James Cirrone


<p>Privacy coin Zcash is facing a hash rate consolidation crisis.&nbsp;</p>



<p>ViaBTC, primarily known as a popular bitcoin mining pool, now controls over 51% of the hashing power on Zcash, according to <a href="https://miningpoolstats.stream/zcash">MiningPoolStats</a>.</p>



<p>The hashrate for Zcash, a proof-of-work network, is measured in giga solutions per second (Gsol/s) and ViaBTC is hashing at 4.53Gsol/s.&nbsp;</p>



<p>F2pool is the next contender, but doesn’t really come close to ViaBTC. Miners on f2pool have captured 1.62 Gsol/s, representing just over 18% of the hash rate. </p>



<p>Coinbase’s blockchain security team pointed out this consolidation of mining power on Sept. 15, and warned of possible risks to users transacting on Zcash.</p>



<p>“If a single miner or mining pool gains over 51% of the network&#8217;s hash power, it can introduce serious security vulnerabilities,” Coinbase wrote in a <a href="https://www.coinbase.com/blog/security-psa-observed-risks-in-zcash-mining-pool-distribution">blog</a>. “An entity could manipulate the blockchain in various ways — such as executing doublespend attacks or censoring transactions, potentially leading to a loss of user and exchange funds.”</p>



<p>Alurosu wrote a post on X, which was later reposted by Electric Coin Company (ECC) founder and chief executive Zooko Wilcox, appealing to anyone who knows Zcash miners who can possibly convince them to switch pools so as not to risk the integrity of the blockchain.&nbsp;</p>



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">Where do <a href="https://twitter.com/hashtag/Zcash?src=hash&amp;ref_src=twsrc%5Etfw">#Zcash</a> miners chat? How can we convince them to switch pools? <a href="https://t.co/3rHD7IVhuX">pic.twitter.com/3rHD7IVhuX</a></p>&mdash; alurosu (@alurosu) <a href="https://twitter.com/alurosu/status/1704101829267665059?ref_src=twsrc%5Etfw">September 19, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<p>ECC, the team behind Zcash, addressed the situation on X, formerly Twitter, on Tuesday evening.&nbsp;</p>



<p>In the thread, ECC explained that it has had conversations with Coinbase about “the nuances of the Zcash network.”&nbsp;</p>



<p>One of those nuances, ECC wrote, is that the Zcash network has a lack of finality.&nbsp;</p>



<p>Finality, when talking about blockchains, simply refers to the point of no return when a transaction is immutably recorded on the distributed ledger.&nbsp;</p>



<p>ECC also linked to a mid-July blog post that discussed a trailing finality layer, which if implemented, would make Zcash “a hybrid” of proof-of-work and proof-of-stake.&nbsp;</p>



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">ECC is aware of this issue, and we’ve had conversations with <a href="https://twitter.com/coinbase?ref_src=twsrc%5Etfw">@coinbase</a>, <a href="https://twitter.com/ViaBTC?ref_src=twsrc%5Etfw">@ViaBTC</a>, Zcash&#39;s security lead, and <a href="https://twitter.com/ZcashCommGrants?ref_src=twsrc%5Etfw">@ZcashCommGrants</a>. IMPORTANT: <a href="https://twitter.com/hashtag/Zcash?src=hash&amp;ref_src=twsrc%5Etfw">#Zcash</a> is a decentralized, open-source network with no “lead developer,” no “issuer,” and no org that controls it. 🧵 <a href="https://t.co/X2a16x4xDQ">https://t.co/X2a16x4xDQ</a></p>&mdash; Electric Coin Co. (@ElectricCoinCo) <a href="https://twitter.com/ElectricCoinCo/status/1704240109267153237?ref_src=twsrc%5Etfw">September 19, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<p>Still, this supposed solution still needs to be agreed upon, so in the meantime Coinbase announced a few precautions it has taken with Zcash.&nbsp;</p>



<p>It has increased the confirmation requirement to 110 blocks, which will in turn increase the deposit time from about 40 minutes to around two and a half hours.</p>



<p>And for those wanting to buy Zcash on Coinbase, the asset is now in a limit-only state to reduce volatility.&nbsp;</p>



<p>Blockworks reached out to ECC and ViaBTC for commentary on the still unfolding situation with Zcash but didn’t receive immediate responses.&nbsp;</p>



<p>However, Wilcox did briefly address journalists and reporters reaching out to ECC, saying that “ECC is the wrong organization to talk to. Zcash is *actually* a decentralized open protocol.”</p>



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">A few journalists and users have reached out to us at <a href="https://twitter.com/ElectricCoinCo?ref_src=twsrc%5Etfw">@ElectricCoinCo</a> about this issue with ViaBTC having more than 50% of the Zcash mining hashpower and Coinbase increasing its required blockchain confirmations.<br><br>⤵️</p>&mdash; zooko❤ⓩ🛡🦓🦓🦓 (@zooko) <a href="https://twitter.com/zooko/status/1704558911938863191?ref_src=twsrc%5Etfw">September 20, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



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Mining pool ViaBTC controls over 51% of Zcash hash rate


<p>As the bitcoin halving nears, the hash price for bitcoin — the amount of revenue a miner should anticipate per petahash per second of hashing power — has plummeted from a yearly high in early May.&nbsp;</p>



<p>Miners were netting around $127 a day per petahash per second (PH/s) on May 8. As of Monday, Aug. 28, a miner can only expect $59 a day with each PH/s they have, according to data aggregated by <a href="https://data.hashrateindex.com/chart/bitcoin-hashprice-index">Hashrate Index</a>. </p>



<p>However, the year 2023 is a small portion of history for one to focus on exclusively. For context, people mining during the bull run of 2021 could at times rake in upwards of $400 a day per PH/s. </p>



<p>Before the halving in 2020, which cut the block reward from 12.5 BTC to today’s 6.25 BTC, there was <a href="https://www.reuters.com/article/markets-bitcoin-mining/bitcoin-miners-face-fight-for-survival-as-new-supply-halves-idINKCN0ZP060">chatter</a> from many miners about fears over profitability going forward. The <a href="https://www.coindesk.com/markets/2016/06/04/will-bitcoins-block-rewards-halving-bring-crisis-or-consistency/">same fears</a> were present during the 2016 halving.</p>



<p>Two days prior to the halving on May 11, 2020, the hash price was around $160 a day per PH/s. That figure was nearly slashed in half on the day of the halving to just over $87.</p>



<p>Data visualization of hash price since around 2018:</p>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="2020" height="1296" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=1024&amp;h=1024" alt="" class="wp-image-66383" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=2020 2020w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=401 401w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=407 407w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=341 341w, https://blockworks-co.imgix.net/wp-content/uploads/2023/08/Screenshot-2023-08-28-at-12.25.12-PM.png?w=80 80w" sizes="(max-width: 2020px) 100vw, 2020px" /></figure>



<p>There are several factors behind this year’s dramatic decline, though this is somewhat of a cyclical development since there have been frequent crashes in the hash price for years.</p>



<p>Firstly, bitcoin difficulty — an indicator showing the probability of finding a valid hash that’s below the target — has seen a significant uptick since May and an even more dramatic increase since the beginning of 2023. </p>



<p>Bitcoin difficulty has jumped from around 48 trillion in May to 55.62 trillion as of Aug. 28, according to <a href="https://www.coinwarz.com/mining/bitcoin/difficulty-chart">Coinwarz data</a>.</p>



<p>Increased difficulty <a href="https://blockworks.co/news/crypto-miner-consolidation-imminent-as-some-industry-players-struggle">has a negative influence on the profitability of those mining bitcoin</a>, Marathon Digital CEO Fred Thiel told Blockworks in November 2022.&nbsp;</p>



<p><strong>Read more:</strong> <a href="https://blockworks.co/news/lucky-solo-miner">Solo miner bags entire block reward with just 1PH of power</a></p>



<p>Outside events could have an influence on the hash price for bitcoin as well.&nbsp;</p>



<p>When Thiel spoke to Blockworks on Nov. 1 — when the hash price was around $70 a day per PH/s — crypto was about to experience yet another downturn with the FTX collapse. One of the first red alerts came roughly eight days later when <a href="https://blockworks.co/news/1-binance-ftx-deal-is-off-unless-ftx-us-is-part-of-the-package-source">Binance backed out of the deal to acquire the crypto exchange’s non-U.S. business</a>.&nbsp;</p>



<p>And on Nov. 21, just days after <a href="https://blockworks.co/news/ftx-bahamas-unit-filed-bankruptcy">FTX’s Bahamas arm declared bankruptcy</a>, the hash price for bitcoin sagged to an all-time low of $55.46 a day per PH/s.&nbsp;</p>



<p>Another key factor in bitcoin&#8217;s hash price is, of course, the price of Bitcoin. When the price dips, even if miners extract the same quantity of coins, the value derived is less. This erosion of value can be challenging for miners, especially for newcomers and those who aren’t operating thousands of top-of-the-line mining rigs.</p>



<p>For instance, in early May, Bitcoin oscillated between roughly $27,500 to just over $29,000. On Aug. 18, <a href="https://blockworks.co/news/bitcoin-crypto-sell-off-market-jitters">there was a harsh selloff of bitcoin and other crypto assets</a>, dragging the price of the world’s largest digital asset down to lows in the $25,000 range.</p>



<p>This drastic reduction mirrored the slide in hash price days after.</p>



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Bitcoin hash price drops to near all time low


<p>Bitcoin is feeling the dog days of summer like the rest of us. In the last thirty days, the world’s largest digital asset has receded 5.5%, per CoinGecko <a href="https://www.coingecko.com/en/coins/bitcoin">data</a>.</p>



<p>But publicly bitcoin miners are pushing through, with two of them seeing modest hashing power gains in July and another two staying flat.</p>



<p><a href="https://blockworks.co/tag/marathon-digital">Marathon Digital</a>’s operational hash rate ticked up 6.2% from June’s 17.7 exahashes per second (EH/s) to July’s 18.8 EH/s.&nbsp;</p>



<p>The company also mined 1,176 bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>), a 20% jump from June and an over 15-fold increase from the same time last year.&nbsp;</p>



<p>CEO Fred Thiel attributed the gains to the completion of the company’s facility in Ellendale, North Dakota, which he said now has six fully operational buildings.&nbsp;</p>



<p>“Ellendale adds a total of 7.6 exahashes to our energized hash rate. The facility in Garden City, Texas is expected to come online next. Tie in work has been completed at this site, and we believe energization is likely imminent,” Thiel said in a <a href="https://www.globenewswire.com/en/news-release/2023/08/03/2717834/0/en/Marathon-Digital-Holdings-Announces-Bitcoin-Production-and-Mining-Operation-Updates-for-July-2023.html">statement</a>.&nbsp;</p>



<p>CleanSpark saw the largest gain in operational hash rate among its peers so far, upping its efficiency by over 13% in a one-month period, according to a <a href="https://www.cleanspark.com/investor-relations/news-releases#collapsePost259">press release</a>.</p>



<p><a href="https://www.cleanspark.com/investor-relations/news-releases#collapsePost256">In June</a>, the company had a deployed fleet of over 68,000 miners boasting processing speeds of 6.7 EH/s. By July, the number of miners jumped to nearly 88,000 with average speeds of 7.6 EH/s.</p>



<p><a href="https://blockworks.co/tag/riot-blockchain">Riot Platforms</a> and Bitfarms’ hashing power remained flat month over month, 10.7 EH/s and 5.3 EH/s, respectively.</p>



<p>Riot mined 11% fewer bitcoin — 410 BTC — compared to June, though it&#8217;s important to note that over 17,000 miners remain offline in its Texas location after a severe winter storm tore through the area in December 2022.</p>



<p>Riot sold 400 bitcoin in July, same as June, but pocketed larger proceeds of $12.1 million due to a net price of $30,293 per bitcoin sold, according to its monthly <a href="https://www.riotplatforms.com/news-media/press-releases/detail/157/riot-announces-july-2023-production-and-operations-updates">report</a>.</p>



<p><a href="https://blockworks.co/tag/bitfarms">Bitfarms</a> also produced slightly fewer bitcoin, mining 378 BTC in July and 385 BTC in June. However, last month’s haul is over 24% down from July 2022.&nbsp;</p>



<p>Still, Bitfarms has outpaced the first seven months of 2022 in terms of total bitcoin mined, per its July <a href="https://www.globenewswire.com/news-release/2023/08/01/2715649/0/en/Bitfarms-Mines-378-BTC-in-July.html">report</a>.</p>



<p>Bitfarms also increased its hydropower capabilities from 178 megawatts (MW) to 183 megawatts, which in part stems from <a href="https://blockworks.co/news/bitfarms-doubles-down-on-paraguay">its freshly-signed power agreements in Paraguay</a> to power its mining facilities.&nbsp;</p>



<p>In the stock market, Marathon is outperforming its peers, up 2.18% on Thursday at the time of publication. Riot returned to the green in the afternoon, while CleanSpark and Bitfarms were in the red.</p>



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Handful of public bitcoin miners log modest hashing power gains for July

John Gilbert

<div id="highlights-block_62bdb823aabc2" class="highlights">
        <ul>
                <li>Public miners sold more than 100% of their production in May, with many citing debt servicing and increased expenses</li>
                <li>Bitcoin miners are generally considered to be the most committed hodlers because their business model relies on bitcoin remaining an appreciating asset</li>
            </ul>
    
</div>



<p>Bitcoin&#8217;s bear market has put intense stress on mining profitability. Miners like <a href="https://cms.blockworks.co/compass-mining-searches-for-direction-after-top-execs-resign/">Compass</a> are being accused of failing to pay electricity bills. And On June 21, when bitcoin was trading close to $20,000, <a href="https://cms.blockworks.co/crypto-miner-bitfarms-sells-half-its-bitcoin-to-reduce-debt-boost-liquidity/" target="_blank" rel="noreferrer noopener">major mining company Bitfarm</a> sold $82 million worth of bitcoin to bolster its balance sheet. And it wasn&#8217;t alone. Public miners sold more than <a href="https://twitter.com/JMellerud/status/1539242413830680576?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1539242413830680576%7Ctwgr%5E%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fcms.blockworks.co%2Fcrypto-miner-bitfarms-sells-half-its-bitcoin-to-reduce-debt-boost-liquidity%2F" target="_blank" rel="noreferrer noopener">100% of their production</a> in May, and many cited debt servicing and increased expenses as the reason why.</p>



<p>Even as bitcoin&#8217;s price has slumped from its all-time high of $69,000 in November 2021, the difficulty of mining the cryptocurrency has continued increasing. That’s because miners haven’t stopped or slowed down production — when the network increases total computing power, the protocol makes mining more difficult and thereby expensive.</p>



<p>At this unprofitability peak, some of bitcoin&#8217;s most bullish hodlers are selling bitcoin at a low to fund their mining efforts.&nbsp;</p>



<p>The big question is, why? Is bitcoin mining still a profitable venture, and what is the end game?</p>



<p>We sat down with Blockworks Editor David Canellis to get a better understanding.</p>



<div style="padding:56.25% 0 0 0;position:relative;"><iframe src="https://player.vimeo.com/video/725788840?h=822cc432f3&amp;title=0&amp;byline=0" style="position:absolute;top:0;left:0;width:100%;height:100%;" frameborder="0" allow="autoplay; fullscreen; picture-in-picture" allowfullscreen=""></iframe></div><script src="https://player.vimeo.com/api/player.js"></script>



<h3 class="wp-block-heading">How to measure bitcoin mining profitability&nbsp;</h3>



<p>Bitcoin (BTC) is only profitable when mining costs are less than the value of BTC rewards and transaction fees. It sounds simple, but the mechanics of determining costs and the economics at play are less straightforward.&nbsp;</p>



<p>Because cost factors vary, it is better to evaluate miner behavior to analyze overall profitability. The fact that many miners are selling BTC at a low is a good indicator that costs are too high.</p>



<p>Bitcoin miners are generally considered to be the most committed hodlers because their business model relies on BTC remaining an appreciating asset. So when miners sell, it is primarily to cover costs. In an ideal scenario, they sell during bull cycles and accumulate in a bear.&nbsp;</p>



<p>For example, miners took major profits when bitcoin was on its bull run during the winter and spring of 2021. The miner net position briefly dropped to an extreme low of -24,000 BTC per month — indicating that more BTC exited miners&#8217; balance sheets than entered. When bitcoin price is in decline, miner net position is typically positive. This signals that miners don’t need to take BTC profits to cover expenses.&nbsp;&nbsp;&nbsp;</p>



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/AP4HNQAFOyD-5IPKsT8MxuBYr2mWVtq6Fs1ThsTLMf0MbYd96mUw2A36g3LKDagSRD_U_71sChTCJtHjlRbgY71FbZFL8L76G8RseIMnMya2mlI2G30auYlinn3LiRJDXhi6-6pJLGE-nXVu2Q" alt=""/><figcaption>Source: <a href="https://insights.glassnode.com/the-week-on-chain-week-25-2022/" target="_blank" rel="noreferrer noopener">Glassnode</a></figcaption></figure>



<p>If miners sell during bear cycles as they did in June, it&#8217;s a sign that mounting costs forced miners to shift their business plans. But it isn&#8217;t necessarily a sign of capitulation — when miners go out of business, exit the network and sell their bitcoin. Instead of just shifting gears, capitulation is total surrender.&nbsp;&nbsp;</p>



<h3 class="wp-block-heading">A war of attrition&nbsp;</h3>



<p>This recent type of selling is a signal that miners are in a war of attrition. At this point in the cycle, they double down on mining efforts — even at a loss. They do everything they can to keep the lights on in the hope they will be among the last hodlers standing.&nbsp;</p>



<p>To understand how and when miners are forced to capitulate, we need to explain hash rate mechanics and its role in determining bitcoin mining costs.</p>



<h3 class="wp-block-heading">Using hash rate to calculate bitcoin mining costs&nbsp;&nbsp;</h3>



<p>When you read “bitcoin hash rate,” just think, “total computing power on the bitcoin network.” Technically, it is the number of calculations, or more specifically hash guesses, the network makes every second.&nbsp;&nbsp;</p>



<p>To understand how and why each computer is racing to guess each block hash, check out our explainer on <a href="https://cms.blockworks.co/proof-of-work-vs-proof-of-stake-whats-the-difference/" target="_blank" rel="noreferrer noopener">proof-of-work vs. proof-of-stake</a> protocols.</p>



<p>To understand mining economics, it is crucial to know that as more computers and mining capability enter the network, the protocol makes this guessing game more difficult. As a result, miners need to use more electricity to earn the same amount of rewards.</p>



<p>When computing capability leaves the network, the hash rate decreases along with the difficulty level. A lag often occurs because the network makes difficulty adjustments every two weeks. But the point is that miners can expend less energy for a similar amount of bitcoin when fewer machines are running.&nbsp;</p>



<p>Because hash rate correlates with miners’ energy use, it provides a rough indicator of total cost. Other variables, including location, scale, maintenance and upgrades, also play a part, but the second biggest variable is financing. Many mining institutions have interest payments and debt obligations they need to service on top of operating costs. So even if a calculator states that miners can make a profit at a specific bitcoin price, hash rate and kilowatt price, it doesn&#8217;t factor in loan servicing.</p>



<p>For deeper analysis into Bitcoin’s hash rate and financial news concerning public miners, check out our full report by&nbsp;<a href="https://twitter.com/ryan_swansonx" target="_blank" rel="noreferrer noopener">Ryan Swanson</a>&nbsp;on&nbsp;<a href="https://www.blockworksresearch.com/research/bitcoin-state-of-min-ing/" target="_blank" rel="noreferrer noopener">The State of Bitcoin Min(ing)</a>.</p>



<h3 class="wp-block-heading">Leverage addiction and contagion risks</h3>



<p>Many miners took out substantial loans during the last bull cycle to finance the expansion of their mining operations. Instead of spending bitcoin, they used their mining equipment and bitcoin rewards as collateral to acquire high-interest loans with as little as a 30% <a href="https://cms.blockworks.co/wheres-the-liquidity-crypto-lending-explained/#LTV" target="_blank" rel="noreferrer noopener">LTV (loan-to-value) ratio</a>. <a href="https://www.bloomberg.com/news/articles/2022-06-24/almost-4-billion-in-bitcoin-miner-loans-are-coming-under-stress#xj4y7vzkg" target="_blank" rel="noreferrer noopener">Vera estimates</a> that there is about $4 billion in this type of financing. Lenders such as Galaxy Digital, NYDIG, BlockFi, Celsius, Foundry Networks and recently <a href="https://cms.blockworks.co/crashing-prices-expose-bitcoin-mining-industrys-addiction-to-leverage/" target="_blank" rel="noreferrer noopener">underwater Babel Finance</a> all accepted rigs as collateral in addition to cash down payments.</p>



<p>This type of financing adds pressure from two different directions. First, with much of their equipment locked as collateral, it is difficult for miners to scale production down when profitability is low. Second, the loan payments increase costs in a way that amplifies the unprofitability.&nbsp;&nbsp;&nbsp;</p>



<p>So if miners are struggling to service their loans, they could be forced to liquidate their bitcoin and hand over their machines to the lender. This would theoretically trigger miner capitulation.&nbsp;</p>



<p>And the loan agreements have contagion risks on both ends. The miners’ payment problems put pressure on lenders’ balance sheets, but miners also risk losing their deposited BTC collateral.&nbsp;</p>



<p>Miners who have borrowed from these <a href="https://cms.blockworks.co/wheres-the-liquidity-crypto-lending-explained" target="_blank" rel="noreferrer noopener">crypto lenders</a> face another risk. Many of the lenders had exposure to <a href="https://cms.blockworks.co/cryptocurrency-luna-lurches-as-terra-usd-volatility-continues-erasing-billions/" target="_blank" rel="noreferrer noopener">Terra/Luna when it collapsed</a>, and to <a href="https://cms.blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers/" target="_blank" rel="noreferrer noopener">Celsius</a> and other companies that have faced liquidity crises. If any of these lenders claim bankruptcy, miners could lose their deposited collateral.&nbsp;</p>



<p>The fragility of some lenders’ balance sheets means they also need the miners to stay in business so they can continue making loan payments. But by keeping unprofitable miners in business, some speculate this act is effectively keeping the Bitcoin hash rate artificially high, meaning the cost of mining bitcoin does not drop to an affordable level.</p>



<h3 class="wp-block-heading">What do miners gain from being the last hodler standing?</h3>



<p>Despite unusually heavy bitcoin selling from miners in May and June, the hash rate reached an all-time high of 266 million terahashes per second on June 7, according to Blockchain.com, and is just over 208 million at the time of writing.&nbsp;</p>



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/gzKeM2fkoJk4QAUpPebJ2KQtKhv-m3RIf2-R5Tp7uaZEYXGmEpSdzfz7m6aEG2xFZnt9aMFvXJQQD2yaLxn1NjTj0n4nOzqRrzhkhtAMeWMrTj6cseoCItZQbsP5iaBoqCP_MchJ6AiExFWgMrc" alt=""/><figcaption>Source: <a href="https://www.blockchain.com/charts/hash-rate" target="_blank" rel="noreferrer noopener">Blockchain.com</a></figcaption></figure>



<p>We have yet to see a major capitulation and hash rate decline like the one that occurred from November 2018 to January 2019. But mere survival isn&#8217;t the only incentive keeping miners in an unprofitable position. The players still in the fight hope to acquire a larger share of mining rewards once less efficient or overleveraged participants are out of the game.&nbsp;</p>



<p>Most miners share rewards with a mining pool that distributes revenue based on the hash rate contribution of each participant. This structure makes mining revenue predictable but also increases competition. Miners must continue adding hash rate to maintain and increase their revenue share.&nbsp;</p>



<p>Because the total bitcoin reward is roughly the same every 10 minutes, miners that survive a shakeout get a larger cut. And if you believe that bitcoin is fundamentally an appreciating asset, that extra share of the pie has a multiplayer effect. Miners who remain in the game not only regain a profitable balance sheet, they gain more bitcoin at a discounted price.&nbsp;</p>


<p>[stock_market_widget type=&#8221;accordion&#8221; template=&#8221;chart&#8221; color=&#8221;#7523CD&#8221; assets=&#8221;BTC-USD&#8221; start_expanded=&#8221;true&#8221; display_currency_symbol=&#8221;true&#8221; api=&#8221;yf&#8221; chart_range=&#8221;1mo&#8221; chart_interval=&#8221;1d&#8221;]</p>





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Is Bitcoin Mining Still Profitable? The Economics Explained

Sam Martin

<div id="highlights-block_109da663053894bbbda91adbce4f10da" class="highlights">
        <ul>
                <li>BTC searches for direction in the midst of mixed sentiment among market participants</li>
                <li>Ubisoft, a large traditional game developer, announces in-game NFT integration</li>
            </ul>
    
</div>



<p>Minor liquidations have taken place since bitcoin&#8217;s (<a href="https://blockworks.co/price/btc">BTC</a>) price topped out earlier today near $52,000.</p>



<p>BTC could be a beneficiary of lower bond yields as we enter into the new year.</p>



<p>PlanB&#8217;s BTC stock-to-flow model appears to be invalidated.</p>



<p>Bitcoin&#8217;s hash rate has made a full recovery since China banned mining earlier in 2021. </p>



<p>Three Arrow Capital purchased $400 million in <a href="https://blockworks.co/price/eth">ETH</a>.</p>



<p>Ubisoft became the first major game studio to implement in-game NFTs.</p>



<p>First Trust filed for a metaverse ETF.</p>



<h3 class="wp-block-heading"><strong>Latest in Macro:</strong></h3>



<ul>
<li>S&amp;P 500: 4,686, +2.07%</li>



<li>NASDAQ: 15,686, +3.03%</li>



<li>Gold: $1,784, +0.20%</li>



<li>WTI Crude Oil: $72.03, +3.98%</li>



<li>10-Year Treasury: 1.468%, +0.085%</li>
</ul>



<h3 class="wp-block-heading"><strong>Latest in Crypto:</strong></h3>



<ul>
<li><a href="https://blockworks.co/price/btc">BTC</a>: $50,657, +0.54%</li>



<li><a href="https://blockworks.co/price/eth">ETH</a>: $4,316, -0.51%</li>



<li>ETH/BTC: 0.0850, -1.32%</li>



<li>BTC.D: 41.16%, +0.42%</li>
</ul>



<h3 class="wp-block-heading">BTC</h3>



<p>BTC continues to hover near $50,000 as it tries to find direction. The rally up to $52,000 was short lived, as levered longs have been liquidated in recent hours — albeit small numbers when zooming out. </p>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="374" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png" alt="" class="wp-image-12299" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-2-1024x374.png?w=1370 1370w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Source: Coinglass</figcaption></figure></div>


<p>While macro uncertainty has digital asset investors nervous, some traditional financial analysts seem to think that the next year could be bright for crypto despite the backdrop of tightening monetary policy. </p>



<p>&#8220;Bitcoin will face initial headwinds if the stock market drops, but to the extent that declining equity prices pressure bond yields and incentivize more central-bank liquidity, the crypto may come out a primary beneficiary,&#8221; reads <a href="https://assets.bbhub.io/professional/sites/10/1489771_Crypto-Dev2021Outlook.pdf" target="_blank" rel="noreferrer noopener">Bloomberg&#8217;s 2022 Crypto Outlook</a> report. &#8220;Our graphic depicts U.S. yields potentially on a trajectory to follow Japan and Europe into negative territory. The upcoming digital reserve asset may be a top standout to benefit.&#8221;</p>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="693" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png" alt="" class="wp-image-12300" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=380 380w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=386 386w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=324 324w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.02.10-PM-1024x693.png?w=1182 1182w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


<p>The crypto fear and greed index is currently sitting at 25, <a href="https://alternative.me/crypto/fear-and-greed-index/" target="_blank" rel="noreferrer noopener">according</a> to data from alternative.me. A lower number indicates fear and a higher number indicates greed on a 100 point scale.</p>


<div class="wp-block-image">
<figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="722" height="640" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png" alt="" class="wp-image-12301" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=722 722w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=290 290w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=294 294w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=247 247w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-6.08.59-PM.png?w=80 80w" sizes="(max-width: 722px) 100vw, 722px" /></figure></div>


<h3 class="wp-block-heading">Stock-to-flow model looks to be invalidated</h3>



<p><a href="https://planbtc.com" target="_blank" rel="noreferrer noopener">PlanB&#8217;s</a> renowned stock-to-flow model is looking more invalidated. On Oct. 31, PlanB took to <a href="https://twitter.com/100trillionUSD/status/1454962054297788417?s=20" target="_blank" rel="noreferrer noopener">Twitter</a> calling for $98,000 by the end of November and $135,000 by the end of December. BTC would need to have a remarkable end of year run to give his famous model a chance of survival. </p>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="464" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png" alt="" class="wp-image-12302" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/bybt_chart-6-3-1024x464.png?w=1104 1104w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Source: Coinglass</figcaption></figure></div>


<h3 class="wp-block-heading">Bitcoin network hash rate</h3>



<p>The Bitcoin network&#8217;s hash rate has almost fully recovered since the <a href="https://www.aljazeera.com/economy/2021/5/24/china-crackdown-forces-crypto-mining-operators-to-end-operations" target="_blank" rel="noreferrer noopener">China mining</a> ban earlier this year. The recent strength of the world&#8217;s largest digital asset&#8217;s hash rate could be viewed as a sign of the network&#8217;s health.</p>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="495" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg" alt="" class="wp-image-12303" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/@Guzmanpintos-1024x495.jpg?w=80 80w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Source: @Guzmanpintos</figcaption></figure></div>


<h3 class="wp-block-heading">Three Arrow Capital loading up on ETH</h3>



<p>Roughly 92K ETH were purchased on FTX, Binance and Coinbase and sent to wallets marked as Three Arrow Capital (3ac) by <a href="https://www.nansen.ai" target="_blank" rel="noreferrer noopener">Nansen</a>, according to <a href="https://twitter.com/WuBlockchain/status/1468159951780532228?s=20" target="_blank" rel="noreferrer noopener">Wu Blockchain</a>. </p>



<p>The wallet address of 3ac can be found <a href="https://etherscan.io/address/0x4862733b5fddfd35f35ea8ccf08f5045e57388b3" target="_blank" rel="noreferrer noopener">here</a> on Etherscan.</p>



<p>The move comes as a surprise to many digital asset investors. Zhu Su, CEO and CIO at 3ac, wrote recently on Twitter: &#8220;Yes I have abandoned Ethereum despite supporting it in the past. Yes Ethereum has abandoned its users despite supporting them in the past.&#8221;</p>



<h3 class="wp-block-heading">Non-Fungible Tokens (NFTs)</h3>



<p>Ubisoft, the game developer behind the popular Tom Clancy series, will become the first major game studio to incorporate NFTs in-game, <a href="https://decrypt.co/87752/ubisoft-first-major-gaming-company-launch-in-game-nfts" target="_blank" rel="noreferrer noopener">according</a> to a Decrypt report.</p>



<p>Trading data from <a href="https://opensea.io/rankings" target="_blank" rel="noreferrer noopener">OpenSea</a> and <a href="https://solanalysis.com" target="_blank" rel="noreferrer noopener">Solanalysis</a> of some of the top Solana and Ethereum projects can be found below:</p>


<div class="wp-block-image">
<figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="334" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png" alt="" class="wp-image-12297" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.21-PM-1024x334.png?w=2048 2048w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Top Ethereum Projects</figcaption></figure></div>

<div class="wp-block-image">
<figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="284" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png" alt="" class="wp-image-12298" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-07-at-5.33.28-PM-1024x284.png?w=80 80w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Top Solana Projects </figcaption></figure></div>


<p>If you made it this far, thanks for reading! I am looking forward to catching up on tomorrow.</p>



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Hash rate