Future of Bitcoin Mining: What May Happen in Next Few Years?
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Bitcoin networks have been growing and developing significantly and becoming more widespread among traders, investors, customers and business owners. Since 2009 when Bitcoin first appeared on the market, the price of Bitcoins has been rapidly increasing, up to $1,100 per coin and decreasing to as low as $300 per coin over a short period. Today, its price sits between $400 and $500 per coin. The Bitcoin network is not fixed or stable, it is developing over time. Therefore, it is interesting and difficult at the same time, to understand what it is going to happen in the next few years. Let’s disclose several potential ways that Bitcoin may develop and discuss what threats the network may face.
The Monopoly of Big Mining Pools
The first and the most problematic issue with Bitcoins network development is the centralization of the mining process. Today, just as a few years ago, mining is an unprofitable deal for a solo miner. Even if you have the latest ASIC and free or cheap electricity, it is still unlikely that you will be able to make a profit by yourself in mining. This is a rapidly growing problem. It is increasing so quickly that even a delay in the delivery of your equipment can affect your future yield from mining. Consequently, all miners who are still looking to mining as a business, should consider choosing a collaborative Bitcoin mining pool. In pools, they can receive a small, but stable and permanent income about every ten minutes. This stream of miners is following the biggest pool because big mining pools solve blockchain issues more often due to their compound hashrate. It is a much higher than the hashrate of small pools.
On the other hand, Bitcoin mining has become big business. Due to the difficulties, there are fewer small companies involved to solve problems and provide transactions for the network. The more difficulties increase, the fewer small companies stay in market leaving only big corporations. They have the fastest equipment, the cheapest electricity costs, and other expenses and can afford to keep their business afloat and take a bigger share of the market.
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In other words, we have two trends. There are a concentration of network hashrates in a few large pools and a concentration of mining business in the hands of big corporations. Obviously, this is a threat to the Bitcoin network. At least it was designed as a decentralized system and has no leading or running institution, company, or an official authority. It’s supposed to be decentralized and diversified. This is at the core of the cryptocurrency and why it has become so popular and widespread. The main weakness of a centralized network is its vulnerability. This can endanger customers’ transactions and the system’s stability. Moreover, the network can come under the control of a government. That’s why decentralization of the network is extremely important for its development.
Future of Bitcoin Price
The second question regarding the Bitcoin network is how its price will fluctuate over time. Some people choose the cryptocurrency as an asset for investment because they believe its value is going to increase over the next few years. However, it should increase over a longer period due to its nature. There will be no more than 21 million coins created in total. If there are no problems with Bitcoin itself, its value is predicted to increase over the long term. That’s the main reason why some people invest in Bitcoin.
Nevertheless, it’s also a big threat to the Bitcoin community and network as well. Nobody knows for sure in which way the price will change over time. The cryptocurrency is still very vulnerable and its price can be affected significantly. Today, more big financial institutions and banks acknowledge the increasing role of Bitcoin in the financial world. Though some officials, governments, and state’s representatives acknowledge its role, some countries and governments are anxious over this way of making transactions. They say it may be used to sponsor terrorism, providing operations and transactions on the black market or an underground economy. For these reasons, they may restrict or even ban the use of cryptocurrencies and similar blockchain technologies from being used in their counties. Every such ban and restriction affects the whole network and Bitcoin’s price.
Evidence of this is China, in 2014, announced that the use of cryptocurrencies by financial organizations was unsafe. This claim reduced the value of Bitcoin by $300, from more than $1,000 down to $700 over two days. It is very difficult to run a business if your main products price changes so often that even measuring your income becomes difficult.
Here rises another problem for the mining and Bitcoin network. If its price can go up and down so often and unpredictably, miners have no any opportunity to estimate their potential future profits. This is r important for a business, to know how much and what you are gaining from your investments. For example, if you acquire a good ASIC for your business and negotiate with suppliers to get your equipment as soon as possible, you may still get in trouble with mining. This is due to the changing price of the cryptocurrency while you are trying to cover your costs and expenses. Therefore, if you rely on the price of $400-500 per Bitcoin to recoup your investments in two years, your plans may be spoiled by the price down decreasing as much as $250-300. This may last for a rather long period. The reason for decreasing values can vary but this is not the main issue. The main problem is due to an everlasting and increasing level of difficulty after a relatively short period as your equipment becomes outdated and too slow for current hashrates. This leaves you with no means to recoup your money at all. It creates trouble for companies and the miners who work today, but more importantly this tendency threatens potential companies who would like to enter the market. It may lead the whole industry to increase the concentration and monopolization of businesses. As we all know, monopolism is bad for everyone except the monopolists.
Increase of Energy Consumption
Another problem for mining is energy consumption. The difficulty of the process increases, therefore, miners need to acquire more and more equipment. Though they try to use more efficient and faster ASICs and coolers, they still consume a lot of energy and this consumption is continually increasing. One day, electricity costs will become so expensive that it will make the process less profitable than today. Moreover, energy consumption negatively affects the environment due to pollution. People who mine Bitcoins do not pay for the environments repair and this problem becomes an issue for the whole of society. The solution may be solar or wind energy or any other source of alternative energy. Though this could help solve the problem of polluting the environment, it still creates another. This is electricity bills will be much higher than they are today. Therefore, this will work only if alternative energy becomes cheap and affordable.
Consequently, the Bitcoin network has different ways it can develop. It does not mean that Bitcoin network are condemned to fail.
However, Bitcoin miners, investors and others, should take into account these suggestions and take some action to prevent or eliminate them if possible. There is no doubt that crypto technology has changed the finance world but the technology may still be imperfect and not without issue.
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