Lessons from a Decade of Bitcoin Mining – Bitcoin Magazine
This is an opinion editorial by Marco Streng, CEO of Genesis Digital Assets, one of the world’s largest industrial-scale bitcoin mining companies.
We can put some hard numbers behind the growth of the cryptocurrency mining industry – a current market size of $2.29 billion, a CAGR of 28.5%, projected to reach $5.29 billion by the end of 2028 – but the real growth in mining comes from the lessons learned over the years and implemented those lessons to become more profitable and sustainable.
I started mining bitcoin in my dorm room in 2012 and began mining bitcoin on an industrial scale in 2013, just a few years after Bitcoin was created in 2009. Since then, our business has scaled to include data centers around the world and mined billions of dollars. Mining may have been a fun pastime back then, but scaling an industrial-sized mining operation is a completely different experience – one that requires focus, tact, and the ability to learn from your mistakes.
Here are some of the best lessons I’ve learned over the past decade about how to scale bitcoin mining.
Lesson 1: Large scale mining requires capital
The days of being able to mine bitcoin on a laptop are over, as large scale mining has become a very capital intensive industry. It’s not just the cost of the actual equipment and associated upgrades. There are location costs, wages and all the associated expenses of running a technology business in one place on a large scale. Funding for these expenses has to come from somewhere — and not necessarily from reinvesting the bitcoin mined back into operating costs, either.
When it comes to seeking capital today, many mining companies see debt financing as a good option, as the lower risk is more attractive to investors. However, many mining operations take their companies public and raise equity capital through stock sales as a way of financing – even using the hardware as collateral.
Lesson 2: Build long-term relationships within the industry
While the cryptocurrency mining industry has grown so much over the past decade, it is still relatively small, with a limited number of players involved. Because of this, it is crucial to establish relationships and build them for the long term. This is especially true with hardware manufacturers, as there aren’t many of them. If you don’t like the way they do business, you can’t necessarily go elsewhere; similarly, you also need to be a good customer to build this trust and reliability.
Lesson 3: Prioritize operational efficiency
In order to run a successful mining operation, you must be obsessive about your operational efficiency. At its core, you want to ensure you’re running the right hardware in the most efficient way, which means being proactive on top of upgrades, adequate cooling, consistent uptime, and other factors.
Thinking through your operational considerations will not only make you more successful, but will ultimately make your business more resilient to changes in the market and industry.
Lesson 4: Continuous innovation
When you’re obsessed with operational efficiency, you want to be creative with your solutions. Being in a fluctuating industry like bitcoin mining means facing recurring and new challenges, and innovating in response.
Some of the innovations we came up with include creating a better software management system for our data centers when faced with tools that could not monitor and manage our operations at scale. We have turned to innovations in construction, including modular containers that can be shipped and set up anywhere. We are also creative with the surplus heat emitted by our data centers and use it to run greenhouses.
Lesson 5: Consider places carefully
Another lesson learned is to choose your location carefully – especially evidenced in China’s crackdown on cryptocurrency mining in 2021, forcing mining operations that controlled 71% of the world’s hashrate to shut down and relocate to a new country. So, when looking at where to locate your data center, choose a country that is committed to having mining within its borders and where political changes will not be a risk to livelihoods.
Choosing a good location also depends on the types of energy available, as many bitcoin mining operations seek locations that offer abundant renewable energy sources. The good news is that the bitcoin mining industry’s sustainable electricity mix has risen to 58.4% this year – but there is still a way to go to make the industry greener and location will play a role in that.
Lesson 6: Downtime = Lost Profit
Another lesson learned? Time is money. Any downtime, even for a few minutes, can put you behind. There was a time in 2015 when we knew that waiting months for new hardware to ship was going to result in lost productivity, so we chartered some planes to pick up the hardware ourselves, reducing lost time and profits.
But with the global chip shortage causing companies to wait up to a year for supplies, mining companies can’t just charter planes to get machines faster, because there might not be any machines to get. To prevent downtime, orders must be predicted through robust modeling of the Bitcoin ecosystem and placed well before they are needed.
Lesson 7: Scale creates momentum and resilience
When bitcoin mining began, miners were individuals, but mining soon had to scale to large operations running thousands of rigs mining around the clock. It is no longer possible for individuals to mine, but even small players will also have problems with mining. There is so much needed for large-scale operations, as they have the economies of scale to maintain operations as well as momentum. Large businesses are also more resistant to fluctuations in the market.
Lessons learned and implemented
Managing large-scale mining requires focus and dedication, and there are going to be many lessons learned as we venture forward into this brand new industry. However, the aim is to face challenges head on, learn from them and be creative in our response to build a sustainable and profitable business.
This is a guest post by Marco Streng. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc Bitcoin Magazine.
