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Post-Half Miner Capitulations
In a nutshell:
- Poolin.com Vice President Alejandro De La Torre, in the article where he examined the miners in the lower quarter of the total hash rate, emphasized the possible consequences of the halfway reward in the block prize.
- De La expects a 30 percent shutdown after the split, and believes that 5nm chips will offer a more stable mining environment.
The article written by Poolin.com’s Vice-President Alejandro De La Torre with a short time to split, marks the miners in the lower quarter of the total hash rate. In his article, Torre focused on the possible consequences of the halfway in the block prize. Expecting a 30 percent closure after the split, Torre believes that 5nm chips will offer a more stable mining environment. All of the analysis belongs to Torre’s article.
A hundred times stronger
“The hash rate in the Bitcoin network has grown substantially since the last half. The level of competition four years ago increased almost 100 times from 1.4 exahash to 125 exahash.
After the last half of 2016, 16 nm chips entered the market for the first time and were performing 14T / s with 100 watts efficiency per terahash. Since then 10 nm, 7 nm and 5nm chips have been released. Now they can go up to 100 T / s with an efficiency of only 30 watts per terahash. Advances in chip design and manufacturing have more than doubled the efficiency of ASICs and strengthened almost 100 times. 5 nm chips have just begun to enter the network, while 7nm chips have been on the market for several years and are becoming increasingly common. These developments force miners with 10nm and 16nm chips to find cheaper electricity and capitulate. Mining operations are looking for cheaper electricity to expand their margins and extend the life of their machines; therefore it has become widespread internationally in the energy markets.
Halfway and the future of BTC
There has been much debate about how Bitcoin (BTC) will take place in less than two weeks recently, and how the halfway will affect the mining industry in the coming months. There is no doubt among researchers and industry experts that the hash rate will drop significantly by halving the block reward. Blockware Solutions recently released a report claiming that halfway will alleviate sales pressure due to outdated equipment and high electricity costs eliminating inefficient competitors.
So how much hash rate will be offline? As pool operators, there is no information about the miners’ electricity costs, so what exactly this number will be is unknown, but by looking at the hash rate distribution you can see which miners are at risk of closing.
Below is seen the lower quarter of the total hash rate divided into two terahash intervals. Each section of the pie chart represents the percent of total output for each interval in the lower quarter.
Source: Poolin.com – Hash Rate Distribution (only lower quartile rates, not total hash rate)
In particular, we look at the lower quarter of the hash rate, because this is the most risky area where miners have the least profit margins. The range of 0 to 25 T / s, most of which consist of miners using 16nm and 10nm chips, surrenders when the block reward is halved. The S9 model of Bitmain, the most popular miner sold in the past four years, has a hash rate between 12 and 22 T / s. The standard S9 model produces 13.5 T / s. Probably most of the miners in the range of 12-14 T / s are Standard S9s.
We estimate that miners in this range make up about 15 to 30 percent of the overall hash rate of the Bitcoin network. Many are expected to shut down after the halfway occurs, some are likely to have enough electricity to survive a little longer.
There are three variables that miners consider when calculating profitability. These are income, costs and difficulty. Bitcoin’s price and block reward constitute the upper limit for income. Halving the block reward has the same effect on miner’s income as halving Bitcoin’s dollar price. The last price rally was at the lowest annual price level, which means that if these prices continue to rise, it may lead to wider margins in the short term. However, if the price drops, inefficient miners can close faster.
By comparing the break-even prices of miners in the lower quarter, we can see at what prices older miners will no longer be profitable. To compare break-even prices, we must consider the current difficulty and price. In the chart below, let’s assume Bitcoin has a price of $ 7,000 with current difficulty.
Source: Poolin.com – Electricity costs where ASICs have equal profit and loss
Excess consumption and decreasing profits
The highest price per kWh that any of these can pay to remain profitable after splitting is $ 0.034. The lowest ranges operating at 0-10 T / s will be closed if they do not have free electricity and any other costs. Considering the largest range in the lower quarter operating between 10-16 T / s, only the Antminer S9K barely breaks at 3 cents per kWh. Most miners in this range are required to mine under $ 0.02 per kWh to stay profitable after splitting. There are very few places that can offer such cheap electricity. Even the rates of hydroelectric dams in Szechuan, China during the rainy season are far above these costs. Even though some of these miners can survive under $ 0.02 electricity, their margins will be so thin that as the difficulty continues to increase they will gradually close due to decreasing profits. It is likely that most of the hash rate in this range will disappear from halfway through.
“Less than 15 percent of miners can continue”
Some miners at 16-26 T / s can remain a bit longer profitable after the difficulty is adjusted downward and there may be more head-to-head prices between $ 0.03 and $ 0.035 per kWh. However, these will also have fine margins, which makes these miners vulnerable to closing in the short term. Less than 15 percent of the miners in the lower quarter can continue on their way, although there are those who can continue to work when enough electricity is supplied.
The final difficulty adjustment, which will take place with the 12.5 BTC block reward, will take place just one week before the halving and the difficulty is expected to increase. The first 8 thousand blocks after the half are expected to be removed slowly because many unprofitable miners will fall from the net. Considering that the first 8 blocks have difficulty before splitting and the block reward will be halved, we can estimate that the closings will be 30 percent.
After the initial difficulty adjustment, some older miners may reopen, but in the coming months, as new, more efficient ASICs join the network and existing miners find lower electricity prices, older generation miners will inevitably be closed gradually. Most of the old 7nm chips will replace 16nm and 10nm chips, new 5nm chips will take advantage of higher electricity costs and put more pressure down.
The beginning of this mining age gives new miners the opportunity to enter a more stable environment, given that efficiencies in 5nm chips will remain profitable for the next four years or longer. Therefore, new entrants can have a clear picture of what the mining environment will look like over the next four years. “
Source: Poolin.com – An overview of the mining landscape
What is Miner Capitulation?
When mining is no longer profitable, it means mining surrender. As profitability decreases, miners naturally surrender in response to the deteriorating feeling of the market by selling Bitcoin assets.