Home Mining is Here to Stay
Even as hashprice comes down, small scale mining will thrive
With the explosion of mining profitability over the past year, home mining has returned in a big way. Proliferation of new, more powerful and efficient ASICs, as well as the general evolution of the industry mean that some so-called ‘home mining’ set-ups are a far cry from the early days of hobby mining. Many home miners are running reasonably sized racks and power equipment that would fit right in at an industrial facility.
At the same time, many facilities that were rushed into production are beginning to come online. Between more facilities and ongoing delivery of thousands of machine orders placed during the mania in the fall, there is concern that a falling hashprice could lead to a classic boom-bust mining cycle.
While I think that there are many players that have overleveraged themselves by making facility, mining, and financial commitments they will not be able to meet, I believe that a dedicated home miner has nothing to fear and will be able to weather the coming pullback. The same, however, cannot be said for small to midsize commercial miners.
For commercial scale miners to thrive, they must source ASICs and hosting capacity, either by building it themselves or contracting it out. If they build it themselves, this requires heavy investment in property, plant and equipment, including large capital outlays ahead of time. It also requires people. With people come the costs of salaries, benefits, management overhead, and other intrinsic expenses. Were they to contract out hosting, that requires expensive, long term commitments with little flexibility.
In order to stay competitive, these commercial miners will need to procure larger and larger orders of ASICs, better facilities, and lower power costs. This will require securing industrial scale financing, a feat which will become ever more difficult as margins are eaten from higher difficulty adjustments and stronger competition. While some sharp operators will emerge victorious, many will find that they simply cannot compete with the best and biggest operations, eventually being forced to either merge with larger miners or liquidate.
However, home miners don’t suffer from these same dynamics! While a modest commercial operation cannot compete with larger, longer running, and therefore (to bankers) lower risk operation, the home miner can play a different game.
With little operational overhead, no need to secure commercial scale financing, and less pressure to grow or die, a home miner can be much more resilient to periods of highly compressed margins. As long as the machines stay profitable, they will keep them on, without the strain from investors and suppliers squeezing them from all angles. This flexibility simply cannot be replicated at a larger scale.
So, while I do expect there to be heavy consolidation in the industry over the next year, this is likely to be focused at the small to midsize commercial scale level. Home mining is a different game, with different rules, and will continue to thrive even if mining profitability continues to come down. This is great news, as the ability for small scale miners to innovate and support the network is an important factor in maintaining the ethos and decentralization of the Bitcoin network.