Profitable bitcoin mining is essentially the result of a skilled and highly qualified team of professionals who can maintain uptime, the founder of a bitcoin mining company has pointed out. Even if the price is around $20,000, a bitcoin miner with these characteristics can still operate profitably.
“Bitcoin fundamentals rarely change”
Bitcoin’s value fell from below $30,000 in early June to less than $20,000 by mid-month, believed to be one of the factors that contributed to the collapse and bankruptcy of major crypto companies such as 3AC and more recently Voyager. However, these two high-profile companies are by no means the only ones seriously affected.
In addition to dealing with low prices, many market participants, including bitcoin miners, faced a high risk of bankruptcy. As the situation at 3AC has shown, many market participants were or are heavily indebted. A stronger fall in prices could lead to further insolvencies.
However, for other market participants such as BTC miner Permian Chain, a further decline in the top crypto’s price is unlikely to have much impact on the company’s long-term plans. According to the founder and CEO of Canada-based cryptocurrency mining company Mohamed Al-Masri, he was inspired by the core value behind Bitcoin. El-Masri also told Bitcoin.com News via email that the short-term price volatility of the crypto-asset and the media headlines it brings cannot alone cause the Permian Chain to reverse course.
Below are answers from the rest of the Permian Chain CEO to questions emailed by Bitcoin.com News.
Bitcoin.com News (BCN): The steady decline in crypto asset prices has caused the demise of some of the industry’s major players. There is no doubt that bitcoin miners are also facing the heat. Can you explain to our readers how Bitcoin’s price below $20,000 is affecting miners?
Mohamed Al Masri (MM): The heavily indebted situation faced by some large bitcoin miners is largely the result of global macroeconomic factors that have pushed up energy prices and weighed down stocks and crypto markets. The major crypto exchange sell-off began as a result of widespread vulnerabilities and, in part, the negligence of more leveraged market participants who were forced to buy some or all of their bitcoins and other digital assets to cover debt payments.
A bitcoin price below $20,000 is certainly not going to deliver the stellar returns that bitcoin miners are seeing above $45,000. However, most industrial bitcoin miners are using new-generation, highly efficient ASIC devices that still allow them to stay profitable, provided they can keep electricity costs between $0.05/kWh and $0.10/kWh. Small miners, lacking economies of scale and low-cost sources of energy, are certainly mining well below breakeven. However, profitable bitcoin mining is largely the result of an experienced and highly skilled team of professionals who can maintain runtime even during a $20,000 bitcoin market.
Let’s not forget one of Bitcoin’s key features, its difficulty adjustment algorithm, which rewards miners who stay online during short market cycles because other miners can’t lose their equipment due to profitability, defaults, bankruptcy or whatever. Let’s conclude… The key to preserving and benefiting is to stay online with as high a hash rate as possible.
BCN: What impact have low crypto prices had on Permian Chain operations?
MM: The Permian chain will continue to mine bitcoin regardless of market prices. Headlines and market conditions change, but fundamentals rarely change. The core value behind Bitcoin is what we are in this business for.
Regarding our mining sites, we have built a well-organized relationship with our energy suppliers by implementing our Energy-as-a-Service and Bitcoin mining platform to streamline our efforts. For example, the Permian chain is working closely with our Alberta energy producer and site manager, Brooks Equity, to streamline a vertically integrated value chain; From onsite fieldwork to online software solutions, we have the ability to keep mining and operations running.
BCN: Will the Permian Chain still be profitable to continue mining if the price drops even further?
MM: It all depends on what you consider profitable. If we’re talking about dollar value to assess profitability, then probably not. However, if we look at profitability in terms of bitcoin, then yes. In my personal opinion, the fundamental value does not correspond to the market capitalization of Bitcoin. It takes time for the basics to become clear to the public.
If you have a 10-year perspective on your bitcoin investments, I believe bitcoin mining is a powerful value adder. It is also very important to realize that if the price of Bitcoin continues to drop, it is very likely that many miners worldwide will start shutting down. If enough miners stop operating, this will put pressure on the difficulty adjustment. As the level of difficulty decreases, the mining process becomes less difficult. As a result, it increases a miner’s chances of earning bitcoins more often than if the difficulty were higher.
Difficulty rating measures how hard an ASIC miner has to work to verify a transaction on the blockchain (solve a block of transactions in exchange for bitcoin as a reward). With a lower level of difficulty, miners can find and solve blocks faster, which allows them to earn more bitcoins for the same energy costs, and therefore higher profits, in the same time frame.
BCN: Permian Chain uses what you call low-cost energy harvested from flared and trapped energy resources for its data mining centers. Can you explain why the Permian chain chose this energy source?
MM: Permian Chain is an Energy-as-a-Service platform for computing infrastructure, starting with Bitcoin mining. We aggregate all energy sources on the platform to help the world’s energy producers monetize and leverage their wasted and stranded resources through our tokenization processes and Smart Off Take Agreements (SOTAs). We are focused on making Bitcoin mining off-grid and coincidentally we introduced natural gas as our first natural energy source because that’s where the challenges are most important from an ESG perspective, making our solution a very clear example.
BCN: In what geographic location is it possible to profitably mine bitcoin using flared and trapped energy resources?
MM: This depends on many factors as each jurisdiction has different standards such as regulations, labor costs, raw material costs, overhead costs, etc., all of which affect your net electricity costs. I hear a lot about cheap electricity in certain areas, but I can easily assume that most of these so-called “opportunities” don’t cover the other costs I mentioned. You need to consider all of these costs to truly understand your operational expenses. However, I believe anywhere between $0.05 and $0.10/kWh should be considered low and shows effective TCO management. Since we are also network independent.
BCN: Some environmental groups have said that changes to Bitcoin’s encoding are likely to eliminate its environmental impact. Do you agree with this reasoning?
MM: coding changed? replace with what? I don’t think bitcoin should or should change…it will just continue to increase in adoption rate and improve its efficiency through Layer 2 technologies and better new generation tools. Companies like Intel and Samsung continue to make new generation chips that will improve mining efficiency.
In terms of environmental impact, since the Internet runs on data center facilities that consume 2% of the world’s grid-connected electricity, Bitcoin will continue to require mining of “data center” facilities. However, Bitcoin is the largest computer in the world and consumes about 0.4% of the world’s electricity. Most are away from renewable and clean energy sources. The bitcoin mining trend is also towards off-grid energy sources such as clean hydroelectric power, solar power and responsibly produced natural gas in the near future.
BCN: Can you briefly explain how your tokenization platform works?
MM: Energy companies register themselves and their resources on our platform. We review submissions prior to approval. Once approved, resource projects can go through two tokenization routes; (1) by offering Security Tokens to accredited investors through registered broker-dealers on our platform; and (2) by issuing Smart Off Take Agreements (SOTAs) that allow our network of mining partners who join our mining pool aggregators to use their stablecoins for energy projects, including their ASICs, interested in holding miners. This second process allows energy companies to gain early miner support and commercialize their energy resources by using on-site off-grid energy for bitcoin mining.
BCN: Both Africa and the MENA region — where solar energy seems to be plentiful — still account for an insignificant portion of bitcoin mining. What could be the reasons for this or what do you think needs to be done to attract miners to these two areas?
MM: In countries and regions like North America, where energy is mostly private, innovations and new business models are easier and faster to understand and implement. The MENA region nationalizes energy resources. It takes longer for governments and regulators to innovate at a pace similar to that in free markets. I believe that once the MENA government openly announces the regulatory framework for bitcoin mining, we can expect an influx of miners and foreign investment from around the world. PermianChain enables regulators and governments to maintain a clear understanding of projects, enjoy cost-effective arbitration, and enable increased transparency.
What do you think about this interview? Tell us what you think in the comment section below.
Terence Zimwara is an award-winning journalist, writer and writer from Zimbabwe. He has written extensively on the economic woes of some African countries and how digital currencies can provide an escape route for Africans.
photo credit: Shutterstock, Pixabay, WikiCommons
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