Here is the English translation of the text, with the specified terms preserved:
The reason why Bit can become a global cryptocurrency system is due to the competitive process of mining. The mining mechanism ensures the normal update of the Blockchain and coordinates the economic incentives of the entire network. Nowadays, the Bit mining network is of a huge scale, generating more than 700 quintillion (note: 1 quintillion = 1 million billion, 10^18) hashes per second.
The revenue of Bit miners comes from the newly issued Bit and network transaction fees. Their expenses cover equipment, electricity, and other operating costs. Many miners also hold Bit on their balance sheets, and an increasing number of miners are expanding their business into artificial intelligence (AI) and high-performance computing (HPC) services.
Grayscale Research estimates that Bit mining accounts for 0.2% of global electricity consumption; compared to other industries, the proportion of clean energy in the electricity consumed by Bit mining is higher. Bit mining may help accelerate the achievement of environmental protection goals, especially in areas such as methane emissions.
Bit is a decentralized computer network that stores $2 trillion in value. The realization of this modern miracle relies entirely on mining: network participants compete to add the next Block to the Blockchain and earn the right to the reward. Nowadays, the scale of Bit mining operations is astonishing, as they convert actual energy into digital security guarantees. The computing power used to protect the Bit Blockchain is like a digital "vault door", and it is this mechanism that allows an autonomous computer network to become a global digital currency system. The professional skills, capital expenditures, and ongoing operating costs required to operate Bit mining facilities, as well as the high degree of competition in the industry, help maintain the decentralization of the Bit network, while making attacks prohibitively expensive.
Investing in publicly listed Bit mining companies can generate revenue from Block production, and with the passage of time, there is also the prospect of revenue growth from the continuously increasing network transaction fees. In fact, most listed Bit mining companies adopt diversified business models, with many companies holding the Bit they have mined on their balance sheets, and even purchasing Bit on the open market. Currently, Bit mining companies have also begun to venture into the operation of data centers for artificial intelligence and high-performance computing, diversifying their business.
Modern Miracle
Although Bit mining is highly complex at the technical level, the concept is quite simple. Specialized computers compete with each other, guessing a random number, and the computer that first guesses the correct number wins the right to update the Blockchain (i.e., "mine a Block"). The winning miner will receive the newly issued Bit and transaction fees of that Block (i.e., the "Block reward").
In this race, there are no shortcuts, as there is no algorithm that can find the correct number faster. Bit miners can only compete by brute force. This process can be seen as a game of probability. Miners keep guessing until they find the correct answer, like rolling a multi-sided die until the desired number appears. Therefore, the probability of winning depends on the number of guesses (i.e., "rolls of the die") the miners can make per second. The operators with the most machines and the highest machine efficiency will have the most guesses and the greatest chance of winning the Block reward.
From a technical perspective, the winning result is not just a random number, but a "hash value" that combines this number with other data. In computer science, a hash function is a mathematical operation that converts any data into a string of characters, i.e., the hash value. For example, using the hash function in the Bit network, the hash value of the word "Bitcoin" is: b4056df6691f8dc72e56302ddad345d65fead3ead9299609a826e2344eb63aa4.
Therefore, the task of Bit miners is to quickly generate hash values: guess a random number, calculate its hash value (by combining the random number with other data), and then check if it is correct.
It is estimated that there are currently about 5-6 million Bit mining machines generating hash values on an astonishing scale (see Figure 1). Over the past 90 days, Bit miners have collectively generated hash values at an average rate of 765 EH/s (765 quintillion hashes per second). In other words, Bit miners are guessing random numbers and calculating their hash values at a rate of over 700 quintillion times per second. To put this number in perspective, it is estimated that there are about 7.5 quintillion grains of sand and 10 quintillion insects on Earth.
Generating such a large number of hash values is costly, but this is the key. To compete for the reward, mining operators need to purchase specialized machines and other hardware, and pay ongoing electricity and maintenance costs. Thus, by generating the correct hash value, miners provide a "proof of work" to show that they have invested economic resources and can be trusted to update the Blockchain.
Attacking Bit would mean defeating the existing Bit mining industry. In theory, if a malicious actor controlled 51% of the network's hash rate, and could therefore mine the majority of Blocks, they could disrupt the network (e.g., double-spend Bit or censor certain transactions). In a paper, researchers estimated that as of February 2024, the cost of a sustained 51% attack on the Bit network lasting one hour would be between $5 billion and $20 billion. In reality, no entity has the economic incentive to invest these resources, and the Bit network has other defense mechanisms beyond mining.
The Business Model of Bit Mining
The revenue of Bit miners is equal to the Block rewards they earn from mining, while their operating expenses come from running the machines and the electricity consumed in generating the hash values (which may also include maintenance, mining pool fees, and other operating costs). Therefore, the goal of Bit miners is to generate as many hash values per second as possible at the lowest possible cost.
In 2024, miners collectively earned around 2.3 million Bit, worth nearly $15 billion at the time's price. This represents an approximately 19-fold increase compared to 2014, with a compound annual growth rate of 34% (see Figure 2). Every four years, the rate of new Bit issuance will decrease in an event known as the "Bit halving". Although the issuance volume in Bit terms has declined, the mining revenue has continued to increase over time due to the rising Bit price in US dollars. In the future, the growth in mining revenue may come from increases in the Bit price and network transaction fees.
The operating costs borne by miners are primarily in the form of the electricity consumed by running the machines. Each operator will negotiate their own electricity purchase agreements, which vary greatly around the world. For the sake of illustration, we can construct a simplified picture of the overall economic situation of Bit miners by assuming an electricity cost, and ignoring other costs. For example, Figure 3 compares the revenue of Bit miners to the estimated total electricity cost, assuming an electricity price of $0.05 per kilowatt-hour. The difference between revenue and electricity cost can be viewed as a simplified measure of the miners' operating profit margin. Miners benefit when the dollar value of the Block reward increases, and are harmed when the dollar cost of generating hashes rises.
Figure 3: Miner operating profit margins reflect the gap between Block rewards and electricity costs
Given the varying electricity costs faced by global miners, a more intuitive metric may be the dollar value obtained per unit of electricity consumed, such as miner revenue per megawatt-hour (MWh). Industry participants often refer to the closely related "hash price" concept, which is calculated by the ratio of daily miner revenue to network hash rate. While the concepts are very similar, hash price tends to decline as miner efficiency improves. Therefore, miner revenue relative to electricity consumption may more accurately reflect changes in miner economics over time. Figure 4 shows the daily Bitcoin miner revenue per MWh. Over the past two years, this estimate has remained largely stable, despite significant volatility around the 2024 halving.
Figure 4: Miner revenue per MWh has remained largely stable over the past two years
Investing in Bitcoin Mining Companies
Investing in publicly traded mining companies' stocks allows participation in the Bitcoin economy through the securities market. The business models of Bitcoin mining companies may be increasingly diversified, but their core business involves generating hashes, mining Blocks, and obtaining Block rewards. Due to differences in electricity costs, non-power operating expenses, and other factors, the actual costs for each miner to obtain Block rewards vary. In Q3 2024, the average cost of Bit production for the largest publicly listed miners ranged from $34,000 to $59,000 per Bit (see Figure 5), while the average Bit price that quarter was $61,000.
Figure 5: Production costs vary across different miners
Bitcoin mining companies also differ in how they hold Bits on their balance sheets. Some miners immediately liquidate Block rewards, while others hold onto the rewards, and some even purchase additional Bits on the open market. Naturally, these differences in balance sheet policies can have a significant impact on the financial performance of publicly traded miners when Bit prices fluctuate (see Figure 6). That said, many factors influence the risk profile of individual miners, and miners with relatively higher Bit holdings on their balance sheets do not necessarily carry more risk than those who liquidate Block rewards.
Figure 6: Some miners hold Bits on their balance sheets
Recently, Bit miners have begun to venture into areas such as artificial intelligence (AI) and high-performance computing (HPC) services, where the demand for data center infrastructure is rapidly growing. For example, Goldman Sachs research estimates that data center power demand (excluding crypto-related) could grow by 160% between 2023 and 2030. Bit miners may have a competitive advantage in supplying the AI/HPC market, as they can access low-cost power and related infrastructure. In early 2024, the third-largest publicly listed miner, Core Scientific, announced a long-term contract with a specialized AI infrastructure service provider, CoreWeave. Since Core Scientific's announcement with CoreWeave in June 2024, several other publicly listed miners have also taken steps to expand their business into the AI/HPC space.
Bitcoin Mining and Sustainability
Bit mining consumes actual economic resources - electricity - to create a decentralized digital security guarantee. The success of Bit as a digital currency system means that mining now consumes a significant amount of electricity. Bit is a unique energy consumer, and it has already utilized a substantial portion of clean energy resources. Grayscale Research believes that over time, mining may contribute positively to the green energy transition.
According to Coin Metrics data, we estimate that the Bit network's power consumption rate was approximately 175 terawatt-hours (TWh) over the past 12 months. This is consistent with the estimate from the Cambridge Centre for Alternative Finance (see Figure 7). Based on 2023 data (the latest available year), Bit's energy consumption accounts for 0.2% of global total electricity consumption (accounting for transmission losses). The Cambridge Centre for Alternative Finance estimates that data centers consume around 200 TWh of electricity per year, and this energy consumption is expected to rise due to the use of AI models.
Figure 7: Bit mining consumes electricity to create digital security guarantees
Compared to typical residential or commercial users, Bit is a unique energy consumer. Bit mining has modular, mobile, location-agnostic, interruptible, and highly price-sensitive characteristics. As a result, miners can often operate in areas with low-cost, clean energy resources. It is estimated that around 50% - 60% of the electricity used by the Bit mining industry comes from sustainable sources (including nuclear). In the US and globally, the share of sustainable energy in electricity generation is around 40%. Using 2023 data and assuming a 50% - 60% sustainable energy mix in Bit's power consumption, we estimate that Bit mining accounts for 0.2% - 0.3% of global CO2 emissions related to electricity generation.
Grayscale Research believes that Bit mining can help accelerate the deployment of renewable energy infrastructure in the coming years. Due to its unique attributes, Bit mining incentivizes investment in renewable energy infrastructure, especially in regions without transmission lines connecting to major population centers. Bit mining can also help stabilize grid demand, which can fluctuate due to consumption patterns and weather, as it has done in the Electric Reliability Council of Texas system. Additionally, startups like Sustainable Bit Protocol have created market mechanisms to incentivize the use of clean energy and reward the reduction of methane emissions. Addressing methane emissions may be a particularly important way for Bit miners to contribute to environmental goals. Companies like Crusoe Energy have also developed methods to utilize excess natural gas for electricity generation instead of flaring it, providing power to Bit miners.
In the coming years, the growth of technological applications will create massive demand for electricity, from digital assets, AI, and other industries. Grayscale believes that Bit can contribute to the healthy operation of global power infrastructure and has unique advantages in accelerating the transition to renewable energy compared to many other industries.
Original link: https://www.grayscale.com/research/reports/the-power-of-bitcoin-mining
