Even though the price is back above $8,000, several miners who perform the complex calculations to generate the digital currency are at risk of turning unprofitable.
“It’s totally different this year than last year,” said Bill Tai, Silicon Valley venture capitalist. “The bitcoin mining industry was this mysterious dark cottage industry, and it’s about to grow up and about to have elements of institutional scalability at all levels.”
Smaller miners will drop out, and only the largest will survive and be profitable, said Tai, who works at Hut 8 Mining Corp., the capital financing arm in North America for Amsterdam-based Bitfury Group Ltd., one of the biggest makers of crypto-mining equipment.
According to Lucas Nuzzi, a senior analyst at Digital Asset Research, miners hold between 20 and 30% of all Bitcoins. With mining power in fewer hands, the risk that a few miners could band together to execute a so-called 51% attack increases (a situation where they would control enough of the transactions to dictate changes in the development of the blockchain to suit their preferences).
“It has the potential of being dangerous from a security standpoint, since a single entity could use its power in terms of hashrate to disrupt the network,” Nuzzi said.
The largest miners are getting bigger. Many smaller miners are trying to cut costs by relocating to locations such as Springfield, Missouri, where buildings are considerably cheap. Electricity can cost between $3,224 and more than $9,000 to mine a single Bitcoin, depending on the state. However, at current prices, all that may not help the smaller Bitcoin miners that much.
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