Cryptocurrency

Cryptocurrency mining threatens to leave little-known Abkhazia with no power

Winter is coming in the small state of Abkhazia. The state of Abkhazia, mostly unrecognized, has expressed fear over the massive use of its shaky electric supply to mine cryptocurrency. The state emerged as a cryptocurrency haven after annexing itself away from Georgia which also offers favorable conditions for cryptocurrency mining including low rates of electricity.

However, high electricity usage has threatened to deny the common citizen regular electric supply as mining has proved untenable.

The Abkhazian have enjoyed relatively low tariffs on electricity. Households pay about 40 Kopeks (0.6 Cents) for a Kilowatt of electricity. Additionally, the power supply is in such abundance that the government estimates that 30 to 40 percent of the population doesn’t pay for power.

Catch-22 situation

The small state finds itself in a quagmire. On one hand, the long troubled electricity supply in Abkhazia is feeling the weight of cryptocurrency mining and may plunge the small state into darkness come this winter. On the other hand, Abkhazia has curved itself a niche as a cryptocurrency mining powerhouse.

Government officials as well as cryptocurrency players have been pitted by this imminent fear on two opposing factions. There have been calls for regulation of the cryptocurrency industry to bring on board laws that will address proper utilization of power during mining. However, industry players are of the opinion that any regulation to be adopted ought to be enabling rather than restrictive.

Aslan Basaria, head of the state-run energy company speaking on the situation on the ground said that,” the so-called mining farms put an additional load on our grid, the transmission lines and substations that are loaded to capacity even without it.”

According to him, “if temperatures fall, there is a risk that electricity will not reach regular customers not engaged in crypto mining.”

Economic Laissez Faire

Abkhazia has inculcated an economic policy of Laissez Faire in its Economy. This essentially allows its citizens to enfranchise themselves with minimal government interference in the form of taxes, tariffs or other restrictive rather than enabling laws.

Those in the cryptocurrency business have come out to register their disapproval of any limits on the consumption of electricity. The tiny nation has come off the back of civil wars, a mass exodus of the pre-war populace and now depends on troops from the Kremlin and others allied to the former Soviet Union for protection.

It remains to be seen how this small nation, with a proposal to float a national digital coin pending, will prepare its house in readiness for winter. Crypto is Coming!

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Northern Bitcoin Enters New Phase of Growth

As a pioneer in the world of cryptocurrency, Northern Bitcoin, based out of Frankfurt, Germany, specializes in the eco-friendly Bitcoin mining. The company’s goal is to challenge the current methods used for Bitcoin mining by creating sustainable infrastructure and offering it to the blockchain ecosystem.

Northern Bitcoin Invites External Miners To Their Pools

For this, Northern Bitcoin runs a mining pool from a 100% eco-friendly facility located in Norway, The network is designed to allow its users to contribute to the mining of Bitcoin, which is then redistributed amongst its miners.

Since the end of June, the company has been running their self-developed mining pool out of Maloy, Norway, but as of this month, they are looking to open their pools to external miners. In other words, miners from all over the world will now be able to contribute to mining Bitcoin through the company.

Moritz Jäger, CTO of Northern Bitcoin AG, says,

“Miners will be able to participate in the Northern Bitcoin mining pool in a variety of ways. They can either contribute computing power or even their own hardware when it exceeds a certain size. In this way, we will benefit from the company’s growth, and from the fact that we will receive fees from the external miners for making our mining pool infrastructure available to them.”

Eco-Friendly Bitcoin Mining

The company’s mining hardware is located nearly 200 kilometers north of Bergen, Norway in an underground facility housed in the Lefdale Mine.

Once a highly productive olivine mine, the site has now been converted into a state-of-the-art data facility. Furthermore, the facility only uses electricity from renewable energy sources rendering the company’s operations 100% eco-friendly. The power is taken from solar and wind energy, while a neighboring fjord provides ice-cold water that helps cool down the facility.

Aside from keeping their hardware cool, having the facility located underground also protects its equipment and machinery from electromagnetic interference which could potentially cause their systems to malfunction.

Remember folks, Crypto is comin!

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Interested in other cool crypto posts….check out Estimated Bitcoin Carbon Footprint and Why Peter Schiff is Wrong About Bitcoin.

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Bitcoin Price Vs Cost of Mining

It now costs more than 1BTC to mine 1 BTC in many places around the world. Below is a price chart indicating the current prices per country based on an average cost of electricity:

Quantative analysts at Fundstrat, a price analysis firm known to be bullish on Bitcoin, have released data demonstrating that the Price/Break Even indicator on Bitcoin is a proven line of support for the price.

For those of you who diidn’t go to trading school, this is technical analysis based on past history of the currency’s performance – when Bitcoin mining prices rise, the cost of the currency tends to rise accordingly, creating an upwards trend. Soooo much money is being spent on Bitcoin mining now (with Bitcoin consuming more electricity than the island of Ireland) that they believe the price is, according to Fundstrat, due to rise again, despite regulatory scares and market manipulation keeping it down.

Fundstrat’s Sam Doctor tweeted the below image demonstrating the past performance of Bitcoin as it relates to the P/BE indicator.
 
Doctor said:
“We believe breakeven mining costs provide a support level for , as – main natural sellers – reduce selling at low price. Based on expected computing hashpower and breakeven cost growth, that could imply price of $36,000 by 2019 year end.”

Why so expensive?

Bitcoin mining wasn’t always this expensive – it’s a competitive industry which has evolved from enthusiasts mining in their basement on an old CPU to huge warehouses filled with millions of dollars of specialized ASIC miners or custom-made mining rigs with graphics cards. The craze has gotten to the point where gamers have seen graphics card prices rise out of their reach, leading to many of them to resent the crypto movement altogether.

Sorry gamers!

Miners run powerful computers that try to crack algorithms designed to be increasingly more difficult and thus, increasingly more expensive to break – all the processing power required to solve the cryptographic puzzles runs up a hefty electricity bill, but for cracking the algorithms results in transactions being verified, blocks of transaction data being mined and added to the blockchain, and BTC rewards for the miners for keeping the network running.

As mining setups become more advanced and competition increases along with the difficulty of the algorithms, the price rises ever higher. It’s estimated that by the end of the year, Bitcoin mining will consume 0.5% of the world’s electricity.Ethereum miners haven’t fared much better – after seeing a 20x increase in value, people flocked to mining the number 2 cryptocurrency, but falling prices and increased competition have reduced rewards there as well. Tom’s Hardware released a graph showing the decline in mining profitability from December to March when prices fell from $871 to under $500 where they remain today, resulting in a 10x reduction in mining profitability.

What happens when it’s not profitable to mine Bitcoin?

Depends on who you ask. The only real incentive for miners to do what they do is the financial rewards they receive, and for that, they perform the vital service of verifying network transactions. It’s likely that many miners will quit or take a break.

“In some cases the miners may simply turn off the machines until the price comes back a bit,” said Shone Anstey, co-founder and president of Blockchain Intelligence Group. “It’s got to be getting to the point that some of them may be losing money.”

If all the miners were to quit, we’d have no Bitcoin – transactions wouldn’t get verified and the network would grind to a halt. However, as more miners quit, the competition becomes less intense for those who stick it out – larger operations can probably even afford to run at a loss for a while and accumulate in the hopes that it will pay off if and when Bitcoin’s price recovers.

This essentially results in more centralization of the network, putting control of the transaction verification process of an increasingly smaller and more powerful group, something the network was actually designed to avoid by allowing anyone to run a node.

However, it may simply be the case that large mining pools operating huge rig farms will be the only ones able to compete in future.

What if miners just stop altogether?

Here’s why that seems unlikely – Fundstrat’s Sam Doctor also pointed out that the increasingly more effective ASIC mining technology may well hold the answer, making Bitcoin mining cheaper even as competition grows. While Funstrat estimates the breakeven price for Bitcoin miners using the current gen Antminer S7 models is $6,00, the Antminer S9 has a far lower breakeven price of $2,368 USD.

“The release of the next generation of rig hardware should trigger a new round of capex as well as hash power growth, which could accelerate if BTC price appreciates.”

A sudden reduction in mining costs could trigger new market growth and lead to yet another upsurge in the price of Bitcoin.

Fundstrat’s Tom Lee had this to say on Twitter:

While it can seem easy to disregard the predictions of a high-profile investor as someone just trying to inflate the value of their holdings, it’s equally notable that a Wall Street investor like Lee believes in Bitcoin enough to invest in the first place.

In fact, Lee predicted in July last year that Bitcoin could reach $20,000 to $55,000 by 2022 – that was back when it was trading at under $3,000! Bitcoin did indeed, for a brief moment Sunday December 17 of last year the price did indeed reach $20,000, even earlier than Lee predicted, before plummeting down to the current price.

But is Bitcoin finally ‘dead’, as has been said so often over the years?

Or is it just resting its eyes? Fundstrat’s Tom Lee stands by his predictions – so keep an eye on those charts.

Interested in other cool crypto posts….check out A look at Historical Crypto Corrections and The Top Secret Hedge Fund That Everyone Knows About.

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