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Bitcoin Mining The Evolution of A Multibillion Dollar Industry Yassine Elmandjra, and Derek Hsue, Manufacturers and Self-Mining In the past, mining machine manufacturers have tried to leverage their own hardware by opening up mining facilities. Not only are they able to deploy hardware at the cost of goods sold but they also can control the delivery of hardware to competing miners, which begs the question of why they would sell any hardware in the first place? As Obelisk founder David Vorick has stated in the past,32 “A well-funded profit maximizing entity is only going to sell a money printing machine for more money than [it expects...to] get from printing it.” We believe that among the reasons mining machine manufacturers would sell hardware are the following. The expertise to operate mining facilities is very different from that to manufacture hardware, much like manufacturing oil drilling equipment requires competencies different from those in oil exploration and development. Manufacturing is a capital-intensive process with significant lead times. Moreover, without a competitive advantage in sourcing electricity, mining machine manufacturers could be uncompetitive despite their hardware cost advantages. The Cost to Mine Profitability levels for miners vary across operations. Given their highly competitive nature, large- scale Bitcoin miners tend to operate privately. Their capital spending is largely a function of hardware, and their operating expenses a function of electricity, cooling, and maintenance. According to our research, based on Bitcoin’s historical hashrate and the advances in mining hardware since 2013, miners have spent $17.6 billion to deploy, operate, and support their expansion, as shown below.33 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Figure 8: Estimated Cumulative Mining Costs Incurred USD (Millions) 2013 2014 2015 2016 2017 2018 2019 Source: ARK Investment Management LLC, 2020 32 Vorick, David. “The State of Cryptocurrency Mining.” Medium, Sia Blog, 14 May 2018, blog.sia.tech/the-state-of-cryptocurrency-mining- 538004a37f9b. 33 Our estimation for the total cost of mining is driven by several assumptions. At a high level, the mining cost components we incorporate into the model include electricity, hardware, maintenance/cooling, leasing, and expansion costs. 13PDF Image | Bitcoin Mining
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