Introduction
With the transition from 25 to 12.5 BTC/block there is increasing uncertainty over the continued profitability of mining. Not only does this uncertainty affect those running mining hardware and those holding cloud mining contracts, but it appears to spread further than the miner, affecting those who are using the coin as investment and as a transactional tool. This mini paper will discuss the effects of the halving on miners, taking a look at what hardware is being used and cloud mining. It purely looks at the halving, not taking into account effects of the block size limit or future mining speeds with the 16nm chips.
This paper should not be used as investment recommendations but rather as a discussion of security, blockchain technology and the future of cryptographic currency.
Presumptions
This paper presumes no change in the value of the BTC or USD. At the time of writing, July 8th 2016, it is 642.18USD to the BTC.
It also assumes that all hardware added to the network at any given time is similar in efficiency to those model produced by Genesis Mining and is equal between all users. Antminers have been taken as the standard, since they serve both home and industry alike. For example all miners sold from the date the S7 was announced to the S9 announcement are deemed to be S7s. This should be reasonable based on the continuing sales of the previous model during the span of another’s existence as new stock with similar levels of overstock. Also presumed is that no old hardware is removed and only new hardware added increasing the hash rate, this presumption actually decreases the profitability rather than increasing it so I’m leaving it out to make things less complicated.
Hardware being used
This section addresses the hardware likely being used. This is pertinent information given the debate on numerous blog and vlogs of “old miners will turn off their hardware causing the hash rate to fall, block times to expand and create waves of difficulty change”.
The following launch dates are based on forums and driver dates with the network hash rate at time of release not the date of arrival at the miner's door.
| Antminer release date |
Network hash rate |
|---|---|
| Antminer S3 (441GH/s) - 11/07/2014 | 137 948TH/s |
| Antminer S5 (1.115TH/s) - 07/01/2015 | 299 000TH/s |
| Antminer S7 (4.73TH/s) - 30/08/2015 | 388 384TH/s |
| Antminer S9 (14.0TH/s) - 31/05/2016 | 1 258 298TH/s |
Based on the increase in hash rates between releases of S7 and S9, the S7’s alone account for 69.1% of the network. ((1258298-388384)/1258298)*100. That means that for up to 2.6 weeks we could have to make do with 13 minute blocks if everything earlier than an S7 turned off at the time of block halving, including the S5. This is unlikely as the S5 is still being sold as new from the supplier, Bitmain, and together they make up 76% of the network.
The exponential rate of increase in efficiency and speed seen between different miner releases may prompt fast replacement of old miners, but should at the same time counteract the turning off of old miners thereby further negating any negative effects.
Profitability after the halving
Moving to the exciting part, mining profitability after the halving. While this is a little harder to calculate at a home operation, one can do it from a cloud mining aspect fairly easily. Genesis has been used in these calculations as they are industry leaders in their field and show good customer support and release regular videos, lending some authority to them over other cloud mining services which are more likely HYIP, high yield investment plan. I have not used other companies like HashNest (Bitmain’s cloud mining solution) but they appear to be genuine based on their hardware manufacturing capabilities and could also be used to calculate profitability.
On 30/05/2016 Genesis was selling mining power an ongoing daily fee of 0.0004 USD/GH/s falling into the previously discussed S7 period. This was a decrease from their previous contract’s daily fee 0.00055USD/GH/s demonstrating an upgrade in hardware and efficiency. Their fee based on the current price is 0.62287*10^-6 BTC/GH/s a day. The current payout per GH/s is 1.6709*10^-6 BTC based on last night’s payout. We can add these two values together to get the total mined per GH/s at the current rate of 25 bitcoin per block, 2.2938*10^-06. Halving this will get the total mined after the halving, 1.1469*10^-06. Taking the fee at the current price we land with a daily payout of 0.5240*10^-06. Therefore in BTC value the contract holder will continue to receive a payout (yes Genesis miner you can breathe again), the payout would continue to remain positive down to a BTC value of 349USD. More importantly it will still be profitable for Genesis to continue to run their mining operation including maintaining their equipment, power and cooling after the halving therefore continuing to secure the network.
Conclusion – The future of bitcoin
An interesting point for further discussion is the fact that we have now hit a technological limit in the efficiency of silicon chips, at 16nm. This means that this exponential increase may continue to climb until unless you are running the S9 it will no longer be profitable, and even when profitable it will be barely so, more based on electricity costs than hardware availability. This could lead to centralisation around those who have cheapest electricity available to them but this should not be for another year or more based on the current rate of adoption of new hardware and current probability.
Based on the above discussion mining will continue to happen, the profits will be decreased and smaller players may be forced out due to smaller factors including electricity costs and the like but the basic confirmation state should be relatively unchanged. While many may argue either way this is not the end, yet. There are several other factors that bitcoin will need to overcome in order to become the next gold, including power consumption securing the network, growing size of the blockchain, block limits (in particular size) and altcoin projects.
Comment and discussion is welcomed.
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