Why Has Mining Been So Volatile Lately?
by Josh Anderson
LOS ANGELES, CA – When people talk about the intersection of Blockchain and the data center world, quite often the conversation takes a broad approach – for example, how long will crypto be around? However, it’s good to zoom in and learn how things stand on the ground right now as well. So CapRE’s Seventh Annual Southwest Data Center Summit: The Telecom Evolution featured a panel titled “Blockchain, Cryptocurrency and Bitcoin: What are They and How Do They Impact Data Center Design, Construction & Development?” which kicked off by getting right to the point.
Moderator Adam Waitkunas, President and Founder, Milldam Public Relations began the discussion with a brief definition and a suggestion. “So Blockchain is a decentralized ledger composed of blocks that records electronics transactions,” he outlined. “It cannot be easily changed without a clear trail of tampering. And it does not use traditional third-party authentication such as a bank of government entity.”
“Blockchain spending hit will reportedly hit 11.7 Billion USD by 2022 with the financial service sector being the most active,” shared Waitkunas, before diving into the meat of the first topic on deck. “So with that, I’ll just kick things over to Matt. Can you just talk about what the climate is like for miners right now? We have heard that crypto-currency is the kind of biggest thing in the Blockchain discussion, but can you talk about the volatility going on with miners right now?”
“Yes. Basically, there are two main fixed costs in mining,” replied Matthew Gertler, Cryptocurrency Attorney. “There’s the fixed cost of the actual hardware, mainly the main cost here is ASICs which are applications-specific integrated circuits. When Bitcoin first existed, you were able to mine it on your personal laptop. Your own processing Intel chip was enough for this. Then it got upgraded to GPUs and eventually, now, every crypto-currency has their own mining algorithm about how consensus is reached. And these chips specifically solve the math problem that is associated with that algorithm.”
“So it’s been a big issue with the run-up in costs, especially at the end of 2017,” he recalled. “So there were back-orders. And by the time you got them, new and better chips had come out. So you were already behind. That’s one aspect that is difficult.”
“The other aspect is electricity,” continued Gertler. “It’s very difficult to mine in Los Angeles. At least in the U.S., people go to where it’s colder, to where electricity is cheap. Because you also have to deal with the cooling costs. And the last miners that I had spoken with, especially in the U.S., they generally needed a price of $6,150 USD for Bitcoin, to be able to sell it to break even. So that’s basically the cost for producing one more Bitcoin. And there have been times over the last couple of months where it has dropped below that. Internationally, it’s a little less than that, at $5,800 USD or so.”
Next, Gertler offered a bit of a cautionary tone. “But as time goes on, I’ve seen that miners stop selling. Large bitcoin trades, large crypto-currency trades, don’t typically happen on exchanges,” he explained. “They happen behind the scenes, over what is called over-the-counters. And many of these over-the-counter trades come from the miners. So when they’re not selling, that’s an issue for people who have demand, but it’s also brings the price back up.”