Bitcoin may be the currency of the future but the future of Bitcoin mining, the most vital element of the Bitcoin Network has got few questions about its sustainability. Bitcoin mining has seen drastic technological changes in the past 8 years and the rapid development of new mining hardware may eventually slow down.
One of the early indicators of such a scenario is the recent development with KnCMiner, a Swedish company that was known for its ASIC bitcoin mining hardware. KnCMiner has recently filed for bankruptcy protection due to heavy losses it has been facing over the years. The company has now reached a point where it no longer has the funds or the willpower to see it through until the end. The failure of the company may be attributed to increasing cost of design, fabrication and development of newer versions of ASICs, increased competition from their Chinese counterparts and of course, the rising energy costs.
According to Sam Cole, the CEO of KnCMiner, the company has been paying at least 44 percent of its revenues towards meeting the energy requirements for its mining operations. In addition, the uncertainty associated with Bitcoin mining industry is also said to be another reason for the company to take such a drastic step. The higher energy costs are a dampener, especially when mining companies do not have their own energy generation units tapping into renewable resources in place. Also, bitcoin mining operations require huge amounts of energy to run hundreds of mining hardware units and to keep these units cool by proper air conditioning.
The impending halving of mining rewards in the month of July has also contributed to increasing uncertainty. While people argue that the halving will not affect bitcoin or the miners involved in the upkeep of bitcoin network as the increase in bitcoin prices will offset the reduced bitcoin supply, not many are still convinced about. However, in this case, Sam Cole attributes that failure to the company’s choice of location for its mining operations and higher energy costs in Sweden.
The large-scale mining operations have started to bear the brunt of increased processing and energy requirements. KnCMiner has become the first victim to rising costs, it is to be seen whether it will be followed by others or not.
Ref: Banking Technology