The Bitcoin Halving And The Miner's Trilemma

Bitcoin mining is the process through which new transaction blocks get discovered and added to the live, existing blockchain, effectively building it out block by block.

In this way, miners are crucial to the ecosystem because no transaction would get added to the Bitcoin network without them. The nodes they run broadcast and verify each new block added to the blockchain.

When a miner’s block is accepted and added to the rest of the blockchain, they are rewarded with newly minted BTC tokens, on top of subsequent blocks being confirmed atop theirs, if that counts as a reward as well.

Bitcoin’s Proof of Work (PoW) mechanism demands that miners commit a lot of resources – computing hardware, electricity costs & and time - to secure the Bitcoin network.

What’s The State of Today’s Bitcoin Mining Landscape?

Because the number of miners on the network has been increasing, as well as the difficulty of cryptographic equations to be solved, Bitcoin mining now requires significant computing power and electricity to execute sufficiently.

A serious miner will now require a mining rig - a specialized computer optimized for BTC mining - and a cheap source of electricity. The evolution of the Bitcoin network through the years also means that anyone willing to mine profitably must stay on the bleeding edge of ASIC technology.

You’ll see the very latest versions of ASICs (Application-Specific Integrated Circuits) and specialized GPUs (Graphics Processing Units) on any rig mining BTC profitably. These are more energy-efficient and capable of executing complex high-speed mathematical calculations that the endeavor requires.

Many miners today also join Mining Pools – groups of individual miners bringing together their computing power - to further increase their chances of earning some newly minted BTC. These mining pools distribute back BTC mining rewards equitably throughout the entire pool.

The Bitcoin Halving And What It Means For Miners

The Bitcoin Halving is an event programmed into the protocol to cut in half block rewards issued to miners at every 210,000 mined blocks.

As you’d expect, sentiment typically grows jittery in and around the halving, which happens roughly every four years. BTC prices will often fluctuate wildly before, during, and after, as the markets eventually settle into the new post-halving conditions.

Basic economics dictate that cutting by half the available BTC supply introduces scarcity, which in turn pushes BTC prices higher assuming demand stays the same or increases.

The reduction of block rewards following the halving also means that Bitcoin miners must operate at their highest efficiencies and lowest expenses throughout this period.

It is why newer miner models like the Next Gen or the S19 XP are currently priced at a premium, in anticipation that they’ll be best positioned after the halving to be profitable regardless of prevailing electricity prices.

Depending on market conditions, the ROI on these might be higher than with older models, say the S19j Pro.

Bob Burnett’s Miner’s Trilemma

The Miner’s Trilemma provides a sound framework through which a mining business might wade through these difficult periods. The best ones can continually pivot and adjust for whichever variable in the trilemma is hardest to attain at any given moment.

‘In the Bitcoin mining business, three variables – Capital, Energy, and Mining Equipment – will always be in play, and at least one of them will always be difficult to obtain.’

Today, Capital is hard to come by. This means an open path exists, going by the Trilemma, for mining businesses to expand their Mining Infrastructure and/or Energy equations, until such a period that these too become difficult to attain.

Conversely, a period during which Capital and Energy are easy to obtain may not be the best in which to acquire Mining equipment.

‘When one of the three variables moves from a difficult state to an easy state, at least one of the variables in an easy state will move to a difficult state.’ - Bob Burnett

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