Photo courtesy of Brekkie von Bitcoin.
The inspiration of this article comes from spending a weekend with Nick Foster.
Over the past few years, there has been an incredible amount of interest dedicated toward the bitcoin mining space. It is apparent that many interested parties lack the understanding of how difficult it is to be a participant in this industry, and the amount of work that goes into plugging in a machine so that it begins hashing. This lack of understanding can be attributed to a general disconnect from the complexities of the entire process, because you cannot truly understand it until you try it. What I would like to convey in this article is how much work is necessary in order to build the infrastructure needed to process a Bitcoin transaction.
To be successful in this industry, you need to have some sort of edge over the competition. One such edge is being a maniac. Just passively strolling onto the scene with a “How hard can plugging in computers be?” attitude will not cut it. Having access to capital is not a guarantee that you will make it.
This market is incredibly difficult not only from a Bitcoin-economic standpoint, but also a manpower, hardware, regulatory and logistical standpoint. Difficulties have been massively exacerbated by current supply-chain and manufacturing complexities. Mining is not for the faint of heart, and to be successful in the business you have to be relentless.
Proof Of Work
Bitcoin wants the highest possible amount of effort expended to create the most security for the network. The network needs this to counter bad actors. That being said, increasing network hash rate is a tremendous amount of work just in and of itself.
A petahash consists of about 10 S19s and an exahash is about 10,000 S19s. So, looking at a network hashrate of 200 EH, that means — translated in S19s as a measurement — that there is an equivalent of two million S19s currently plugged in. 312 S19s comes out to a megawatt, so that means that the entire network consumes roughly 6.4 terawatts of power. In reality, a large portion of ASICs currently in circulation are not nearly as efficient as the S19. That means my estimates on power consumption are extremely low.
The math done here is a massive oversimplification. An S19 has a power consumption of around 3.2 kW and has an efficiency of around 29.5 watts per terahash (W/Th). S9s in comparison are around 85 W/Th. The University of Cambridge’s Centre for Alternative Finance did a much more in-depth attempt to measure Bitcoin’s energy usage which you can check out here: Cambridge Bitcoin Electricity Consumption Index (CBECI). In comparison to global energy usage, Bitcoin mining is a rounding error, but even still it is quite impressive.
The top-10 mining pools have roughly 191 EH directed between them. They mine the majority of blocks. That means for Slushpool (9 EH), it takes the work of almost 100,000 S19s. The amount of work that goes behind a user being able to send a Bitcoin transaction is absolutely astronomical. In the rest of this article, I want to talk about the proof of work a miner has to show in setting up their machines in order to make this all possible.
There Are No Experts
The mining industry is constantly changing. When an ASIC manufacturer releases a new machine, everything changes. Even as they continue to produce the machine, things are constantly changing as they tweak it. Manufacturers are often not forthcoming with changes they make, so users have to work with trying to piece together information from equipment they have.
By the time you get a grasp on a certain topic, everything will have changed. To be successful, individuals need to constantly be on their toes, willing to experiment through trial and error. Individuals also need to have connections throughout the industry to source accurate information in order to be successful. Bitcoin mining may be the most competitive industry on Earth right now, so individuals are often not too transparent with the data they are sharing. This creates an incredibly confusing landscape to wade through.
ASIC trends seem to be moving towards increasing density of hash rate and power consumption. For example, the Antminer S9 has a power consumption of 1,400W; The Antminer S19 has a power consumption of 3,250W; The Whatsminer M53 has a power consumption of 6,554W. The massive increase in power consumption means that typical electrical infrastructure changes from generation to generation of ASIC. Infrastructure and methods that worked in the past will most likely not work in the future. It takes constant diligence and work to stay updated on trends.
Logistics
There is a big reason why Kaboomracks is not only in business but is thriving. Logistics are incredibly difficult and are only getting more difficult. Our employees for some reason really enjoy pain and are willing to run headlong into the mess which is international logistics. Even if you have been in the space for a while, the amount of effort needed to get things from point A to point B is astronomical. First, you have to find what you need. Then, you have to verify that the vendor you are working with is legitimate and is not going to scam you. Next, you have to determine how you are going to get it where you need to. All of that is a tremendous amount of work. Knowing when and why you may want to send something by air versus sea is a big decision that needs to be calculated and takes time to determine. What do you do if you do everything right but the guy with the shipping company is having a bad day and decides to run a forklift through your pallet? These are things that can only be solved through experience and an immense amount of time, research, yelling and pulling your hair out.
ASIC Hardware
The hardware market is incredibly difficult for a variety of reasons. There are a ton of calculations you have to make in the process to ensure you are successful. There are a variety of ASIC suppliers, but which ones will actually deliver you a unit that will get you where you need to go? How many power supplies and control boards should you have on hand for inevitable failures? What amount of downtime is tolerable for you to be willing to send your machine for warranty repair? These are not simple questions to answer and vary depending on the machine and which production run they were manufactured in. These decisions also depend on where you live and what the manufacturer warranty process looks like.
For example, many people got completely turned upside down by Bitmain’s S17 and its incredibly high failure rate as a result of heat-sink issues. That was something that was impossible to know for individuals who preordered it. Knowing when and how to enter into buying ASICs is also incredibly difficult because you are having to time the bitcoin price. ASIC prices act like a lever and the bitcoin price is a fulcrum. If the bitcoin price shoots up, ASIC prices will shoot up even more. Knowing the warranty game is a challenge because things are constantly changing.
If you live in Canada, you cannot send units for warranty repair in the U.S. This is because there are tariffs preventing it from being cost-effective and there are no certified Bitmain warranty centers in Canada. They expect you to send your unit all the way to Hong Kong, which is absurdly expensive from a shipping standpoint, but also a time standpoint. In the same category, if you have a PSU go bad and you live anywhere in the world, the only certified Bitmain warranty center that will accept it is located in Hong Kong as well.
This means that you as an operator have to make a decision on the front-end on what equipment you will buy depending on expected failure rate, with almost no information. You have to have a plan on what you will do when the units fail. This being said, this is hard work and will not be solved in a day. It will be informed by data that you collect from your own experience, but also anecdotes from other individuals in the industry.
Manpower
McDonalds, Target and other major businesses are having an incredibly difficult time finding people to work for them. The mining industry is not an industry you can just throw bodies at. You need to find the right people, which is practically impossible. You may find some solid individuals with almost no experience in the field, but then you have to train them which takes time and energy that you may not have available. It’s difficult to know if in three months, an individual will be able to effectively troubleshoot a machine, deploy miner management software, tune aftermarket firmware or understand the intricacies of power consumption.
There are many disciplines an individual has to understand, which is made incredibly difficult by the fact that there is almost no documentation on these topics for you to pull from. As an operator, you have to be an expert by having gotten experience to be able to answer this. It is possible to manage with little experience if you have connections with individuals in the field you have to pull from. The moral of the story here is that this is work and you cannot just throw a random person into the fray and expect it to work out immediately.
Finding the right individual is made more difficult by the fact that mining is highly dependent on location. You cannot find cheap power everywhere. Oftentimes you have to pull from individuals in your general area which really limits those available with the skill set to accomplish what you need them to.
Having a background in Bitcoin does not guarantee that the individual is a good fit for mining. Likewise, having a background in electrical engineering or hardware is also not a guarantee that an individual will be a good fit. Individuals coming into the space must have the capacity to be constantly learning and dealing with painful headaches. That being said, to find an individual like this is a tremendous amount of work. It is also a tremendous amount…
Read More:Bitcoin Mining Profitability Not Easy – Bitcoin Magazine
2022-07-20 00:00:00
