As mining difficulty increases in proportion to how many miners there are on the network, mining has become an increasingly exclusive club.
The cryptocurrency industry is impossible to define. As soon as you think you can pin it down, it will surprise you. Perhaps more than any other major industry today, cryptocurrency is an industry of non-stop change. Nothing is ever settled, there is nothing written in stone. Platforms and projects that were on top of the world yesterday find themselves at the bottom of the totem pole today, and every day it seems like there is a new project shaking up the established way of doing things.
This instability is both a blessing and a curse. What it has translated to is volatility in the market, a volatility that has both hampered the growth of the industry by scaring away potential users and promoted its growth by opening up unique profit opportunities.
New Bitcoin Mining Revolution
Right now we are in the middle of one of those so characteristic sea changes, this time all the more remarkable because it is occurring in the sector of the cryptocurrency industry that seemed the most decided. When Bitcoin first broke onto the scene, Bitcoin mining was a wide-open field, incredibly lucrative and not too difficult to get into. Since then, the costs associated with mining have risen and the rewards have shrunk.
While the mining rewards were designed to shrink overtime to ensure that the total supply of Bitcoin would not be released too soon, what was not designed was that crypto mining would become an activity dominated by big corporations. That is, however, exactly what has happened as the cost for mining equipment has risen while access to cheap energy has dwindled.
Because mining difficulty increases in proportion to how many miners there are on the network, mining has become an increasingly exclusive club. The average, independent miner has been edged out of the industry over time. In his stead, big mining operations with the resources necessary to buy loads of mining equipment and build sprawling, state-of-the-art facilities have taken over. Nowhere is this more true than in China, where electricity is available at some of the cheapest rates in the world.
However, as we have noted, nothing seems to be ever fully settled in crypto. This year, due to a sudden switch in policy, China moved to outlaw most crypto mining and trading activities. While regulatory uncertainty is nothing new, China was far and away the world leader in bitcoin mining, accounting for an estimated 75% of the Bitcoin network’s total hashrate. So the Chinese mining ban would effectively be shutting down 3/4 of the world’s Bitcoin mining.
That alone would constitute a complete reworking of the mining industry, but that isn’t the only thing spurring changes. In addition to the Chinese lockdown, pressure has risen globally over the ecological feasibility of bitcoin mining. With some reports measuring the annual energy consumption of bitcoin mining as on par with that of entire countries, more and more people have been questioning whether the current way of doing things is sustainable.
Green Energy and DeFi Solutions
The consequences of this uncertainty have been pronounced. After rising to all-time highs earlier this year, the market underwent a sharp contraction before stabilizing around where it is now. And in that short amount of time, the mining industry has already taken steps towards redefining itself, offering a glimpse at how things could work differently.
Recently a spate of mining companies powered by green energy has popped up and caused something of an investment bubble. Earlier this year, Iris Energy, a company operating out of British Columbia, Canada and operates on hydroelectric power, raised over $25 million from institutional investors. By investing in companies like Iris Energy, investors can profit off of cryptocurrency without having to buy in at high price points or worry as much about the market volatility.
But while companies like Iris are catering to the well-heeled, there are other projects that see the present circumstances as an opportunity to remodel the mining industry in accordance with the original precepts of the cryptocurrency movement. Minto, a DeFi mining company based in the Republic of Karelia of northern Russia, is a company trying to do precisely that.
Minto is a community-first style project that has taken a grassroots approach to financing its mining operation. The project is based in a brand new facility devoted to cryptocurrency mining in Karelia and is supplied cheap energy by a private hydro-electric power plant. The cheap electricity and the abundance of mining equipment have allowed Minto to build a DeFi ecosystem around their project.
Minto supplies the equipment, manages the operation and takes care of the usual risks associated with mining, and users are able to take part in the system and reap the rewards by acquiring the platform’s native token BTCMT. Rewards from the mining operation get distributed to all token holders that have staked their BTCMT, as long as a user’s stack is less than 80% of the total supply. Because of the way rewards are distributed, Minto’s DeFi mining could be potentially more profitable for participants than traditional mining. Given the low entry price point, if the project is successful, mining could once again be an activity for the individual, regardless of where they are located or how big their bank account is.
This is also just the beginning. The crypto market seems to have stabilized itself, at least for the moment, but the revolution happening in mining is by no means over. Institutional money pouring into green energy projects is one thing, but the prospect of mining going DeFi could spark something remarkable.