With the appearance of cryptocurrencies a new opportunity to do business and make money has arisen. Mining not only allows to support the life of a cryptocurrency by processing transactions but also to have an additional source of income. But with a special approach the additional source may become the main one.
Before the appearance of specialized devices for mining users were working on their GPUs by mining cryptocoins and selling them in the exchange. Using GPUs for that purpose was expensive because to earn significant amounts of money you had to use a lot of GPUs and as a consequence a lot of power.
Along with the appearance of ASICs came the possibility of mining Bitcoin in much more substantial amounts than with GPUs. ASIC is an Application Specific Integrated Circuit specialized for solving a particular task, which in our case is Bitcoin mining. These circuits are several times more profitable than GPUs because they consume much less energy while providing much more computing power (hashrate). This served as a motive for coin mining businesses appearance.
In 2013 Cloud Hashing has bought a large number of ASIC-miners from “KnCMiner” and opened their datacenters in Kansas and Iceland. Mine’s location in Iceland is very advantageous as it allows saving on electric energy used to cool the computers thanks to the low air temperature. Iceland mine brought its owners around 220 coins per day (as of late 2013) which was equal to ~$200,000. Additionally the company lends 80% of its computing power to anyone willing. In the end of December 2013 Cloud Hashing had 4.5 thousand clients.
In March 2014 Cloud Hashing had the combined calculating power of ~1,500 Th/s. Entire Bitcoin network’s calculation power is 38,000 Th/s thus there are 4% of entire network power concentrated in the hands of the company.
Another major ASIC mine was built in Hong Kong by the Allied Control Company by order of some Chinese investors. This mine is both cheaper to operate and more effective than its analogues thanks to the liquid cooling technology. This way of cooling by submerging chips in the cooling liquid allows Allied Control designs to have less space between chips and thus save on room renting.
Liquid cooling also lowers the electric energy consumption which is one of the primary expenditures in Bitcoin mining. Electric bills for fully active mine of such scale in USA usually exceed the amount of $50,000 per month.
The mine is located in an industrial area not far from Kwai Chung port and consists of multiple standard stands that can be found in any datacenter. All equipment runs very quietly, the only thing that can be heard is the silent murmur of computers. Every stand holds three sealed glass containers inside of which ASICs are placed with wires coming out to commutators.
The mine’s building has begun in August 2013 with the purchase of the best cooling system and pumps in China. The mine has already begun operating in the early October.
Hong Kong is a good place for a Bitcoin mine due to two main factors: it’s close to Chinese microchip manufacturers and there’s a liberal regulatory environment that isn’t affected by legal problems caused by Bitcoin regulation in mainland China.
KnC Miner is a Company which deals in producing ASIC miners for Bitcoin and other SHA-256 cryptocurrencies mining, that has sold a $75 million worth of equipment over half a year’s time. This company is currently building its own datacenter with 10 megawatt capacity, the entire computing power of which will be used for mining. The construction site is in Boden, Sweden. Cryptocurrency datacenter will be situated 15 kilometers away from Facebook datacenter. They both are almost beyond polar circle (once again the cold northern air played a pivotal role in placement choice).
The new facility isn’t being built from scratch but is located inside a former helicopter hangar, a huge building adapted by the new owners.
Just like Cloud Hashing the Company provides cloud renting services.
Legal side of mining business
At the moment this industry isn’t regulated in any way nor taxed because from the legal point of view nothing is produced (Bitcoin doesn’t have fixed status in any country’s laws). And so far this business is pretty profitable. But soon the changes may come and costs of the business will rise or the state can prohibit mining business altogether.
Allied Control Company is currently researching the applicability of other mining platforms including mines built into freight containers placed on the ship at sea. Such design may come in handy should the regulators start to take tough measures against cryptocurrencies.
Computing power renting business
Along with using ASICs directly for mining Bitcoin some companies prefer to build datacenters with mining equipment to not only mine Bitcoin themselves but also lend their power to anyone willing all around the world like Cloud Hashing and KnC Miner do, for example.
CEX is the largest Bitcoin mining company. It lends its computing power by allowing users to mine bitcoins in their ghash.io pool and sell them in their exchange.
The principle of operation is to set a price for 1 Gh/s during exchange trading (it is currently set at around 0.011 BTC for 1 Gh/s). After that dedicated computing power is rented in needed amount and immediately put to use by mining in Company’s own mining pool – Ghash.io.
If due to any reasons you don’t need mining capabilities anymore, than rented power can be sold back immediately or some time later with hopes of the price rising. All this is carried out within Company’s power exchange. The exchange also allows for exchange of more common “goods” – Litecoin and Namecoin.
The CEX precedent
This way of providing computing power became very popular. So popular that computing power lent to miners all around the world has neared half of all the Bitcoin network power thus increasing the chances of “51% attack”. The CEX Company isn’t going to destroy Bitcoin if only because it’s their primary way of earning money. To lower its computing power share the Company has suspended new clients registration. At the moment the Company’s ghash.io pool’s power equals to around 30% of the entire network’s computing power.
Downsides of mining business
The main downside of mining business is multiple increase in mining difficulty. That makes mining on personal computers practically impossible for common users, which contradicts the initial statement that absolutely anyone can mine Bitcoin for himself.
Mining power may become distributed throughout several large companies that will either lend this power or mine bitcoins for themselves. In the first case user-based mining will disappear altogether. Otherwise a Company can lay hold of 51% of computing power and heavily affect Bitcoin network. And such Company can be in turn seized by the government unfavorable to cryptocurrencies.
ASICs for Scrypt mining
While only SHA-256 ASICs existed, most of the common miners were transitioning to mining Litecoin and its forks, which are all based on Scrypt algorithm and didn’t have specialized equipment manufactured for them. Building large mines for Litecoin wasn’t profitable because they needed a multitude of GPUs which consumed huge amounts of electricity and required powerful cooling systems.
But by mid-2014 ASIC miners for Scrypt should go on sale. The difficulty of mining of most popular cryptocurrencies will rise dramatically and regular mining on single GPUs will cease to exist just as with Bitcoin mining. There will be Litecoin mines created and Litecoin mining equipment added to already existing Bitcoin mines. CEX.io may introduce a scrypt-mining power exchange.
But with the development of mining equipment new algorithms will appear that will protect coins from industrial mining for some time.
First such cryptocurrency to become popular was Vertcoin. At the moment of Scrypt ASICs release its price and the price of similar cryptocurrencies should grow because of large number of miners with GPUs transitioning to mining them.
Cryptocurrency mining business is harmful to cryptocurrencies but it’s inevitable. Therefore an optimal option for such business is strong competition between manufacturers of ASICs and companies lending computing power. High concentration of computing power in one’s hands should be avoided. Ideally computing power should be distributed between all network’s miners as evenly as possible.