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WHY (AND HOW) YOU CAN MINE BITCOIN AT HOME


 

If you're familiar with my other work, you know that I do not write about bitcoin price action, however, price action is relevant in this case because electricity bills are paid in fiat. Decoupling the economics of bitcoin mining from fiat conversion abstracts the subject too much to be useful for a wide audience, in my opinion. I try to keep it limited to only the relevant events and chart comparisons to demonstrate my point.


A RECENT BITCOIN MINING EVENT TIMELINE

This has been an interesting year for Bitcoin with many notable events such as Whirlpool unspent capacity reaching an all-time-high, Taproot activation, El Salvador adoption, Craig Wright suing Bitcoin.org and the deaths of Mircea Popescu and John McAfee. Additionally, the network hash rate and trading price both hit all-time-highs followed by more than 50% pull backs. As turbulent as conditions were at times, this year has also been full of opportunity for those who were prepared.


On the surface, 2021 may not appear as a good time to start mining Bitcoin, but I'm going to explain why I think this is a good time to start a small, modest Bitcoin mining operation at home with the intent of dollar-cost averaging (DCAing) non-KYC bitcoin through your electricity bill. Aside from the events mentioned above, just zooming in on the mining sector is a rabbit hole all its own.



Here is a timeline of some major mining-related events that I think contributed significantly to the bullish case for mining bitcoin at home:


Recent events in the Bitcoin mining industry demonstrate that mining non-KYC bitcoin at home is a viable option for many. Here’s how.

April 14: The BTC price peaked at a new all-time-high just under $65,000 per bitcoin. This was a short-lived peak and price momentum took a turn for the bearish by May 19 with the trading price experiencing a roughly 50% drop. This was significant to mining in that many miners could pay for their operations with only a small fraction of the bitcoin they were mining. With electricity rates near $0.03 per kilowatt hour (kWh), some operations could produce 1 bitcoin at a cost of $3,700, leaving nearly $61,000 in headroom.


April 15: The mean Bitcoin network hash rate peaked at 197 exahashes per second (Eh/s), then dropped to 106 Eh/s two days later. Clearly something happened to about 46% of the network hash rate that all shared some common denominator. Right around this time, there were reports of an incident related to a coal mine accident in Xinjiang, China which supposedly had a 30% drawdown effect on the overall Bitcoin network hash rate. Only a few weeks from this point, China would again be at the center of attention as it relates to Bitcoin mining.



Recent events in the Bitcoin mining industry demonstrate that mining non-KYC bitcoin at home is a viable option for many. Here’s how.

May 6: The U.S. mining company Marathon mined the first OFAC-compliant block on the Bitcoin network. This was the first instance of a major censorship initiative that I am aware of and I considered it an attack on Bitcoin. Marathon has since reversed its position on censoring transactions, however, only time will tell if their intentions are true to the censorship-resistant attributes of Bitcoin. I think this was a significant event in that I anticipated this level of attack coming from a country like China, but 2021 has been full of surprises.


May 11: For those who follow Bitcoin developments a little more closely, there is speculation that a meeting between Federal Reserve Chairman Jerome Powell and Coinbase CEO Brian Armstrong may have fueled market manipulation that had a negative effect on the upward price momentum. The timing of this meeting was coincidentally right before a massive price drawdown. This is significant in mining terms because of the effect on operating margins and potentially shadowy regulatory initiatives being discussed behind closed doors at one of the worlds largest Bitcoin exchanges.


May 12: The price broke $50,000 support levels and started falling with more velocity; likely attributable in part to fear, uncertainty and doubt (FUD) being circulated by Elon Musk related to Tesla dropping support for Bitcoin payments. The CEO cited concerns over the Bitcoin network's energy consumption. Musk touted support for Dogecoin, fueling the misconception that somehow a Bitcoin transaction requires a static amount of energy and that the network is inefficient.



May 21: With the price in clear decline, markets were shaken even further with news of a Chinese Bitcoin mining ban. The Chinese government declared that all Bitcoin mining operations must cease, desist and clear out within two months following the announcement. This was not the first announcement of its kind from the Chinese government, but there was evidence in the network hash rate disruptions that seemed to support the hypothesis that this time was different.


According to the Cambridge Bitcoin Electricity Consumption Index (CBECI), China had dominated the Bitcoin mining industry, accumulating 65% to 75% of the network hash rate. In my opinion, these percentages are inflated because I believe there is some conflation between Bitcoin mining hardware physically located within the borders of China and global Bitcoin mining operations simply owned by Chinese companies. In either case, by March 2021 the CBECI indicated that roughly 46% of the total Bitcoin network hash rate was within the borders of China. The Cambridge Centre for Alternative Finance (CCAF) took a closer look, spanning from September 2019 to April 2021, at the mining exodus from China, concluding that the percentage had dropped from 75% to 46% during that time.


Recent events in the Bitcoin mining industry demonstrate that mining non-KYC bitcoin at home is a viable option for many. Here’s how.


Despite the 46% drop in hash rate from the 197 Eh all-time high on April 15, it is interesting to note that the network mean hash rate climbed from 106 Eh back up to 189 Eh on May 2, only 15 days later. Then it gradually declined again to the most recent low of 61 Eh on June 27. I can only speculate that perhaps there was a big initial scare that caused most Chinese miners to shut off around April 15, likely the coal mine accident, with many mining operators scrambling to resume operations in the days that followed; only to permanently shut operations down after the Chinese government's announcement of the mining ban. Supposing that ASICs were being relocated outside of China's borders and powered back on following the China ban, overall Bitcoin network hash rate started to make a recovery. In any event, I'm not sure we'll ever know exactly what happened, but I do think there is a lot more to this story than I'm understanding at this point.


May 24: Michael Saylor threw his support behind Marathon, while it was still actively attacking the Bitcoin network by censoring transactions. Together, Saylor and Marathon teamed up and announced the Bitcoin Mining Council (BMC). Clearly, to me anyway, this was a knee-jerk reaction to the possibility of losing Musk's support for Bitcoin. The Bitcoin Mining Council was nothing more than a Hail Mary attempt from an armchair quarterback to try and secure his bags. What has transpired since has been some gold-medal-worthy mental gymnastics.



This council was convened in fear around the idea that the public at large may have a negative perception of Bitcoin due to unsubstantiated environmental concerns. Which can be extrapolated as: If institutions think Bitcoin is not environmentally friendly, then they won't invest in it; and if institutions don't invest in Bitcoin, then the price is not going to go up; and if the price doesn't go up, then Bitcoin is pointless. This number-go-up (NGU) mentality undercuts the permissionless, censorship-resistant, neutral, borderless and open attributes of Bitcoin, replacing them with this notion that Bitcoin is merely a conduit to attract more fiat. In any event, the BMC is opening the door to ESG initiatives, carbon credits and regulatory dangers that make me believe this is an attack on Bitcoin.

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