According to a Bitcoinist report on December 10, the development of the Bitcoin derivative market may provide mining companies with financing and support in the face of urgent power demand. In 2019, the currency price continued to fluctuate, but mining activity was still close to historical highs.
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Large-scale Bitcoin mining
In 2019, the mining business continues to expand, and large mining pools and ASIC manufacturers have once again become the focus. Jia Nan Yun Zhi successfully listed on the NASDAQ.
However, according to Reuters, a new product may be forthcoming to help miners directly hedge the risk of Bitcoin's volatility in the coming months. Large mining pools occupy more than half of the Bitcoin block, small mining pools are extremely vulnerable to fluctuations in hash values, and larger mining companies can afford more powerful ASICs or simply use cheap hydropower to run more machines .
Michel Rauchs, author of the mining research project at the University of Cambridge, said:
The hash value is on the rise. Unless miners increase their production, they will keep reducing the amount of bitcoin they get without changing power.
With hash value derivatives, miners can price risk.
A high hash value means more competition and more difficult mining conditions. The hash value is not a constant, the mining difficulty is readjusted every 2016 blocks, and Bitcoin's mining rewards change accordingly.
In the past few weeks, Bitcoin's hashes have fluctuated sharply, ranging between 74 million hashes per second and close to 100 million hashes. More precisely, the difficulty of mining increased sharply, and then decreased slightly.
Hash Futures Products
London-based crypto startup DAG Global will offer derivatives based on Bitcoin hashes. Robert Andersen, the company's director of digital asset sales, said:
The fluctuation of the hash value can make miners quickly change from profit to loss. Bitcoin hash value futures contracts can provide protection. However, like insurance, premiums need to be paid for this.
The profitability of mining is highly dependent on the spot price of Bitcoin. In search of working capital, miners usually sell some bitcoins. Derivatives and futures markets can hedge price risk. In addition, another company, GSR, is also preparing to develop products based on hash risk. Currently, the project is still in its infancy and may be delayed for several months.
If electricity costs are high, miners may need to focus on break-even prices. For Chinese Bitcoin miners, the price of hydropower is very low. Bitcoin's annual power consumption exceeds 73.12 trillion watts, which is slightly higher than the power required for Austria's economic development. Among them, the four largest mining pools consume about 50% of the electricity.