Marco Streng, CEO of Genesis Digital Assets, one of the world’s largest industrial-scale bitcoin mining companies
The Bitcoin mining industry is still an exciting place today, ten years since I started mining Bitcoin in my dorm room, and nine years since the launch of Genesis Mining. However, scaling mining operations from dorm rigs to multiple data centers around the world did not follow a steady, solid path. But the challenges my team has faced in building over twenty mining farms and generating billions of dollars has provided many opportunities to create more efficient and innovative approaches to how we mine.
For those looking to scale their Bitcoin mining operations: It won't be easy and will take work, but if you pay attention to the following six challenges, you'll be much better prepared for future success and growth.
Challenges of Large-Scale Bitcoin Mining
Those involved in mining operations quickly learn that there are some challenges that continue to crop up over the years, while some challenges are brand new as the industry evolves. Here are six of the common challenges to large-scale operations.
Hardware Availability
Because of the competitive nature of Proof of Work mining, operations who want to be profitable need to ensure that they have mining rigs that will keep them at the top of their game. This means upgrading to faster and more efficient hardware, and ensuring that new hardware is in place when needed so there's no drop-off.
However, the current global chip shortage is making that plan very hard to execute. Demand for semiconductors has increased 17% over the past three years from a variety of industries — and there’s been no supply-side increase to match it. The chips that are available are only in limited supply, leaving some companies waiting up to a year to start production on their products. Because there's such a backlog for equipment, mining operations need to make decisions about new hardware purchases months, if not years, in advance. This requires effectively knowing how to model out mining operations to anticipate need, then placing orders and being patient.
Acquiring Capital
From hardware to overhead to talent, Bitcoin mining requires a lot of money to build and sustain. When it comes to options, many mining operations are going public to raise capital by selling shares and taking the risk on the market affecting equity. However, much of the industry is turning to debt financing to raise their funds, as it's more attractive to investors. Some mining operations are even putting their miners up as collateral, like with CleanSpark's recent $35 million financing collateralized by over three thousand S19j Pro miners.
Energy Sources
Mining operations need a lot of electricity to keep rigs running, and at scale, electricity choices — and their impact on the environment — have to factor in to operational strategy. The good thing is that renewable sources provide sustainable and environmentally-friendly energy — it's also the cheapest option out there, too, as 62% of renewable power options are lower in costs than the cheapest fossil fuel options. In looking at options, it's natural that renewable sources will become predominantly used in Bitcoin mining.
In fact, they already are. The Bitcoin Mining Council estimates that for Q1 in 2022, the Bitcoin mining industry’s sustainable electricity mix is 58.4%, making it “one of the most sustainable industries globally.” Other studies have found that upwards of 76% of mining operations are already using sustainable energy sources to power their data centers.
Talent
Another challenge is the access to talent needed to sustain a profitable Bitcoin mining business. Today, many more individuals are getting involved, but how do you hire for an industry that didn't exist ten years ago? How do you train individuals when you're writing the playbook in the moment? Mining leadership may not find talent with exact comparable experience, but can certainly hire for expertise from different backgrounds: data center managers, technicians, admins, and others.
However, as the mining industry and the crypto industry in general expands, talent shortages are leaving many companies with unfilled positions. In order to give themselves more options, companies like Coingecko and Coinbase opened up remote work options, thus opening up their talent pool across the globe.
Politics
Another challenge we've seen significantly impact the Bitcoin mining industry is having the actual establishment of operations be dictated by political preference. The most well-known example of this is when China banned crypto mining and trading activities last year, and the country that held 71% of the world's hashrate shut its mining operations down overnight. This not only forced miners to move whole operations to different countries, but the hashrate dropped by over 50%, slowing down block validation by five minutes.
Similar crackdowns are happening in other countries as well. Kazakhstan, a country to which many miners fled, has recently forced over a hundred miners to close operations. Iran, while officially recognizing the crypto industry, still has many stipulations around mining, and is looking at turning off electricity to miners this summer.
Market Volatility
Anyone paying the least bit of attention to the market over the past year knows the price volatility that Bitcoin has experienced, and a decreasing Bitcoin price means a lower monetary reward for the same amount of work to validate a block.
Ultimately, the current market downturn will impact smaller players the most who don't have the economies of scale to continue operations, who already have thin margins, or who aren't optimizing their energy usage. Departures will free up space for others, and large-scale mining operations will be poised to take advantage of it.
Facing the Challenges to Mining
Challenges arise in any industry, certainly, but it's how you handle those challenges that will allow you to go forward and scale. Seeking creative ways to solve problems, staying adaptable to changing market conditions, and knowing your mining operations through and through will help you become and stay profitable in this dynamic industry — wherever it may go.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.