5 Things to Know About Bitcoin Mining

Savvy investors are constantly on the lookout for new technologies or industries that could transform how we live and work. In recent years, companies like Amazon and Apple have set a precedent, delivering exponential growth and rewarding investors with substantial returns. But where might similar opportunities emerge in the future?

Bitcoin mining doesn’t attract the same attention as artificial intelligence or cybersecurity, but it deserves careful consideration. After all, miners don’t just play a pivotal role in the Bitcoin network. They also contribute to economic growth and can help nations—especially the U.S.—manage their energy grids.

The Foundations of Bitcoin cryptocurrency

Bitcoin is a person-to-person cash system that doesn’t rely on a central authority. Satoshi Nakamoto, the pseudonymous founder, designed the underlying blockchain as a distributed ledger hosted by thousands of computers known as nodes which run the software and prevent double-spending (the risk that the same digital currency can be spent more than once due to vulnerabilities in a payment system). While estimates vary, the node census website Bitnodes believes the Bitcoin network has around 19,000 nodes.

In addition to being decentralized, the Bitcoin blockchain is also immutable, meaning a transaction can’t change once it has been recorded. To reverse a transaction, a malicious party would need to control 51% of the hash rate—the computing power used to run the network—at a cost of around $1.5 million per hour.

The Bitcoin blockchain uses a proof of work (PoW) consensus mechanism to validate transactions and secure the network. PoW requires nodes called miners to solve a complex mathematical puzzle for the right to process transactions and add the next block to the chain, which occurs every 10 minutes. In return, they receive ‘block rewards’ in the form of freshly minted Bitcoin, the main way the network introduces new coins into circulation. After the latest halving in April 2024, miners earn 3.125 btc, worth $240,000 (as of 4th of november), per block.

Mining is a competitive business, and operators have become increasingly sophisticated as the Bitcoin network has matured. For instance, the Financial Times reported that miners listed on mainstream stock exchanges invested $600 million on microchips, which power mining rigs, and servers in December 2023 (ahead of the halving). Total investment for the year reached $1.3 billion.

The Rise of Bitcoin Mining: From Hobby to Large-Scale Industry

The Bitcoin mining industry wasn’t always sophisticated. In the early days, it took place in home offices and garages using central processing units found in standard computers. However, the Proof of work consensus mechanism adjusts the difficulty of creating new blocks roughly every two weeks to maintain the block time of 10 minutes, forcing miners to upgrade their hardware as the network has expanded. Incidentally, the difficulty can fall if block production slows.

Mining revenues have grown by 6,764% in the last four years, according to monthly production reports published by publicly listed US bitcoin mining companies : in 2024, the industry is expected to generate over $3 billion. These figures demonstrate miners’ ability to create value, stimulate economic activity and attract investment for capital expenditure.

US is the largest player in Bitcoin mining industry

China initially dominated Bitcoin mining, accounting for nearly 75% of activity in October 2019, when Cambridge University’s Centre for Alternative Finance started recording data about the network’s hash rate. But in June 2021, the People’s Bank of China banned mining, and by January 2022 its share had fallen to just over 20% (the ban wasn’t entirely effective).

Since then, favorable regulations, access to renewable energy and a culture of innovation have helped the US dominate the industry. From just over 5% in October 2019, the US market share rose to nearly 38% by early 2022. In a further boost, Donald Trump claimed that he wants all future Bitcoin mining to take place in the US. Other countries with a notable presence in the industry include Kazakhstan (13%) and Canada (6.5%).

Bitcoin Mining is Growing Industrial America

Besides their role in the Bitcoin network, miners are also helping to revitalize the economies of rural towns that have suffered from offshoring.

For an industry that has only existed in the US for five years, Bitcoin mining has already significantly impacted the labor market. According to big four accounting firm PricewaterhouseCoopers (PwC), direct employment jumped from just over 1,000 jobs in January 2022 to nearly 1,700 two years later. Furthermore, PwC estimates indirect employment could reach close to 11,000 jobs in 2024, based on a multiplier of 6.4 used for data centers. In other words, each job created by Bitcoin miners supports 6.4 in industries such as transportation and cybersecurity.

How Bitcoin Miners are revolutionizing America’s Electrical Grid

Another indirect benefit of Bitcoin mining is it could help the US modernize and expand its energy grid. Adding new sources like wind or solar to the grid is complex and time-consuming for various technical, regulatory and logistical reasons, such as installing transmission lines and distribution infrastructure. But Bitcoin miners can purchase power remotely as soon as new energy sources start generating electricity, as long as they have an internet connection.

Bitcoin miners can also help to stabilize the grid because they can scale their power consumption in response to fluctuations in demand. Following a heatwave in Texas in June 2023, mining operator RIOT cut its usage by 90% and freed up enough energy to power 44 hospitals and 33,500 houses, according to average consumption data from the Electric Reliability Council of Texas.

Investor takeaway

Investors seeking opportunities in innovative technologies should definitely consider the bitcoin mining industry, which can be conveniently accessed through Bitcoin Miners ETF.

Miners solve complex mathematical puzzles for the right to validate Bitcoin transactions and earn freshly minted coins as a reward. They also help to secure the network by preserving its immutability and preventing 51% attacks.

Bitcoin mining has developed into a sizeable industry, with revenues growing by over 6,700% in the last four years. Favorable conditions have helped the U.S become the most popular location for operators after China attempted to ban mining in 2021.

As well as processing Bitcoin transactions, mining contributes to the U.S economy. PwC estimates the industry could create up to 11,000 jobs in 2024, many in rural areas that have suffered due to globalization. Miners can also contribute to the growth and stability of the US energy grid by purchasing directly from new sources like wind and solar and by scaling their consumption up and down in response to demand.