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Big Crypto Crush Of 2018: Mining Is Dead But Not Quite Yet

Daniil Danchenko

In the very beginning it was very popular, since it was literally about money out of thin air, that did not require space age levels of knowledge or out of this world investments. The simplicity of this whole mining thing was a key to the exponential growth of the nascent industry and a reason why so many new players were continually popping up on the market.

However, it the end of 2018 everything has changed. A recent report by Nvidia was a clear indicator of the strong, negative trend: the overall price of its shares dropped, and they lost whopping $23 bln. And their effort to get into the mining race had to do a lot with it. According to the MarketWatch data their stocks had a more or less stable price around $250-260 per piece and then it dived head first towards $150 per piece, which dropped their market cap from $168.66 bln at 1.10.18 to the $88.45 bln at 23.11.18.

Biggest ASIC producer on the market, Bitmain is not doing that well either: money coming from sales of the mining gear that made the lion's share of their profits 94% ($2.6 bln) of their overall profits seriously dropped in demand as a value of the “digital gold” went down. Which also dragged prices for everything related and their marginal gains fall from 27.9% to 26.1% which meant that per each dollar they were earning less than that. Furthermore, their financial reports were so disappointing, that some big companies that were interested in the Bitmain’s IPO changed their mind about getting involved in it. Moreover, same goes for the whole industry, another big shot in the mining world, Caanan inc has let its application for a Hong Kong IPO of at least $400 million lapse, casting doubt on the prospects for other Chinese makers of bitcoin mining gear.

Bright illustration of the difficulties in the industry is Ethereum. At this moment of time, getting 0.4 coin out of the network required the same power and computational power as getting one whole coin. Furthermore, according to the information of the Susquehanna International Group it is just unprofitable to mine Ethereum overall. Aside from that - price drop made it even worse now since even with the modern and energy efficient gear, this is not even remotely profitable enough to cover all possible expenses. Price of the “socket” becomes the deciding factor.

But even that is not so easy anymore: a lot of countries that were actively calling out for the miners withdrawn their claims and starting to regulate the industry heavily. Simply put - local administration and government officials are not that sure that industry's growth will be beneficial for the economy. Only a few months ago Norwegian government was ready to pay for a huge chunk of energy used by miners. But growing carbon footprint, even though it’s well within statistical uncertainties, made them change their mind, even if the change might be insignificant for anything as drastic as that. But it’s not only about the power - time is hard on them as well, since in 2020 block reward will drop even more. Which will make mining even harder than it is with regulatory frameworks tightening up around the industry.

A good amount of the experts are sure that small and medium scale players in the industry are outright doomed since they are unable to put anything against  “bigshots” with millions worth of mining gear and business contacts that allow them to get better energy tariffs. But even they are worried and try to diversify their business. For example, bitmain is trying to get on the AI train, but numerous experts doubt that they can get that far in the Unknown industry.

Our expert from the UK, the founder of the blockchain company based on AI, Amardeep SINGH thinks that it’s nothing but an effort to hedge their money as mining is dying: “Bitmain has a lot of developers in China and India that already have a lot of experience with the AI and machine learning, but this looks like an obvious hedge. There is Google, IBM and some of the bigger Chinese and Indian tech giants that also big on AI and machine learning, that are already interested in this process and there is a huge gap between them and Bitmain, I don’t think they can cross.”

The opinions about the near death of mining are expressed more and more often, but this formulation is not entirely true: mining will remain as long as there is at least one participant in the blockchain network. It will just depend on the capacity of the network, and the complexity will be recalculated, allowing the reward levels to remain at the same range, which will encourage some companies to leave the market, since there will be no financial motivation for them to remain in the industry, because the full technical cycle of cryptocurrency mining is much more than mining itself.

“Hotshots” with enough money to wait for this over have a good chance of staying in the game, but they will play a role similar to the data centers.  And because of the difficulty and reward levels fluctuations, they will be able to get back to the market and generate money again.

It’s obvious that mining as the thing is not going anywhere, but its core will change, just as it did back in the gold rush era. At some point, single people or small companies were able to score big in a short amount of time. But now - cryptocurrency mining is a heavily institutionalized industry where only giants with the same gargantuan amount of invested money could act.

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