The Future of Cryptocurrency mining: Trends and Technologies to Watch

With Ethereum’s transition from Proof of Work to Proof of Stake, the need for cryptocurrency mining has declined. However, can we already consider such services obsolete? Or will Bitcoin and a few other remaining PoW[1] mining coins be enough to keep the profitability of this sector?

Apparently, it’s not only consensus transitions that shape the future of crypto mining. Below you can find a few technological and regulatory trends that could significantly impact miners and their precious ASICs[2].

Why does crypto mining matter?

Today, crypto mining more or less equals Bitcoin mining. Even though a few major cryptocurrencies still utilize Proof of Work consensus – Dogecoin, Litecoin, or Ethereum Classic – the majority of ASICs are dedicated to securing the BTC network.

The goal of such devices is to generate maximum computing power to support and secure the network. The more advanced and efficient they are, the higher probability that a particular ASIC (or a pool of ASICs, which is the most common solution) will solve a complex cryptographic puzzle that serves as a foundation of Proof of Work consensus. Thanks to that, the network becomes decentralized and secured, while miners receive a reward for their work in the form of Bitcoin. This mutual benefit makes the entire mechanism extremely safe and valuable, enabling BTC to be the first purely decentralized digital currency.

Is crypto mining still profitable in 2023?

However, the initial investment (the amount of money needed to buy a mining rig), as well as high electricity costs, raise many concerns related to the profitability of cryptocurrency mining. Especially when Bitcoin’s price is lower than miners would have expected. Even though most of them join mining pools (which obviously raises the probability of receiving BTCs as a reward), they often struggle to cover expenses with revenues.

The good news (both for miners and the general crypto community) is that despite poor market conditions and a very tricky macro situation regarding electricity, Bitcoin mining is still profitable. Although it’s justified to say that the price volatility makes this business very risky. One black swan, FUD on the markets, and the situation can change drastically, leaving miners with the dilemma of selling their hardware or maintaining their mining stack despite temporary (hopefully!) problems.

Crypto mining trends for 2023 and beyond

The future of crypto mining is, however, influenced not only by the price of Bitcoin but also by general trends affecting web3. Hence, we decided to do a solid study and list the most important tendencies in various areas that should shape this industry in the coming months and years.

Crypto mining trend #1 – sustainable mining

The main concern regarding crypto mining has always been related to energy consumption. Why, in times of global energy and climate crisis, do governments allow “a group of greedy technological geeks” to use vast amounts of electricity and emit clouds of carbon dioxide?

Well, we obviously disagree with this specific type of discourse. However, cryptocurrency mining surely needs renewable and efficient energy sources. This could help not only to satisfy web3 adversaries but also to make this area more sustainable and profitable for the miners themselves.

Fortunately, according to the recent report by Bitcoin Mining Council, in the fourth quarter of 2022, the use of renewable energy sources to mine Bitcoin increased significantly to 58.9%. It’s a notable improvement compared to the estimated 36.8% in the first quarter of 2021 and, indeed, a positive trend for the future.

Crypto mining trend #2 – Proof of Stake shift

As we mentioned in the first paragraphs, Ethereum’s transition to Proof of Stake significantly changed the world of mining. PoS consensus is undoubtedly more energy efficient and “publicly accepted,” which triggers protocols to design themselves around this type of mechanism instead of mining-based Proof of Work.

Obviously, the most established mining coins, such as Litecoin, Monero, or especially Bitcoin, won’t change their consensus. However, it’s unlikely that we’ll see a lot of new ones based on such a mechanism which can significantly lower the growth of the mining space.

However, this trend could change a bit in the future – depending on the upcoming…

Crypto mining trend #3 – regulations

Yes, you’ve guessed it right – crypto regulations can affect mining as well. As the SEC clearly states that Proof of Stake cryptocurrencies should be perceived as securities, the industry is looking for alternatives. Especially since Gary Gensler, the SEC’s chairman, clearly states that only PoW-based and thus decentralized Bitcoin can be excluded from regulations.

Well, at least the ones related to securitization. Governments are also considering specific legal instructions targeted at mining – with a ban on this type of activity considered one of the options.

Of course, it’s unlikely that all the institutions from around the world will jointly agree to forbid cryptocurrency mining. Even if some of them decide to prohibit such activities, miners can always decide to move their hardware to another place.  However, suppose such a ban comes from the Chinese, US, or Kazakhstan governments. In that case, the consequences could be harder to avoid – as the biggest mining pools (that are pretty challenging to relocate) are placed exactly in these countries.

Crypto mining trend #4 – cloud mining

The alternative could be cloud mining which allows miners to rent their equipment and host it remotely. In other words, such technology enables every individual to join the pool online and provide computing power “at a distance.”

This kind of solution won’t address the problem of a potential ban completely. However, it can allow mining pools to build their facilities in crypto-friendly countries (that are unlikely to ban mining) while still benefiting from computing power from around the world. It could also help them lower electricity costs and make the process more sustainable – as connected miners can come from countries where renewable energy sources are dominant.

Crypto mining trend #5 – chip shortages

However, there is yet another struggle the mining industry has to face. The struggle that basically the entire manufacturing world has to cope with.

The growing demand for semiconductors used in electric cars, mobile phones, and other devices has significantly impacted ASIC production. The shortages in this area started in 2019 and were drastically amplified during the COVID-19 pandemic (due to supply chain issues). The increasing production of various gadgets, including tablets, smartphones, and artificial intelligence devices, also didn’t help solve these problems.

It means miners have to plan their capital expenditures in the long term, making their business extremely inflexible. In times of stable growth – it shouldn’t be an issue, as mining rigs ordered one year ago should remain an optimum solution after they arrive. However, in the case of significant innovations, such entities wouldn’t be able to respond relatively quickly.

Crypto mining trend #6 – quantum computing & AI

What kind of innovations do we have in mind? Well, the crypto mining sector has been facing the threat of quantum computing “taking over Proof-of-Work” for a long time. It is often said that the power generated by such solutions could be enough to “deceive” the decentralized network of nodes and break the consensus – leading to double-spendings and other frauds.

Computer scientists claim, however, that the threat from quantum computers can come no earlier than 2028. On the one hand, it’s enough time to develop mining rigs resilient enough to face such an attack. On the other, it’ll require ASIC producers to focus more on innovation despite the aforementioned ship shortages.

But it’s not only threats that come from new technologies. For example, integrating artificial intelligence into the world of cryptocurrency mining can drastically improve its efficiency, making it more sustainable. Moreover, the eco-friendliness of mining could also be enhanced by immersive cooling. Such technology is capable of rapid and efficient dissipation of heat compared to conventional methods. The result should be improved computing performance and reduced electricity costs.

 

^[1] PoW – proof-of-work; a consensus mechanism that requires a lot of computing power in order to secure and maintain the blockchain network. Nodes participating in such activities are rewarded with cryptocurrencies. Such a process is basically what we call “mining.”

^[2] ASIC – an acronym for „application-specific integrated circuit.” In crypto terms, it means hardware that was created specifically for mining cryptocurrencies, i.e., generating the most effective power to solve complex cryptographic puzzles and, in consequence, securing a particular network and earning cryptocurrencies as rewards.