Crypto Mining Market Struggles With Rising Electricity Prices

Crypto Mining market struggles with rising electricity prices. Rising energy prices have impacts in all areas. It also affects the cryptocurrency market. How? Crypto mining is an energy-intensive business. Its profitability, therefore, depends a great deal on the price of electricity. A look back at recent problems in the sector faced with the increase in energy prices.

Crypto mining, a market highly dependent on electricity prices.

Crypto mining is an essential activity for the functioning of cryptocurrencies in the world. Discover the link between the price of electricity and the profitability of crypto mining.

What is Crypto Mining?

Crypto mining is the heart of the crypto reactor. In what sense? Crypto mining is the activity that makes it possible to create new cryptos. For example, Bitcoin mining makes it possible to create new bitcoins which are then put on the market.

The second vocation of mining is to validate transaction blocks on the blockchain. As a reminder, in crypto, transactions are grouped into blocks. Once the block has been created (its size depends on the blockchain used), certain network nodes are in charge of validating it. These nodes are called “miners”. When the block is validated, it is recorded on the blockchain indelibly.

The work provided by minors is remunerated. Miners are rewarded with a certain number of coins in the corresponding crypto. For example, currently, Bitcoin miners receive 6.25 BTC for each block validation.

Without mining, the crypto network cannot function.

Mining, an energy-intensive activity.

Crypto mining is a rather criticized activity at a time when the message is energy sobriety. Indeed, some mining processes are very energy-intensive. This is the case of Bitcoin for example. Miners must therefore equip themselves with state-of-the-art equipment and run several very powerful computers in series and continuously. Other blockchains like Cardano or Solana are more environmentally friendly.

Anyway, mining remains an activity that needs energy for its operation. Even in the case of a “thrifty” blockchain, we understand that the profitability of activities depends on the price of energy.

In fact, long before inflation and the war in Ukraine, this is one of the reasons why the mining industry migrated. Indeed, long behind, the United States has regained control of this activity. States such as Texas where energy was inexpensive have thus seen an influx of miners from all over the world.

With the global increase in energy prices, the crypto mining sector, therefore, finds itself in trouble. Take the example of the American crypto mining company Compass Mining.

US giant Compass Mining in deep trouble.

Compass Mining is one of the giants of Bitcoin mining and cryptos more generally. The company has mining centers in the United States, Canada, and Iceland. The difficulties currently encountered by this firm are very symptomatic of the market as a whole.

For example, Compass Mining had invested in Russia and thus planned to set up large mining farms. Unfortunately, geopolitics wanted it otherwise! With the war in Ukraine and especially the sanctions imposed on Russia, the company had to revise its plans.

Besides that, the firm has seen its electricity bills increase drastically. This led the company to close its site in the state of Georgia and reduce its workforce by 15%. The turmoil within the company led to cascading resignations. Thus, its Chief Financial Officer Jodie Fisher and even its CEO Whit Gibbs have resigned.

The company's goal now is to repatriate as much of its resources as possible to its location in Texas. The idea is also to boost the mining capacity of this site with additional deployment of 25,000 ASICS (computer cards dedicated to crypto mining).

The Texas site has the advantage of having a limited carbon footprint. Indeed, the center is powered by a 1.1 gigawatt (GW) combined cycle natural gas plant. 

This uses advanced gas turbine designs and air cooling to reduce carbon emissions and reliance on water. Problem fixed? Not so much! Faced with the heat wave, the power grid encountered significant difficulties in Texas, which impacted the mining center. So much so that the company had to use generators to power its supercomputers!

The future challenges of crypto mining.

The example of the firm Compass Mining is symbolic because it highlights two major problems encountered by the crypto sector.
First of all, the crypto mining activity will have to learn how to reduce its environmental impact and its energy bill. 

Blockchain developers are working hard on different solutions for this. At the same time, mining centers will have to create “greener” mining farms. Many players are thus thinking about supplying their mining farms with renewable energies.

Another important issue concerns the dependence of mining centers on the electricity grid. As we saw with the example of Compass Mining, if the electrical network encounters “tensions”, this impacts the mining. 

Some players are therefore considering freeing their mining centers from the electricity grid. This could be possible by developing electrical capacities that would only be used by the mining farm. Thus isolated from the rest of the electrical network, the computers of the miners would not be impacted by problems affecting the network.

Faced with these challenges, the sector is therefore looking for new solutions. As in all areas, it is often with your back to the wall that new solutions appear. Thus, some mining players in the United States had the brilliant idea of ​​reusing flare gas. 

This is the case for example with Brent Whitehead and Matt Lohstroh! These two young graduates run a company that uses flare gas to power crypto mining rigs. A smart way to limit the waste of gas from oil wells for the benefit of crypto mining!

READ MORE: 8 Indicators That Precede A Bitcoin Low.