The centralization of Bitcoin miners


Discover the third part of the Bitcoin mining masterclass with expert Daniel Batten:

BlackRock and other giants will invest in Bitcoin and what would the impact be?


As mentioned in episodes 1 and 2, Bitcoin mining makes profitable use of renewable energies. For example methane, but also water and wind. Obviously, this lucrativeness and this possibility of using mainly green energies can push giants to invest in the Bitcoin mining industry.

Currently the Bitcoin mining industry is dominated by public mining companies (Marathon Digital or Riot Platforms). As a result, large miners are turning to public mining pools, due to a greater source of capital.

It is in this context that large ETF applicants like BlackRock or Fidelity could then undertake to join this capital. This would therefore cause a increase in the hash rate, then a pump in the price of BTC. The Bitcoin mining industry would therefore enter a new era.

“As the narrative changes, you will see other entities that feel comfortable investing in Bitcoin mining. But also what you’re going to see happen is companies, or investment committees that feel more comfortable with direct exposure to Bitcoin or exposure to Bitcoin through these ETFs. Rehabilitation takes more time than education. There are many people who have been fed five years, or seven years of FUD and still believe a narrative that is outdated and probably never was true in the first place (like I did). And so they won’t all turn around. And some of them will take a little time.”

Indeed, education is an important subject, because this is how Bitcoin intrinsically works. It is a decentralized and intentional economy, which allows the community that uses it to build its reputation and therefore its value. If two people buy Bitcoin, they both win. As a result, the Bitcoin price and crypto market could explode when big investors understand the full potential of the BTC mining industry.

“The reality is that we have 23 trillion dollars locked in these funds that cannot deploy into Bitcoin unless you check the ESG box by 2026, then it will be 33 trillion of dollars. Now, a deployment of 1% of this 33 trillion would result in a tripling of Bitcoin’s market capitalization. This means a tripling of the price of bitcoin. So, we all have a direct interest if we believe in Bitcoin to ensure that these investment committees around the world who make the decisions, who did not believe in this ESG box can finally believe in it. The big news is that it (Bitcoin) does it, not only does it tick it, but it ticks it more than any other industry in the world. But people don’t know that yet.”

Because it is good to remember that the development of the Bitcoin mining industry is still in its early stages. Everything still needs to be done and built. As a reminder, ESG stands for “Environment, Social and Governance.” Moreover, the Financial Times just gave credence to Daniel Batten’s research, seeing Bitcoin as an ESG, pro-environmental and social investment.

“Bitcoin’s market capitalization is miniscule in size. Real estate is worth hundreds of billions of billions. Even gold is 12 trillion, fiat currencies are hundreds of trillions, Bitcoin is tiny and it really needs to be above 1 trillion and stay there. It has been there, but it will have to be there consistently and will have to increase and stay there so that it can be in the roadmap of more of these institutional investors.”

And according to Daniel, the bottom-up development of this industry will come from all combinations of different types of Bitcoin mining companies. Whether they are the public, private, centralized, decentralized, small or large…According to him, “there is room for every type of Bitcoin mining company to contribute to hash rate growth.”

He adds that this development will not necessarily mean a centralization of Bitcoin miners. Indeed, as the hash rate increases, some fear majority and centralized ownership of Bitcoin miners.

However, Daniel points out Marathon Digital’s recent innovations in the industry. These innovations therefore open the door to a much more global and therefore decentralized use of the potential of Bitcoin mining.

“If you look at where Marathon has invested a lot of effort recently, they have gone to the United Arab Emirates where they are helping through heat recycling to desalinize the waters. They use natural gas not directly for desalination, but they use natural gas for Bitcoin mining. But then the wasted heat that comes out of these Bitcoin miners is not wasted and is used to desalinate. You also see Marathon going into landfills. So it’s going to make the industry more decentralized because the landfills will generally be 10 megawatts or less in terms of power. And landfills by nature are incredibly decentralized. Oil fields are decentralized. Off-grid systems, solar and wind operators, it’s going to be very decentralized… So I really think there’s room for everyone. Many people fear for this decentralization. But if you look at the trend, everyone is growing, the small miners are growing and yes, the big miners are growing too.”

Furthermore, time will have shown that since the ban on BTC miners in China, the industry is becoming more and more decentralized. He also emphasizes the fact that Bitcoin is in itself completely decentralized thanks to to the nodes and owners of the parent crypto.

“If you compare it to search engines, the leader has a 90% monopoly. For smartphones, the two largest have, once again, 80% of the monopoly. Let’s compare it to car manufacturers where the top 10 will have more than 70% of the total car distribution in the world. And you look at the top 10 biggest Bitcoin mining companies, they don’t even have 50%, it’s probably more like 35% of the hash rate. Again, compared to other industries, it’s actually already quite decentralized. Is this a concern of a 50% or 51% attack? And again, there is some great footage (which I encourage everyone to watch) from Andreas Antonopoulos in 2015 explaining why this is a crazy idea and will never happen.”

Finally, in order to develop in the most decentralized way possible, mining companies must become accessible to as many people as possible. This is why Daniel Batten is particularly interested in the relationships between the price of ASICs (mining machine) and the hash rate. According to Daniel, there are three main reasons why companies must go out of business:

  • Poor use of energy
  • Entering the market at the wrong time (price of electricity and BTC too high)
  • Too high cost of ASIC equipment.

“They were paying a huge amount, literally eight times more than you would pay per day for your Bitcoin mining rigs. So what’s interesting now is you’ve had the price of bitcoin more than double but the price of equipment, Bitcoin mining has remained low. Now because it stayed low, that means you can buy more for the same amount of dollars and that’s going to increase the hash rate. So the cost of ASICs will make a difference. Because you can get more hash rate for your dollar. The supply of new mining equipment is increasing even faster. And you see these new Bitcoin mining rigs coming very quickly, which are incredibly efficient. At some point this will change and the supply will diminish. And this will drive the price of ASICs up and you can have a dip in the hash rate. And this usually happens around halving. It’s not going to go at the same pace in a few months. It will start to fall, but it may pick up and it may pick up again as the price of Bitcoin rises.”

As a result, the development of the Bitcoin mining industry depends greatly on the cost of electricity, but also on the price of equipment. This relationship between the hash rate and the price of ASICs clearly demonstrates that its development will take time. And above all thanks to a perfect combination between education and innovation.

Source: Original

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