Bitcoin

The volatility of the hash rate in this phase before the halving of Bitcoin shakes the entire mining sector

The Bitcoin (BTC) mining hash rate shows enormous volatility before halving, scheduled for May 12th as the mining sector is preparing for extensive restructuring. On May 3rd, the hash rate set a new all-time high (ATH) more than 142 exahashes per second beat the previous record in March 2020.

However, the metric has not only increased. Experts describe the hash rate in the first months of 2020 as “incredibly volatile” it was in the range of about 70 EH / s to 120 EH / s. Chances are that the hash rate will drop after halving but will soon recover – here’s why.

Volatility increased in March

Why is the hash rate important? This is the easiest way to assess the condition of the network. Simply put, the hash rate is the amount of computing power that miners use to validate the Bitcoin blockchain. The more power, the more difficult it is for bad actors to endanger the security of the blockchain. A higher hash rate also means more competition among miners to validate new blocks, as this increases the difficulty of mining new coins.

The volatility of the hash rate in this phase before the halving of Bitcoin shakes the entire mining sector
The volatility of the hash rate in this phase before the halving of Bitcoin shakes the entire mining sector

The past month has been the most volatile period for the BTC hash rate this year. The so-called “Black Thursday”, the day on which the price of Bitcoin bled by almost 50%, largely shook things. The decline occurred on March 12, just four days after the hash rate reached an ATH of 123 EH / sThis triggered a big sale on trading platforms around the world. This, in turn, affected the hash rate performance. By March 25, the metric had dropped to just 76 EH / s, the lowest since September 2019.

Possible reasons

Bitcoin’s volatile price is one of the key factors for the “incredibly volatile” metric, Pankaj Balani, CEO of the crypto-derivative platform Delta Exchange, confirmed in an interview with Cointelegraph. Black Thursday caused a significant number of miners to shut down their equipmentBalani explained:

“A drop in prices of this magnitude is likely to have led to numerous miners – at least temporarily – ceasing to operate as mining Bitcoin suddenly became unprofitable. By reducing the BTC price by 50%, miners’ incomes fell by a similar amount, and only the most efficient miners could bear the costs.. It remains to be seen whether these miners were able to resume operations. “

Other possible causes include the ubiquitous coronavirus pandemic. Balani explained that The increase in COVID-19 has forced many miners to close or reorganize their operations, which helps reduce the BTC hash rate. “If the pandemic doesn’t end in fall 2020, we should expect further volatility in the hash rate and bitcoin price,” he warned.

In addition, Delta Exchange’s CEO suggested that the global supply disruption caused by the global shutdown prevented some miners from switching to more sophisticated equipment that would be required to compete in post-halve conditions. Halving halves the block reward – which means that Miners receive 50% less BTC for transaction verification and must replace unprofitable units with more efficient devices.

According to Mark D’Aria, CEO of Bitpro Consulting LLC, the hash rate was so volatile because of newer ASICs – units that are designed to mine industry-level cryptocurrencies – andThey are continuously improving their efficiency, while the price of Bitcoin has generally fluctuated between $ 5,000 and $ 10,000 for several years.::

“When the average team becomes more efficient, it puts more pressure on less efficient units. For example, a year ago a [Bitmain Antminer] S9 could have made a reasonable profit around USD 9,000 / 1 BTC, but at the current exchange rates may not be efficient enough to stay profitable at $ 9,000. So you have miners who turn marginally profitable devices on and off more often. “

The time for the S9 series may have expireda recent report by cryptocurrency research firm TokenInsight showed. The unit’s profitability was around 35% in the first months of 2020, before falling negative in the crypto crisis in March, although it recovered to around 20% in the past month. “”They can only be profitable if a miner encounters extremely low electricity costs, which is a challenge.“Alejandro De La Torre, vice president of the large Poolin mining pool, explained Cointelegraph.

Related: Bitcoin halves history to show that hashrate is an indication of what’s to come

So What will replace these faulty machines? A new generation of ASIC that can produce 100 to 120 terahashes per second has already been introduced by hardware giants like MicroBT and Bitmain. Pankaj Balani described the fierce competition between the two:

“Bitmain and MicroBT are bringing more and more efficient miners to the market compete to bring their miners to the market in time for halving. These include the AntMiner S17, S19 and S19 Pro models and the MicroBT WhatsMiner M30S – both touted as the most profitable miners on the market. “

Will the hash rate reach a new all-time high before halving?

Although some of the new devices are already connected, most are only half delivered. thats why The hash rate is likely to drop immediately after the event. Marc Fresa, founder of the American company Asic.to, which specializes in the production of firmware for mining machines, told Cointelegraph:

“”The hash rate is expected to decrease as miners’ profitability generally declines. This result will result in previous generation miners unplugging unless they find a new home with extremely cheap or free energy. Historically, you just have to give it a little time and the hash will reach a new all-time high. We cannot forget that the next generation machines are gradually being connected and optimizing the firmware for the current generation makes them very competitive even when they are available. “

Alejandro De La Torre shared a similar feeling. “”The addition of new, stronger miners has led to volatility in the hash rate“He told Cointelegraph. However, another historic hash rate high could be on the charts before the cut in half takes effect,” added De La Torre. He highlighted three factors behind his forecast, namely that these are the last days miners could take advantage of the 12.5 bitcoin premiums, the increase in bitcoin price that adds to its benefits, and an increase in transaction volume, which increases the rates miners receive for each block is verified.

Will China stay king?

The situation is less clear with the global distribution of the hash rate after halving. As Cointelegraph recently reported, 40 mines in China had to be shut down because the March rift made S9 companies unprofitable, and F2pool reported that approximately 2.3 million miners had stopped working as of March 10. Does that mean China could be dethroned as king of cryptocurrency mining?

The Bitcoin Mining Map, published earlier this week by the Center for Alternative Finance at Cambridge University and shows the country’s monthly average hash rate, suggests otherwise. Confirms that China continues to dominate mining largely with 65% of the world’s population (The United States ranks second at only 7.24%). Although China appears to be invincible with these statistics, the situation could change soon due to the halving and the COVID-19 pandemic, as Balani argued:

“Relatively low electricity prices across China have led to this for years high mining activity in China compared to other places. While this has enabled unprecedented growth in the Chinese mining sector, it has also led to the spread of a relatively inefficient mining infrastructure. Now that there are only efficient miners left, it remains to be seen whether Chinese miners can keep up or not. “

Balani went on to say that COVID-19 had seriously affected the Chinese mining industry, but concluded, “We can predict further difficulties for all regions in the coming monthsHowever, De La Torre suggested that Xinjiang – China’s most important mining region – will actually remain dominant: “The rainy season has just begun and all new mining machines are being manufactured in China.”

However, De La Torre noted that mining will continue to expand worldwide: “The reason for this is that miners now have several new ways to fund their operations.“While western miners found cheaper power sources.”This trend will continue in the future“he said, adding that the mining industry is facing some major changes.

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