Once considered a cash cow, crypto mining is becoming too costly for some miners as the bear market takes its toll. Several mining firms have already made drastic cuts to business contracts in response to shrinking margins -- another sign that barriers to entry for mining are mounting.





Recently, Iceland-based Genesis Mining told clients that unless they could commit to a five-year subscription for mining services, their contracts would be shut down. “The market price of Bitcoin and the mining difficulty are factors we cannot control,” the company wrote in a blog post. The lower price of Bitcoin, among other factors, have “reduced mining outputs even further.” In July, another mining firm, HashFlare, also cut business contracts, citing difficulty in generating revenue.





Mining cryptocurrencies, namely Bitcoin, has become an arms race. Though individuals could once mine Bitcoin through their personal computers, Bitcoin mining now requires specialized hardware or mining rigs, which compete with other machines in the Bitcoin network to solve mathematical formulas. Every 10 minutes, about 12.5 Bitcoins are mined (about US$87,000 at the time of writing), no matter how many machines are mining at once.





This has made Bitcoin mining a very costly endeavor. Larger mining farms, which set up facilities in countries with lower electricity rates and buy mining rigs in bulk, have been able to boost their mining processing power, or hashrate. And despite the falling price of Bitcoin, the global hashrate is rising steadily, in part due to newer and more powerful mining machines. That means that it’s not only becoming less profitable to mine, but increasingly more difficult.





According to a report by JP Morgan from February, the cost to mine one Bitcoin is about US$3,920, depending on where you are.









Mining firms aren’t the only casualties of the bear market. US chipmaker NVIDIA is also feeling the heat from dropping token prices. GPU business revenue fell 4 percent sequentially, with a “substantial decline in cryptocurrency GPUs,” stated NVIDIA’s chief financial officer in its second quarter earnings report.





Of course, some cryptocurrencies are actively working to keep the cost of mining low, to avoid Bitcoin’s fate, or increasing centralization and rising costs. In particular, tokens like Siacoin and Monero are fighting against Bitmain, the largest mining hardware provider in the world, which has developed powerful mining rigs -- considered state-of-the-art in Bitcoin mining.





Other blockchain companies are moving away from mining entirely. Instead of relying on miners to verify activity on the blockchain, some are experimenting with voting. In a voting system, those who receive the most votes from blockchain users are tasked with keeping the ledger secure. However, some voting systems are already proving fragile -- and susceptible to collusion.





In any case, the bear market has highlighted the drawbacks of a blockchain system that relies on mining. Price fluctuations shouldn’t play a role in incentivizing people to keep the blockchain secure.







