The crypto mining is dead. And if it’s not already, it will be soon. It’s over. The fever’s gone down. Get your equipment and go. And if you don’t believe me, in this article I’ll explain why you should get your mind off mining cryptocurrencies in 2020.
Let’s review the factors affecting the benefits of mining.
- Cryptocurrency pricing
The crypto mining boom was mainly the result of the explosive growth of cryptocurrencies between 2016 and 2017. The higher the price, the greater the benefits of mining. Today, at the end of 2019, prices remain more or less stable and the rewards of mining, after paying for the equipment and energy, barely exceed the ROI (return on investment).
- The time spent finding a block
The more frequent the blocks, the greater the reward. For example, in Bitcoin there are 144 blocks per day, while with Ethereum there are 270 blocks per hour.
- The difficulty of the network (hashrate)
The rewards are less when the difficulty is greater, in other words, when there are more miners competing.
- The luck
Luck is directly related to rewards. Simply there are miners who are luckier than others, but remember that time always puts everyone in their place.
What is the future of mining after 2020?
To try to clarify the future of mining we must look at the past and more especially at the reference currency, Bitcoin. Until 2011 Bitcoin was always below $1.00. In 2013, it was over $1,000 but fell again. In 2015 it started at $200 and began to grow without breaks.
This increased exponentially the number of miners, and consequently the difficulty of the network.
During this time the miners realized that by using GPUs they gained a significant advantage, and once all the miners were on equal conditions the ASICs appeared, circuits specially built for mining that offered an even greater hashrate than GPUs. The Antminer S9, the quintessential ASIC, cost a whopping $5,000. Its computing power was around 14 Th/s. This is the same as saying 14,000,000,000,000 hash operations per second.
In 2011 the hashrate of the Bitcoin network was only 1 Th/s, which means that a single Antminer S9 was 14 times more powerful than the entire network.
In 2013 the network corresponded to the power of ten Antminer S9.
In 2015 it reached 400,000 Th/s, or 30,000 Antminer S9.
In 2017 the network reached 14,000,000 Th/s which is equivalent to one million Antminer S9.
In mid-2018, hashrate peaked, and there were almost no new miners.
So the conclusion is that the number of miners has stopped growing. The current price of Bitcoin does not compensate for the purchase of new equipment. An Antminer S9 returns just over $2 a day while consuming 33.6kWh, so if you pay the kWh at $0.07 you are already at a loss. In Spain the average price of kWh is $0.12. The conclusion is simple, it’s cheaper to buy Bitcoins instead of mining, and this is extrapolated to almost all crypto currencies.
PoW. Waste of energy, slowness and centralization.
As you may know, Proof of Work algorithms are the ones that dominate the consensus in most current blockchains and the reason why mining exists. They have allowed the creation and early adoption of blockchain networks, but they have several insurmountable problems.
First of all, they are very inefficient. Imagine millions of computers spending millions of kWh trying to find a solution to a complex mathematical problem so that in the end, one and only one finds it. That means that all the other millions of kWh are simply transformed into heat and CO2, something we have plenty of today. It is estimated that the daily energy in solving the Bitcoin blocks could feed a country like Bolivia. Well, all that energy, to the trash.
Secondly, they are not very scalable. As the number of transactions in PoW block chains increases, this problem becomes more and more apparent. For example, in Bitcoin, the processing capacity of chain transactions is limited by the average block creation time of 10 minutes and the block size limit of 1 megabyte. Together, these limit network performance. The maximum transaction processing capacity estimated using an average or median transaction size is between 3.3 and 7 transactions per second. Ethereum can reach up to 20. Centralized solutions such as Paypal reach almost 200, while Visa transactions per second are close to 2,000. If we want blockchain solutions to be a real alternative we must abandon PoW consensus algorithms to make the system more scalable. Ethereum is already implementing Serenity, the first step in the transition to a PoS (Proof of Stake) algorithm.
Thirdly, they are susceptible to monopolization, as they give unfair advantages to actors with more resources. The equation is easy: the more money you have, the more likely you are to earn a reward for mining, or even to reach the dreaded 51% power of the network that would allow you to control it. Today, by the end of 2019, 60% of Bitcoin blocks are resolved through 5 mining pools. In theory, they could agree on wrong or illicit blocks (e.g. by duplicating transactions), take control of the network, and undermine it, thus breaking users’ trust in the currency.
This has created the uncomfortable situation in which it becomes clear that Bitcoin, Ethereum and other blockchains are not as decentralized as they intended, which threatens their fundamental purpose, their independence and their usefulness to our society.
As I said, Ethereum is already implementing its algorithm change. As a result, it is discouraging mining to such an extent that it has led the developers to implement a time bomb to make mining Ethers more and more difficult until it becomes unfeasible. This, together with other technologies such as Sharding and Smart Contracts, will make Ethereum a sustainable, scalable and more democratic blockchain network in the medium term.
My advice at the end of 2019: buy Ethers. If you have mining hardware and have already recouped your investment, continuing to mine will yield little or no benefit in terms of electricity costs, and this will only get worse, so maybe it’s a good idea to start selling your GPUs to gamers. If you have ASICs, I’m really sorry, but they’ll soon be nice paperweights.
Mining and PoW algorithms have served to drive and implement blockchain technology and we should be grateful for that, but its time has passed. They’ve done their job and now they’re dying of old age. Blockchain technology has to banish mining and PoW algorithms if it is to move forward and be a real alternative.