The last two years have been difficult for Bitcoin, and a major shift on the horizon promises continued uncertainty. But investors still seem excited about the potential benefits of Bitcoin “mining”, investing millions in increasingly massive arrays of high-powered processors that securely track transactions and get Bitcoin in return.
The latest new Bitcoin mine comes with the backing of one of the biggest names in tech investing: Peter Thiel, co-founder of PayPal and Facebook’s first investor. A startup it helped fund, Layer1, announced today the opening of its first Bitcoin mining facility, which covers more than 30 acres and costs tens of millions of dollars.
Bitcoin is still reeling from the bursting of a huge speculative bubble in late 2017, when the price of the decentralized cryptocurrency collapsed shortly before hitting $ 20,000. The price dropped as low as $ 3,500 and has gradually returned to around $ 10,000.
Cryptocurrency investments have been very depressed during a long and cold “crypto winter.” But Bitcoin mining remains an apparent bright spot.
Companies like Hut 8, Bitmain and Bitfarms built or expanded Bitcoin mining facilities in 2019. And the “hashrate” of the Bitcoin network, the total computing power of all participating miners around the world, has more than doubled over the course of last year. year. past.
Bitcoin miners are essentially the accountants on the Bitcoin network, compiling transactions and adding them to published “blocks” of records every 10 minutes. Miners have the right to publish a block of transactions by being the first to solve a very difficult random mathematical equation known as a “hash” or “hash puzzle”.
When they win that computing race, the miners are rewarded with a fixed amount of Bitcoin, currently 12.5 Bitcoin, or around $ 125,000. In theory, it is still possible to mine Bitcoin on a single machine hidden in a closet, but most mining these days is done on an industrial scale.
The new Layer1 facility is in an unlikely location, about 100 miles west of Midland, Texas. Electricity is cheap and abundant in the region thanks to a combination of market deregulation, excess natural gas produced through fracking, and the simultaneous infusion of large investments in renewable energy and subsidies from the state government. Liegl says the energy from the Layer1 facility is “heavily skewed” towards wind sources, with “some natural gas component.”
But West Texas also has a big downside: the heat. Mercury regularly tops 100 degrees for nearly half the year in Midland, but getting the most out of mining equipment requires keeping it cool. That has motivated some mining operations to locate in cold climates like Iceland. (Layer1’s competitor Bitmain built its new mining facility in the significantly colder mountain region of Texas to the east, near Austin.)
Layer1 has a trick up its sleeve for dealing with the heat. Most mining equipment is what Liegl calls a “shoebox” format: a long, air-cooled box with a fan at one end. But Layer1’s team, which the company designs itself, mines Bitcoin while submerged in an oil-based refrigerant. That substantially insulates the equipment from the outside temperature, prolongs its lifespan, and even allows for overclocking or running the hardware at higher power settings.
Liquid cooling enables Layer1 to access affordable power regardless of the weather, and Liegl says it’s crucial for competing. New Bitcoin mining chips, known as ASICs, used to arrive at a rapid pace, forcing miners to go through costly upgrades to stay competitive. But that has slowed, says Liegl, and “the competitive advantage of the future is [to reduce] your operating expenses.” Lower expenses, particularly cheaper electricity, make running a particular piece of mining hardware more profitable over time.
In just under three months, Bitcoin will experience what is known as a “halving,” a reduction in the reward distributed to miners that occurs approximately every three years. This time, the reward for each block will decrease from 12.5 to 6.25 Bitcoin.
The structure of Bitcoin should push older, electricity-thirsty mining machines off the grid as rewards dwindle, leaving more stake for the remaining miners. There is also speculation that halving, by reducing the amount of new Bitcoin, could drive up the price of each in dollars. Layer1’s technology and cheap electricity, then, could turn the halving into an advantage, as long as the startup remains more efficient than rival miners.
