- Thousands of miners have downed their tools already
- Continued mining consolidation could lead to an increase in vulnerabilities
- The greatest danger is controlling miners executing a 51 percent attack
The Bitcoin bear market has affected Bitcoin miners so negatively several of them are consolidating their efforts to enhance their profitability. This is likely to create a fresh threat for the fledgling leading cryptocurrency.
New Miners to See the Exit Door?
A report by the Autonomous Research LLC shows that the difficult times have seen over 100,000 individual miners down their tools while according to Fundstrat Global Advisors LLC’s evaluation, at least 1.4 million servers have been pulled off the plug since September 2018, according to Bloomberg.
The continued meltdown of the global cryptocurrency market, which has already forced owners of mining rigs to sell them as scrap has also had Bitcoin’s financial network that depends on the computational mining processes see their revenues being diluted. The profit margins of the miners have dropped drastically, leading to crucial decisions being made to balance financial incentives, electric and hardware costs and the overall performance of mining hardware.
While new miners are being pushed out of the industry, the incumbent ones are consolidating. This means that while the incumbent miners will not get affected as significantly since they will have consolidated and invested their capital into the existing facility and hardware costs, the new miners will soon get shut out from the economy.
Bitcoin Hasn’t Crossed $4900 Mark Since November 19
The continuation of mining consolidation is, therefore, to lead to the vulnerability of the Bitcoin network. Commenting on the likely scenario, Malachi Salcido, the head of Wenatchee, Washington-based Salcido Enterprises, the largest mine in North America that consumes 22 megawatts of power and another 20 megawatts about to get deployed said:
“We are entering the phase when there’s a flushing out of the market […] there will be relatively few operations that come out the other side.”
According to the prevailing conditions, Bitcoin has to trade above $4,900 for miners to see a return on investment, and Bitcoin hasn’t been able to cross that level since November 19, 2018, compared to last December when Bitcoin traded at $20,000. Only a few miners can afford to remain in the game and these could only be those that use specific business models or those that enjoy the lowest electricity costs such as Salcido that operates in Douglas County, Washington DC.
While consolidation could work well for the big miners who remain afloat, there is an increased risk for investors and others with vested interests in the network’s success. Having a few companies having a stranglehold of the mining process increases chances of unscrupulous groups banding together to execute a 51 percent attack, where controlling miners decide to “reverse transactions and stop new ones from confirming” to make a kill using other people’s money.
