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A large amount of unused Bitcoin mining rigs in the box


Hundreds of thousands of brand new mining rigs can generate bitcoins (BTC) has never been used, further distorting the economics of cryptocurrency mining, an area that has been hit hard by the falling prices of bitcoin and other tokens and high energy costs.

Last year, miners struggled to buy enough rigs. Manufacturers cannot complete orders fast enough. Now, Matt Schultz, executive chairman of bitcoin mining company CleanSpark (CLSK), the number 250,000 to 500,000 mining rigs remains sealed in a box in the US alone, based on his conversations with crypto-investors. analyst. Ethan Vera, chief executive officer of mining services firm Luxor Technologies, put the figure at 276,000 worldwide in September.

Whatever the exact number, this is clear: The core economics of cryptocurrencies are completely unprofitable. More proof of that came in September when Compute North, the company that runs the data centers that host mining computers, filed for bankruptcy.

Read more: How does Bitcoin mining work?

The reason is not hard to follow: The price of bitcoin and other tokens has dropped significantly, making the digital asset that miners earn less valuable. And the cost of miners has increased due to the skyrocketing energy prices. It takes a lot of electricity to mine bitcoin, a process that involves specialized computers, called machines or mining rigs, that guess the answer to an equation in order to receive bitcoins as a reward.

While many in the industry agree that rigs stuck in the box are plenty, there is little agreement on exactly why they haven’t been installed. Some experts say there is no place for them in data centers. Others said there is plenty of space, but the rigs are too expensive to run in current market conditions.

Luxor’s Vera says that “limited rack space is immediately available,” more than a year after China banned crypto mining, prompting miners to flock to the US and Kazakhstan. That has allowed hosting companies in countries that do not ban mining to increase their fees.

Core Scientific (CORZ) is the largest mining company in the world by failure rateor the amount of computing power directed to the blockchain of a particular cryptocurrency. CEO Mike Levitt said in an interview that the company “was able to modify its pricing structure towards the storage fee prime as demand for the rack grew. 25% in recent months.

Storage is a service that data centers provide to cryptocurrency miners so that customers can store their mining rigs and mine their favorite digital assets with a fee without having to build the accompanying infrastructure yourself. The core of both bitcoin mining itself and servers for other miners.

Impact of the energy market

But soaring energy prices and plunging bitcoin prices have left storage machines unprofitable. As a result, hosting services can now be profitable for less and less miners, making it difficult for miners to find a cheap place to run their machines.

“There is a difference between no rack space and no cheap rack,” said Alex Martini, CEO of New York-based miner Blockfusion USA.

Now, there is rack space to plug in, but the storage fees are too high because of the high energy prices.

“We have 32 [megawatts] free space and there are other sites that have [a total of] 400 MW rack space,” but customers don’t care because the energy ratio is too high and the bitcoin price is too low, Martini said.

Charlie Schumacher, vice president of corporate communications at Marathon Digital Holdings (MARA), said “power and storage” is not a constraint for the industry right now, but “the trick is” to make the platform stand out. economic activity with high energy prices. machines are stored at Compute North facilities.

Before signed With the Application Blockchain (APLD) for 200 MW of capacity, Marathon tested at least 30 storage options, Schumacher said. “There’s a lot more hosting supply than people looking to fill it right now,” he said, despite plenty of machines buzzing around.

Martini said new miners can still be sold at a premium, so miners won’t unpack them unless they can mine the cryptocurrency for a profit.

Meanwhile, Schumacher said some miners are cutting their fees to attract new customers.

“In recent months, we have noticed that hosting quotes have started to drop. We doubt that it will continue for the rest of the year,” said Rob Chang, CEO and founder of bitcoin mining company. Gryphon Digital Mining.

Vera agrees that the requirement for cheap electricity “slows the growth of infrastructure” and, as a result, the overall supply is limited.

Manufacturer’s discount

Despite the oversupply, manufacturers are still building mining rigs, albeit at discounted prices.

At the end of August, Bitmain, the world’s largest producer of mining rigs, reveal a coupon programUp to 30% off for big customers who buy the machine in summer 2021. In September, it announced about 30% off for Antminer S19 Pro model 100 terahash.

Several miners, including CleanSpark, Core Scientific, and Marathon, have implemented a clause in their contracts — called “price protection” — that allows them to adjust the prices paid for new rigs.

Contracts for mining rigs typically require a deposit, with the rest of the funds paid out as shipments leave the producer. For large contracts, manufacturers include this “price protection” clause, which means that before each shipment, the two parties can assess market prices and adjust payments.

Xmei Lin, head of marketing at Bitmain told CoinDesk that the price protection feature provides “protection of bulk order customers against market price fluctuations.” If the “crypto market price drops”, Bitmain will reduce the price of purchased miners, based on monthly price analysis. , said Lin.

Two other major device makers, MicroBT and Canaan, declined to comment for this story.

However, with capital constraints in the market, the demand for mining rigs is less now, and miners have even had to cancel orders they raised last year, Schumacher said. speak.

Whether this continues, “depends on the price of bitcoin,” he said.

Read more: Crypto Miners Face Margin Calls, Default When Debt Comes Due During Bear Market

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