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State of Crypto Mining

2020
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FORWORD

Bitcoin is here to stay. Already entering its eleventh year, Bitcoin is one of the most
well-known and often used cryptocurrencies, and has grown exponentially in adoption
over just a short time. Because it’s a secure, decentralized currency that can be used
peer-to-peer, it’s also forcing the world to rethink traditional banking institutions. But
at the foundation of Bitcoin – and every other cryptocurrency – is the blockchain, a
permanent, unhackable public ledger that records every cryptocurrency transaction.
But in order for the whole system to work, the two systems need to play together.

And that’s where crypto mining comes in.

Crypto mining is the method by which Bitcoin or other cryptocurrency transactions

are verified and added to the blockchain. This can be done by anyone with mining
hardware — from independent individuals to scaled cloud mining facilities. These
crypto miners run the “proof of work” math on their computers to verify crypto
transactions, and when they add a block to the blockchain, they are rewarded for their
work with newly created Bitcoin, as well as transaction fees. Without crypto mining,
there would be no Bitcoin, no blockchain — and especially no decentralization to the
entire system.

One event may have a significant effect on how crypto is mined in the coming months:
the block halving event, when Bitcoin rewards will be cut in half as a way to regulate
the system and stop inflation. While halving events have seen Bitcoin prices soar in
the past, it may cause individual miners to pull out of their mining efforts.

We wanted to know what Bitcoin owners knew about the mining process, as well
as get their thoughts on how the upcoming block halving would impact Bitcoin. We
conducted a survey on March 17, 2020 of 750 respondents who either own or have
owned Bitcoin at some point in the past. Here’s what we discovered.
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Table of contents

BITCOIN MINING EXPERIENCE 6

THE NEXT BLOCK HALVING 10

BITCOIN MINING THREATS 12

CONCLUSION 15

METHODOLOGY 15
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Bitcoin Mining Experience

As we mentioned above, there are different ways to go about mining Bitcoin, from
individuals with hardware to large-scale cloud mining facilities. We asked our
respondents if they had any personal experience with mining Bitcoin, and 39.1% said
they had mined Bitcoin at some point, either currently or in the past.

However, the majority of our respondents (43%) had not mined Bitcoin at all. The
remaining 17.9% were contracting their mining out to a cloud mining company.

“What has been your personal

experience with Bitcoin mining?”

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Mining Bitcoin at Home

As mentioned above, 293 respondents (or 39.1%) mine their own Bitcoin, which means
that they purchase their own hardware, set it up, and manage their mining at home. For
example, here’s a picture of the first ever mining rig our Founder and CEO Marco Streng
setup in 2013 in his college dorm room:

Mining began solely as an independent endeavor (i.e., Marco Streng in his dorm
room), but with Bitcoin’s continued reliability as an alternative currency, and with
its price steadily rising, home miners are now competing against commercial-grade
facilities, often with hundreds or thousands of mining rigs.

Still, our survey showed that 67.6% of those who have mined their own Bitcoin still do
so, perhaps to stay hands-on with the process, or simply because they enjoy it.

“Do you still mine Bitcoin (BTC) at home?”

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Why did others stop? The biggest reason was because it was too time consuming
(51.6%). Respondents also noted that the electricity used to mine became too
expensive, and that their hardware became irrelevant. Still others mentioned that
they simply lost interest, or just didn’t understand it as much as they wanted to.

“[If no] Why did you stop mining Bitcoin?

[Select primary reason]”

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Cloud Mining
As we mentioned above, there was a third group of respondents who engage with a
cloud mining company (Like Genesis Mining) – think similar to cloud computing – to do
their mining for them. Essentially, they’re contracting with a third party who takes care of
the set-up, maintenance, purchase, and management of hardware that will mine Bitcoin.

For example, here’s a photo of one of our many commercial-grade facilities that has one
purpose: Mine Bitcoin in the most efficient way possible.

The miner then gets the advantage of scale they never could get independently. But if
you’re a miner who enjoys the process, you may not want to contract out. There are pros
and cons to both approaches, and it may come down to personal preference.

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The Next Block Halving

As we mentioned, the next Bitcoin block halving is approaching in just a few months,
which may cause prices to rise, but may also cause a decrease in miners. But what is
“block halving” in the first place?

After 210,000 blocks are mined for the blockchain, which happens about every four
years, the reward that miners receive gets cut in half — so, if you received 12.5 Bitcoin
per block before, you’d get 6.25 after the next halving. This is called block halving. It
was put into place by Bitcoin’s founder Satoshi Nakamoto to slow the generation of
Bitcoins over time until a total of 21 million coins has been reached. At that point, no
new coins will be created. Why is Bitcoin capped at 21 million coins?

Think of Bitcoin like gold:

Since there is only a finite amount, the price stays relatively stable. But once the
majority of gold is mined, it gets harder to mine more of it; if Bitcoin block rewards
are halved, it gets harder to mine more of them, and the system remains stable.

The first halving took place in 2012, with the second in 2016, and after each halving,
the price of Bitcoin soared. It’s predicted that the same will happen in 2020, and
prices may rise even before the halving happens. But since the market knows the
halving is coming, the reaction may not be as high or volatile.

As for the impact to miners, it could be variable: With their reward cut in half, it
may lead many miners to abandon their mining efforts – and allow bigger mining
companies to step in. But an increase in the price of Bitcoin after the halving may
incentivize miners to continue at it.

When is the next block halving expected to happen? In just a few months, around in
mid-May 2020.

Of those we surveyed, half of the respondents who were aware of the block halving
believed that the price of Bitcoin would increase over the next 1 to 3 months (50.2%).
31.8% believed that the price would decrease, and 13.7% believed there wouldn’t be
a significant change.

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50,2% believed that the price of Bitcoin

would increase after the block halving

“What do you expect to happen after the block halving

in the next 1-3 months?”

When asked the same question, only with the timeline extended to look at the next
4 to 6 months, the results were largely the same: 51.1% expected the price to increase,
28.8% thought it would decrease, and 14.2% expected to not see any change. Overall,
our respondents were bullish on Bitcoin pricing.

“What do you expect to happen after the block halving

in the next 4-6 months?”

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Bitcoin Mining Threats

Centralized Control
Bitcoin and other cryptocurrencies were built to be decentralized – that is their
inherent appeal, because there’s no third party institution or government regulating
it like other currency. Yet as the Bitcoin mining industry has evolved from home miners
to multi-million dollar commercial-grade facilities, that idea of decentralization is
being threatened. Will the players with the money to spend on hardware ultimately
come to control cryptocurrency?

Our respondents were nearly split. One third believed that yes, some kind of
centralized control would happen, with power moving to the hands of a few major
organizations, and one third believed that mining would continue to remain with
smaller, community players. The remaining third actually didn’t have an opinion
either way.

“What’s your outlook for where Bitcoin mining is headed?”

Centralized control with several major groups/

organizations doing most of the mining. : 32.5 %

Community developments will shift to put

power in the hands of small miners. : 31.1 %

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One example of a cryptocurrency attempting to keep crypto mining within the community
is Monero. Founded in 2014, Monero possesses one of the largest market caps, yet found
its mining rewards increasingly snatched up by high-speed hardware called ASICs, which
trumped smaller players by sheer speed and efficiency. So Monero instituted a number
of hard forks, each changing the mining algorithm. This is aimed to dis-incentivise the
development of ASICs.

Another community development comes from Ethereum, who looks to move from a
“proof of work” structure to a “proof of stake” structure. Right now, under the “proof of
work” structure, anyone can compete to add a block to the blockchain, and rewards are
doled out based on “winning” the activity.

But Ethereum’s “proof of stake” would change the process of how blocks are added to
the blockchain by choosing the block creator through an algorithm, based on their stake
(so no competition). There would be no reward for making the block, but creators would
still receive a transaction fee. Additionally, the process would require less energy overall,
making it greener and more sustainable.

Chinese Control
The threat of a centralized company having control over crypto mining might be
closer than we think: Recent reports indicate that miners in China control the majority
of Bitcoin mining. This is due partly to cheap, renewable electricity, which enables
higher hash rates, and a prospering mining sector.

When we asked our respondents their thoughts on that piece of information – as it

may disrupt cryptocurrency’s decentralization – 60.8% felt either somewhat or very
concerned at that prospect.

“It’s been reported that China makes up the majority of

Bitcoin mining. What are your thoughts around that?”

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51% Attack
Even though the blockchain is virtually unhackable – the integrity of the system is
guaranteed by state-of-the-art cryptography – the 51% Attack refers to a situation where
a miner or group of miners controls more than half of the total network’s hash rate.

While previous transactions would continue to be permanent, someone controlling

the hashing power could try to censor transactions, create false transactions or
empty blocks, double spend their currency, and essentially undermine or destroy the
entire system. What would prevent something like this from happening?

Apart from the fact that such an attack would have very limited economic upside
for a miner, as he would be undermining the system on which he relies for income,
a continued decentralization of miners, so that no single entity gets control of a
majority stake.

“Is a 51% attack a legitmate concern for

the Bitcoin community/investors?”

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Conclusion

While Bitcoin is on a solid upward trajectory, the next block halving in May 2020 may
shift business-as-usual — not just with the pricing, which our respondents seemed
positive about, but with the way Bitcoin mining is accomplished.

It’ll be seen whether the block halving causes a number of smaller miners to drop
out, leaving a vacuum for bigger players to come in. And if they do, there’s a chance
that the premiere benefit of Bitcoin – its decentralization – may be compromised.
Then again, if the price of Bitcoin continues to increase, and historically it has after a
halving, then Bitcoin may be positioned to have its most successful year yet.

Methodology

Our findings are based on the results of a US consumer survey that targeted a sample
of 750 respondents who own or have owned Bitcoin at some point in time. Of these
respondents, 39.1% currently mine or have mined bitcoin, 43% have not ever never
and 17.9% have purchased cloud mining contracts. The survey was conducted online
from March 17th 2020 via PollFish.com

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State of Crypto Mining — 2020