The massive drop in bitcoin value in 2018 has caused a lot of trouble for bitcoin traders and miners. The cryptocurrency has rallied in the last couple of weeks and has crossed the $8,000 mark but that hasn’t been enough for bitcoin miners to turn out a profit.
The crash in January significantly impacted bitcoin miners, especially small miners. If bitcoin goes through another crash or sees its value decline in the coming months, bitcoin miners will struggle to profit and will be forced to consolidate.
This would be a disaster for small miners who generally operate a few machines and will effectively go out of business.
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In the past, crypto mining was possible with small operations, similar to cottage industries. However, with these sudden changes in bitcoin value, experts agree that a lot of miners will go bust and many expect even the larger bitcoin miners to go bust.
The concentration of mining power can also affect the price of Bitcoin. Right now, miners hold around 20 to 30 of the bitcoins on the market. If the price lowers, then miners will be forced to sell their bitcoins to defray costs. This will start a chain reaction that will lower the price of Bitcoin even more.
There is also a big problem with the concentration of mining power. The blockchain technology that is the foundation of bitcoin can be made vulnerable by a 51% attack. This is when more than 50% of the miners decide to band together to control the transactions on the network. If miners go out of business, it will result in fewer miners which makes this threat all the more possible.
Top Bitcoin Miners Expand While Small Miners Fall
The largest miners on the network are getting bigger. Bitmain, which controls China's two biggest Bitcoin mining operations, has expanded to Switzerland and the United States. Bitfury, another major bitcoin mining competitor has raised $100 million to produce and sell portable Bitcoin mining farms.
Bitmain and Bitfury manage to stay profitable by building their own chips and machines instead of buying. Other large Bitcoin miners buy in bulk to get some discounts but this method is not something small miners can adopt.
Small miners have resorted to cutting costs in one particular resource: electricity and space. Right now, to mine a single bitcoin, it can cost between $3,224 and $9,000 depending on the region the miners are located in. The problem is at current prices, the margin for profit is pretty low. Some investors will only make a return when the price crosses the $9,000. By the end of the year, we will have a better picture on the state of bitcoin mining and how things will pan out in 2019.
