This week in crypto. Dec 6-12: The Future of Crypto Mining, controversial Ubisoft NFTs and more...
The future of crypto mining
This week Bitcoin hashrate reached a new all-time high, making the Chinese ban-related drop a thing of the past. One would suppose that a new world mining order is in place, but the mining map is still changing.
Exodus from Kazakhstan
Most notable event driving this change is miners’ exodus from Kazakhstan. This Central Asian country has cheap coal-powered energy and a common border with China, which made it an easy choice for many Chinese miners. CBECI mining map of August’21 attributed 18% of Bitcoin hahsrate to Kazakhstan (vs 8% just 4 months prior), which made it second-biggest hashrate producers in the world after the US.
It appears, however, that the energy was not as plentiful as the miners though. Kazakhstan’s energy grid was put under pressure it was not ready to sustain: in July Kazakhstan’s biggest city Almaty suffered a blackout due to the heat wave and the increased usage of air conditioning, and since October the blackouts throughout the country intensified, caused in part by several coal plants’ outages.
The country’s energy minister blamed crypto mining (and particularly the “grey one”, run by unregistered companies or individuals, estimated to siphon twice more electricity than the registered ones) and called to limit crypto mining farms’ power use to 1MW, and the overall power use of all crypto miners – to 100MW.
As soon as it became clear that Kazakhstan was not the energy mecca some miners once thougth, many of them started packing things. Big miners like Xive or BitFuFu have already shut their Kazakh operations, with BitFuFu setting their eyes on the US, now world’s biggest hashrate producer thanks to its abundant energy sources and comprehensive laws in states like Texas.
However, can betting on one region be the solution for sustainable and profitable mining?
There are many areas in the world that are worth exploring for crypto mining. Nearly 50’000 TWh per year are lost due to inefficiencies – almost a quarter of all energy produced. Current Bitcoin mining electricity consumption of 188 TWh is dwarfed (0.38%) comparing to this figure, meaning huge possibilities for the development of mining (data compiled by Bitcoin Mining Council, sources include BP and IEA reports).
These inefficiencies often accompany renewable energy sources: solar, wind, and hydroenergy. The energy is produced whenever the elements get into action – and this is not necessarily when humans need it. Electricity being notoriously hard to store, the unused energy is most often simply lost… unless someone plugs a crypto mining rig to put it to work.
Dams, solar and wind electrostations are scattered around the world, and we believe that exploring these possibilities could help mining become not only more sustainable, but also more efficient. After Kazakhstan’s deception the miners would be more likely to take into account these factors, and not only the electricity price.
Some countries are trying to promote this reasoning and attract miners to their power plants that loose energy. Last week Brazilian Senator Irajá Silvestre Filho submitted a set of crypto-relative proposals to the Congress, one of them exempting crypto miners from importation taxes and taxes on mining that uses renewable energy sources (currently producing just under a half of the country’s electricity). Brazilian power grid is not very efficient one: while the energy surplus is big, its transmission is really bad, which leads to power rationing in some parts of the country. Promoting green mining could attract investments into the sector.
Mining was conceived as a way to make Bitcoin a truly decentralized currency, and Proof-of-Work is considered one of the most democratic consensus protocols, allowing any person with some computational power get a piece of a pie (even if the smallest contributors must gather in pools to have a real opportunity to mine a block).
However, mining machines evolving together with the rise in Bitcoin mining difficulty, this notion of accessibility progressively gave place to the one of “industry”.
Mining with Central Processing Units (CPUs) available on every computer gave place to more efficient Graphics Processing Units (GPUs) and Field Programmable Gate Arrays (FPGAs), both repurposed to mine Bitcoin, which in turn gave place to Application-Specific Integrated Circuits machine (ASIC), created specifically to mine Bitcoin.
Since then the only innovation in the field was the reduction of the size of ASIC chip, which started off at 130nm in 2013 and ended at 7nm in 2019 (the smaller the surface of the chip, the smaller its communication channels and therefore the less electricity required to transmit data on its surface). The main principles of ASIC functioning did not change though, and the need for a major innovation is becoming apparent.
In October Jack Dorsey, ex-Twitter and CEO of Square (now Block), said his company was planning to build a “Bitcoin mining system based on custom silicon and open source for individuals and businesses worldwide.” This is very welcome: not only such development will help mining become more efficient, it will also make it accessible for everyone and more distributed. And the more distributed Bitcoin network, the more resilient it is.
An efficient and easy-to-use mining machine could radically change mining and even reverse the process of its “industrialization”. Smaller mining farms won’t put unnecessary pressure on whole countries’ power grids and, when installed near renewable energy sources, will be ready to easily turn on and off according to the energy production. What’s more, people could install such machines at their homes, filling the off-peak hours when the excess energy is lost (they could also use the heat produced by the machines to warm their homes, but this is a whole other subject that we’ll surely treat one day too 😅).
As Dorsey noted, silicon development is “expensive, requires long-term investment, and is best coupled tightly with software and system design”. We believe that the future of mining will definitely require it.
NFTs and Metaverse
NFTs can become a huge thing for gaming, but the way they are created matters.
In the beginning of this week Ubisoft announced the release of its first NFT collectibles compatible with its Tom Clancy’s Ghost Recon game. It was not clear how exactly these NFTs could be used, but the fact that such a big player in gaming industry turned to crypto was significant.
The announcement, however, has provoked a massive backlash from the gamer’s community, in part due to the licensing agreement forbidding NFT owners from using them as advertising support, creating any derivative works or videos, sell merchandise that includes representations of the NFT, create/sell fractionalized interests in the NFT and so on.
Ubisoft may have missed the whole point behind the NFTs, which are created to secure ownership and all the rights that come with it. Thus the owner of a Bored Ape NFT can do whatever they like with the image of the Ape, which has become their property from the second the NFT of the image hit their wallet.
Ubisoft’s NFT plans were perceived by the gamers community as a way to make a quick buck, which of course does not do any favour to crypto overall.
Let’s hope they will take this reaction into consideration for their further developments.
Bitcoin was trading sideways this week, losing 3% and ending below $49k. As the price consolidates, many analyst wait for continuation of the uptrend, while others think that the price will stay range-bound for some time.
Ethereum performed worse than Bitcoin this week, loosing 8% and ending at $4000. Visibly, Vitalik Buterin’s outline of the ETH2.0 future published on Monday did not bring enough reassurance to the markets.
Quote of the week
“Our view as the state government is this is something that we welcome and we want to make sure that the state government is crypto-friendly.”
Ron DeSantis, Governor of Florida, US, proposing a program to enable businesses in Florida to pay state fees in crypto