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In the past few months, Bitcoin miners have not been operating under normal conditions. The Bitcoin blockchain has experienced particularly strong demand over the past few months, resembling BRC-20, to a lesser extent, glyph inscriptions, all achieved through the Ordinals protocol, bearing significant responsibility. Essentially, this protocol allows users to inscribe unique data on the smallest denominations of Bitcoin, enabling the creation of new "tokens" directly on the Bitcoin blockchain. This means that, in terms of fiat value, Bitcoin quantities worth just a few pennies could be traded multiple times, with each transaction needing to be processed through the same blockchain, let alone the initial high demand during minting.
This is where Bitcoin miners come in. Energy-intensive calculations performed by specialized mining hardware are aimed not only at generating new Bitcoins but also at validating blockchain transactions to maintain the smooth operation of the digital economy. With network usage reaching historic highs, miners have ample opportunities to earn income simply by processing these transactions, while the actual output of newly issued Bitcoins may decrease. As of February 2024, these conditions have created a situation where Bitcoin mining difficulty is higher than ever before, yet the industry is reaping enormous profits. However, one of the most reliable patterns in the Bitcoin market is the chaotic scenario of fee spikes followed by crashes. So, what will happen to miners as these conditions change?
On January 31st, when federal regulators announced a new mandate, the ecosystem became quite chaotic: the Energy Information Administration (EIA), a subsidiary of the U.S. Department of Energy (DOE), would begin surveying the electricity usage of all miners operating in the United States. Identified miners would be required to share their energy usage data and other statistics. Joe DeCarolis, an EIA administrator, stated that the study would "focus specifically on how the energy demand of cryptocurrency mining is evolving, identifying high-growth geographic regions, and quantifying the sources of electricity used to meet the demand for cryptocurrency mining." At first glance, these objectives seem straightforward, but several factors have caused concern among Bitcoin users. Firstly, Forbes claims that this directive comes from the White House, which is calling this action an "emergency data collection request." In the near future, the collection could lead to more routine collection by each miner.
Clearly, such language has left many in the community extremely uneasy, and several leading miners have issued statements condemning the move. The tone from regulatory bodies seems overwhelmingly negative, suggesting that these enterprises are a potential threat, whether through increased carbon emissions, taxation on power infrastructure, or becoming a public nuisance. Some of the most shocking claims are easily debunked, but that doesn't change the reality that some hostile actions by government agencies could potentially disrupt the ecosystem. Additionally, the mining industry has faced significant upheaval with the upcoming Bitcoin halving. This regular protocol in the Bitcoin blockchain will automatically halve mining rewards sometime in April, at block 840,000. Some pessimists have claimed that this uncertainty will be enough to bankrupt almost the entire industry. What is the actual worst-case scenario? What is most likely to happen?
Firstly, it's important to examine some intrinsic factors of Bitcoin that could affect miners regardless of government pressure. The market conditions for miners are peculiar, as transaction fees can generate income equivalent to actual mining, but the situation may be stabilizing. New data shows a 61% plunge in the sale of ordinary shares in January 2024, indicating that their impact on block space demand may be weakening. Thus, if some miners rely on these tokens to sustain profits, the revenue stream doesn't seem particularly reliable. However, despite the potential for a significant decrease in network usage of these microtransactions, regular transactions actually look great. Bitcoin's trading volume is higher than levels since the end of 2022, with no signs of stopping. So, there will definitely be plenty of demand to mint new Bitcoins.
For months, as the prospect of legalized Bitcoin ETFs becomes increasingly realistic, Bitcoin flows have been increasing, and now that this battle is over, trading volume is growing at a faster rate. While the halving may bring opportunities and challenges for miners, no one can say it's unexpected. Companies have been naturally preparing for this, with about $1 billion in trades coming from miners themselves. Bitcoin reserves held by miners are at their lowest point since the surge of 2021, and miners are leveraging these sold funds to upgrade equipment and prepare.
In other words, regardless of any actions by regulatory bodies, market conditions seem likely to change due to these factors. Some small companies with slim profits may bottom out, but the overall growth in Bitcoin trading volume suggests there will always be opportunities for profit. As the most capital-rich companies can make the broadest preparations for the halving, some less efficient mining companies are likely to fail. From a regulatory perspective, perhaps this is a desired outcome.
The federal government seems most concerned with perpetuating the idea that mining is a tax on society as a whole because it consumes a significant amount of electricity without clear benefits. However, only the most efficient operations will ensure survival post-halving and its economic consequences. As less efficient players close doors, survivors will get a larger slice of the smaller overall pie. Additionally, if the open letters from several leading companies are any indication, these companies are well-prepared for any attempt to undermine the industry. Considering that the investigation itself is still in the first week of data collection, it's difficult to say what conclusions it will draw and how it will act after the assessment. Therefore, what needs to be considered most is that these new trends are happening, whether or not influenced by environmental impact assessments.
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Post time 20-2-2024 06:49:01