Bitcoins is not only more expensive due to the energy consumption of mining equipment, but keeping them fresh is also a real challenge.

As a result, miners are facing serious financial difficulties amid an uncertain outlook for the crypto industry. However, they could survive the crypto winter as the difficulty of mining Bitcoin decreases. Given the increase in demand, the sale of energy contracted from the electricity grid is another viable option, if prices remain high.

Mining Difficulty Adjustment

Being a decentralized network, the Bitcoin network uses an algorithm encoded by the creators of the cryptocurrency in the source code. This difficulty is adjusted automatically approximately every two weeks, depending on the number of active miners on the network competing with each other.

This makes it possible to guarantee the necessary time for discovering a new block in about 10 minutes, or what is the same every 2016 block. When the network determines that in the last two weeks there has been a decrease or increase in the time needed to mine a new block, then it adjusts the difficulty.

Since June there have been at least three dips in the difficulty of mining BTC. Jaran Mellerud, Blockchain Analyst at Arcane Crypto, explained that “the Bitcoin price increase has led to increased profitability for miners and some miners who were pushed offline in June and July have likely plugged in their machines again.” He added that “in July, many American miners unplugged their machines as part of their participation in demand response programs,” causing a significant drop in Bitcoin's computing power during that month.

On the Flipside

  • Difficulty adjusts further with increasing computing power to the network. Whereas when computing power is subtracted from the network, as happened recently, such mining difficulty adjusts further.

Likewise, as the difficulty to validate the transactions that take place in the blockchain decreases through the so-called Proof of Work (PoW), the energy consumption is lower and the efficiency of the equipment increases.

Why You Should Care

  • This could be the key for miners to lower their costs and increase the profitability of their activity.
  • It is not yet known what the impact on the price of BTC will be from the new update on the Ethereum network (The Merge) scheduled for September.
  • The price of Bitcoin has shown an upward trend in the last four weeks, trading slightly below $25,000 on Monday, according to data from Coindesk.com.

In the link below you can read more about Bitcoin mining in Texas:

Texas Halts Crypto Mining Operations Due to Extreme Heat

Continue reading on DailyCoin

Bitcoin Miners in Trouble due to Market Crash
 

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