While a number of altcoins look to pin back the rise to power of mining cartels by developing blockchains fuelled by cryptocurrencies that are mined using hybrid consensus algorithms, there remains a large number of blockchains that are run on proof-of-work consensus algorithms that continue to support the existence of mining pools and more importantly and of greater significance, mining farms.
In the early years of the cryptomarket, only a handful of cryptocurrencies existed and mining for the likes of Bitcoin was particularly easy, with miners able to use basic desktop computers.
As the price of Bitcoin rallied, mining interest for Bitcoin and other cryptocurrencies has seen a significant rise, with miners having to not only shift away from normal desktops to ASICs hardware but also to build warehouses of hardware created for the sole purpose of mining cryptocurrencies.
Unlike mining with the use of the traditional desktops, which were not created for the mining of cryptocurrencies, these warehouses, better known as mining farms, have no other purpose and run 24/7, 365-days a year.
Outside of the investment into the necessary hardware and land to build a mining farm, the other main cost comes from the electricity required to mine cryptocurrencies.
Mining farms tend to be built in countries that have cooler climates and also lower electricity costs, with mining farms needing to consider the costs associated with, not just running the hardware 24-7, but also ensuring that the hardware doesn’t overheat, the combination of which can have a significant influence on mining profitability.
While particularly lucrative for mining farms that have been able to capture a sizeable portion of hashrates, mining is key to supporting cryptocurrency blockchains, the mining process ultimately being the validation of transactions on the respective cryptocurrency blockchains.
With the number of transactions anticipated to continue increasing with time as greater adoption takes place, farm mining is likely to be the only viable method of mining to meet the growing volume of transactions.
For blockchains with proof-of-work consensus algorithms, such as Bitcoin, the entire concept of decentralization would be lost without mining and, as mining difficulty increases, more individual miners are pushed out due to rising power consumption and narrowing profit margins.
The shift in the mining landscape has left the mining of cryptocurrencies in the hands of mining farms, which are now considered to have the lowest barriers to entry into the crypto market.
The growth of farm mining is particularly important for blockchains that are run on proof-of-work consensus algorithms, a greater distribution of hash power restoring the ethos of decentralization, by removing the control of blockchain advancement away from the longer-standing mining farms.
Government regulations and a general animosity towards Bitcoin and the broader cryptomarket has raised questions on whether local power grids will be willing and able to continue supporting the rising consumption of electricity to fuel cryptocurrency mining.
Outside of the animosity is what has become the highly debated impact on the environment, cryptocurrency mining now consuming such large amounts of electricity that the media have begun publishing studies suggesting the Bitcoin mining uses more power than actual mining.
With such concerns and existing government control on the cost of power, mining farms have begun to source their own power, which is independent of community grids that are often either state-owned or subsidized by taxpayer money.
One such mining facility being built in British Columbia is reported to have installed its very own power substation, with 85 megawatts capacity generated from hydroelectricity, the power being generated enough to support a city of 50,000 homes.
Controlling a key cost variable in the mining process certainly makes sense and, with mining farms having generated sizeable income in recent years, particularly over the last 12-18 months, the availability of capital is there to break free from possible state control or influence, those unable to unlikely to be able to compete with the eventual power grid independents.
While managing cost variables is certainly a key step in the process, the other sizeable cost impact is the actual hardware. One can only imagine that there are developers hard at work, with the aim of developing mining hardware that is far more efficient than existing ASICs.