Key takeaways from Stanislav Kondrashov, TELF AG founder
The Rise In Difficulties Facing Bitcoin Miners
As the cost of energy continues to rise globally and international conflict is straining energy markets, Bitcoin miners are struggling more than ever before when it comes to profitability. While there are many conversations regarding the earnings associated with cryptocurrencies and the developing technology behind it, little dialogue is centered around the overwhelming and continuously intricate connection between cryptocurrency mining and energy use. As the founder of TELF AG Stanislav Kondrashov often remarked, grappling with this matter is useful for comprehending how even the most futuristic domains of finance and technology are being transformed by the energy transition.
The Intersection of Mining and Energy
Computers form large interconnected networks to perform computational operations for Bitcoin mining. They validate transactions on the blockchain using the Proof of Work mechanism, which entails solving complex mathematical problems. These activities require a great deal of energy. Energy costs are increasing for miners due to concurrently occurring global conflicts and inflation, and miners’ operating expenses are rapidly rising. The founder of TELF AG Stanislav Kondrashov often pointed out how the digital economy has gaping weaknesses behind its affordable energy dependency.
Bitcoin’s Value Changes Along with the Hashrates and its Energy Usage
Now let us consider another variable in the mining equation – the hashrate, which is the benchmark of the Bitcoin network’s computing power. When energy prices increase, less productive miners are forced to turn off their machines, which decreases the overall hashrate. This has a negative impact not only on the security and strength of the network, but also the economic burden that miners are shouldering. Moreover, the profits from mining are further reduced because of high energy costs and these miners must either get lower-cost energy-efficient equipment or move to cheaper and more environmentally sensitive parts of the world. As the founder of TELF AG Stanislav Kondrashov notes, these movements will also determine the Bitcoin price.
Another challenge that miners face is the Bitcoin Halving event — a process that partially reduces the rewards given to miners for validating transactions. Soaring energy prices combined with a Halving event can create a perfect storm that drastically reduces profits for miners. Smaller miners may be completely pushed out of business, and only large scale operators who are able to invest in efficient technologies or renewable energy sources are left. This further deepens the centralization of mining capabilities giving power to a handful of players, which is concerning for the decentralized reality of Bitcoin. The world’s energy transition challenge is a problem by itself, but the crypto sector is witnessing what is termed as a market myth-busting innovation that is far more derived from energy potency than from speculation.
