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Fundamentals

Rob Warren Opinion: 4 Lessons To Thrive Through The Halving

Robert Warren is the Manager of Mining Projects and Operations Analysis with Riot Platforms as well as the author of the upcoming book, The Bitcoin Miner’s Almanac. In this post, he details the four lessons miners must learn if they are to survive and thrive through the coming halving.

Published on Apr 15, 2024
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Published on Apr 15, 2024

Table of Contents

The halving is on our doorstep. Bitcoin miner sentiment is generally positive. But, it was only a few short years ago when panic filled many bitcoin mining farms. Below we review the 4 main lessons from the last epoch in the hope we survive more comfortably through the next. 

It seems like just yesterday bitcoin miners were suffering through a bear market. The industry was in severe contraction, ASIC prices were collapsing, hashprice was scraping the bottom edge of the graph, and (of course) nobody was hedged.

The experience was humbling. Many operators stopped expansion and stretched their finances to the brink for the sake of survival. Others called it quits entirely, sold their assets, and tucked their tails between their legs to claim tax losses. 

Bankruptcy (or the edge of bankruptcy) is a stern lesson, and bitcoin miners who lived through the contraction have emerged with a renewed vision of the space. No longer are we purely ideological actors, committed to hashing in all conditions under the assumption that the inevitable mechanics of NGU will save us over the long term – there are input costs to manage, staff to pay, and machine repairs to be made. Bitcoin mining, first of all, must have a business model or utility value to operate profitably.

The upcoming halving is a known shock to our businesses, a severe reduction in our profitability, and an excellent opportunity to express a few of the lessons learned over past years. Below we explore four key lessons and trends that will help you survive and thrive in the coming months.

Halving countdown

1. Number Go Up is not a business thesis.

The wild days of simply plugging in machines without considering the cost of power, operational cost, and maintenance requirements are dead and gone. During all bull markets, but especially that of 2020 to 2021, operators were hoovering up infrastructure, overpaying for locations, and taking on excessive leverage to try to get ahead of prices.

As bitcoin price leapt through the 20s, 30s, 40s, and 50 thousands, machine prices exploded, infrastructure was hard to come by, and debt was abundant. After all, once you were up and mining, it would be easy to pay it off with your massive profits.

"But, number go up is not a business thesis."

- Rob Warren

As history taught us, price stuttered from April to July of 2021 before tapping new highs in November and falling into a bear market that wouldn’t seriously rebound until the beginning of 2023.

Every miner who had purchased an S19 above $10,000, was managing double digit debt maintenance, or hadn’t aggressively negotiated their electrical rates and benefits suffered.

Decreasing hashprice squeezed overzealous operators into neutral and then negative profitability, and forced them to shut off operations, or mine at a loss and pray to the gods of Number Go Up. But as we learned, the gods of number go up are terrible listeners. 

This cycle operators are aggressively analyzing both their input and operational costs, seriously considering tools such as hashprice, machine efficiency, and firmware optimizations, and working through the lines of their electrical contracts with a keen eye to business efficiency. Number go up has become a nice-to-have, and not the need-to-have of past cycle survival.

2. If you’re new here, Hosting Miners isn’t passive income and you probably shouldn’t do it.

The new orange - pilled sat stacker inevitably moves from learning about the protocol, to learning how to acquire and self custody bitcoin, then to running a node, and finally to the black hole that is the emerging bitcoin mining space.

Their next thought is they should start mining. They think, “After all, if I’m acquiring and custodying bitcoin, and even running my own node to decentralize the network, isn’t mining in a hosting facility a fantastic way to get exposure to bitcoin directly?”

The brief answer is a resounding–No.

Learning about bitcoin, acquiring bitcoin, custodying bitcoin, and running a node, do not require that you acquire thousands or tens of thousands of dollars worth of electrical machinery, ship it to a distant location, sign a contract with a service provider, take on huge counterparty - risk, and continue an ongoing business relationship to assay the performance and wear of your electrical machinery.

The belief that mining bitcoin is the natural end point to learning about bitcoin is a dangerous misconception that often sets our young bitcoin HODLer up for failure or severe financial strain. 

Bitcoin mining via hosting is not a source of passive income. It is a business model where the hostee supplies the capital for the valuable machines, and the host provides the facility, the operational and payment terms, and a promise to keep machines up and running at a predetermined performance level.

In the best of cases, both the host and the hostee have skin in the game via some form of profit sharing on the upside, shared downside, or other assurances around performance. In the worst of cases, hostees send tens of thousands of dollars of machinery to a receiving dock and hear very little for the following months. 

If your goal is to acquire as much bitcoin as possible. Hosting is not the path for you. If your goal is to learn about bitcoin mining, buy an S9 and heat your garage in the Winter. If your goal is to allocate capital to a business, and you are willing to put in the work to vet providers and contract terms and types, hosting may be an option worthy of exploration. 

3. Know your model and how to optimize it.

The next natural lesson following our stern warning for the hosting curious, is the requirement to know your model and how to optimize it. From the outside, mining seems immensely simple in principle. You procure machines and infrastructure; you procure power; you run the machines on your electricity and make more in bitcoin than you consume in power; you do this forever–The end. 

Really, this is only where the story begins. The only universal feature of a bitcoin mining business is that, at some point in business operation, an ASIC chip consumes power and hashes the SHA - 256 algorithm. There is no fundamental model of bitcoin mining that conveniently unifies the strategies of on-grid mega miners, behind the meter co - locations, off - grid oil and gas miners, or pleb miners heating their homes throughout the chilly months. 

The most publicly known revenue metric in bitcoin mining is hashprice. That is the value of a terahash or petahash over the course of a given period, often a day. Outside of easily knowing the value of a hash, we have no idea what other terms govern the profitability of a given mining business.

Megamining operations use their access to capital and fleets of machines to negotiate favorable supply agreements and electrical pricing as well as a suite of ancillary services with grid providers that generate extra revenues.

Behind the meter co - locations may be partnered with their sources of generation, meaning the bitcoin business is actually an internal arm of a totally distinct power generating company. Oil and gas miners often find themselves using bitcoin mining as a way to improve oil production, reduce emissions, and remain within their required regulatory frameworks.

Many oil and gas miners could care less about bitcoin. They just want more well production and less environmental scrutiny. Home miners may want heat, or simply the option to discreetly acquire bitcoin through their power bill. 

It would be incorrect to theorize that all mining will trend towards one form or another. Rather, it is often most appropriate to look at these businesses as arms of various other industries entirely.

Bitcoin miners are not merely digital wildcatters seeking the lowest cost and highest return opportunities, but also valuable service providers for a suite of outside industries with unsolved problems in load management and heat generation.

Whether you are helping offtake excess electrical production from non dispatchable renewables like solar and wind farms, providing curtailable load for grid operators, or heating commercial spaces over the cold season, your farm may provide ancillary services for a suite of unrelated industries. 

4. Aftermarket tools make your model work.

The natural final lesson in our current exploration is to point ourselves from what cannot be known in the individual model of bitcoin miners, to what is known and is shared amongst miners–aftermarket tools and services. Miners commit to their operational fleets by purchasing machines en masse for their farms.

These machines are sold by manufacturers under a rated efficiency and total terahash, but these numbers alone do not define the operation and profitability of the farm. 

A suite of existing and emerging aftermarket tools and services, such as software management, firmware, and aftermarket hardware components, have emerged to optimize miner operations under unique business cases.

Meeting the great Braiins team on Bitcoin 2023 conference.

Pleb miners have found themselves hacking apart PSUs, control boards, and even hashboards down to the level of the chip, for the purposes of creating discreet pleb mining machines, and home heater setups. These builds have sparked the creation of software management tools oriented around the home and open - source cases that can even be easily 3d printed.

On the other end of the scale spectrum, large miners are exploring complex communications and networking tools that allow an operator to not only control the internal operations of a farm, but to also respond to external market conditions (the price of electricity, or requests to curtail their load), as well as the local ambient conditions (how hot or cold it is).

The emergence of these tools promise to support optimization of the various emerging business models in the bitcoin mining space, and will only become more critical to machine operation port halving.

Pyasic - a set of modules for interfacing with many common types of ASIC bitcoin miners, using both their API and SSH.

The Halving Approaches

As the halving draws near and miner profitability is algorithmically slashed in two, it would be wise to consider the above lessons as you look into the next epoch. If any one idea can summarize the above, it is that bitcoin mining is still an emerging industry (Insert: we are so early meme).

We are transitioning from an era of plugging in machines and praying for price appreciation, to an era of deep business modeling, specialized suppliers, and risk management.

No longer should miners think only of their next deployment, but they must also consider the optimization of their current deployments and the elements required for survival into this halving and many halvings to come.

THANK YOU ROBERT

Robert Warren is an author and entrepreneur turned Bitcoin miner. He currently works with Riot Platforms on mining projects and operational analysis.

We are thrilled to have him contribute to Braiins Blog and look forward to more pieces in the future.

Follow Robert on X @BikesandBitcoin

Become a PUBLISHED AUTHOR with Braiins

We are looking for the best and brightest paid external contributors for the blog. Send us a direct message us on X with your ideas and become a published author—our top content might make it in our next book.

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The Basics of Building a Bitcoin Mining Greenhouse

Fundamentals

Published

15.4.2024

Robert Warren is the Manager of Mining Projects and Operations Analysis with Riot Platforms as well as the author of the upcoming book, The Bitcoin Miner’s Almanac. In this post, he details the four lessons miners must learn if they are to survive and thrive through the coming halving.

Table of Contents

The halving is on our doorstep. Bitcoin miner sentiment is generally positive. But, it was only a few short years ago when panic filled many bitcoin mining farms. Below we review the 4 main lessons from the last epoch in the hope we survive more comfortably through the next. 

It seems like just yesterday bitcoin miners were suffering through a bear market. The industry was in severe contraction, ASIC prices were collapsing, hashprice was scraping the bottom edge of the graph, and (of course) nobody was hedged.

The experience was humbling. Many operators stopped expansion and stretched their finances to the brink for the sake of survival. Others called it quits entirely, sold their assets, and tucked their tails between their legs to claim tax losses. 

Bankruptcy (or the edge of bankruptcy) is a stern lesson, and bitcoin miners who lived through the contraction have emerged with a renewed vision of the space. No longer are we purely ideological actors, committed to hashing in all conditions under the assumption that the inevitable mechanics of NGU will save us over the long term – there are input costs to manage, staff to pay, and machine repairs to be made. Bitcoin mining, first of all, must have a business model or utility value to operate profitably.

The upcoming halving is a known shock to our businesses, a severe reduction in our profitability, and an excellent opportunity to express a few of the lessons learned over past years. Below we explore four key lessons and trends that will help you survive and thrive in the coming months.

Halving countdown

1. Number Go Up is not a business thesis.

The wild days of simply plugging in machines without considering the cost of power, operational cost, and maintenance requirements are dead and gone. During all bull markets, but especially that of 2020 to 2021, operators were hoovering up infrastructure, overpaying for locations, and taking on excessive leverage to try to get ahead of prices.

As bitcoin price leapt through the 20s, 30s, 40s, and 50 thousands, machine prices exploded, infrastructure was hard to come by, and debt was abundant. After all, once you were up and mining, it would be easy to pay it off with your massive profits.

"But, number go up is not a business thesis."

- Rob Warren

As history taught us, price stuttered from April to July of 2021 before tapping new highs in November and falling into a bear market that wouldn’t seriously rebound until the beginning of 2023.

Every miner who had purchased an S19 above $10,000, was managing double digit debt maintenance, or hadn’t aggressively negotiated their electrical rates and benefits suffered.

Decreasing hashprice squeezed overzealous operators into neutral and then negative profitability, and forced them to shut off operations, or mine at a loss and pray to the gods of Number Go Up. But as we learned, the gods of number go up are terrible listeners. 

This cycle operators are aggressively analyzing both their input and operational costs, seriously considering tools such as hashprice, machine efficiency, and firmware optimizations, and working through the lines of their electrical contracts with a keen eye to business efficiency. Number go up has become a nice-to-have, and not the need-to-have of past cycle survival.

2. If you’re new here, Hosting Miners isn’t passive income and you probably shouldn’t do it.

The new orange - pilled sat stacker inevitably moves from learning about the protocol, to learning how to acquire and self custody bitcoin, then to running a node, and finally to the black hole that is the emerging bitcoin mining space.

Their next thought is they should start mining. They think, “After all, if I’m acquiring and custodying bitcoin, and even running my own node to decentralize the network, isn’t mining in a hosting facility a fantastic way to get exposure to bitcoin directly?”

The brief answer is a resounding–No.

Learning about bitcoin, acquiring bitcoin, custodying bitcoin, and running a node, do not require that you acquire thousands or tens of thousands of dollars worth of electrical machinery, ship it to a distant location, sign a contract with a service provider, take on huge counterparty - risk, and continue an ongoing business relationship to assay the performance and wear of your electrical machinery.

The belief that mining bitcoin is the natural end point to learning about bitcoin is a dangerous misconception that often sets our young bitcoin HODLer up for failure or severe financial strain. 

Bitcoin mining via hosting is not a source of passive income. It is a business model where the hostee supplies the capital for the valuable machines, and the host provides the facility, the operational and payment terms, and a promise to keep machines up and running at a predetermined performance level.

In the best of cases, both the host and the hostee have skin in the game via some form of profit sharing on the upside, shared downside, or other assurances around performance. In the worst of cases, hostees send tens of thousands of dollars of machinery to a receiving dock and hear very little for the following months. 

If your goal is to acquire as much bitcoin as possible. Hosting is not the path for you. If your goal is to learn about bitcoin mining, buy an S9 and heat your garage in the Winter. If your goal is to allocate capital to a business, and you are willing to put in the work to vet providers and contract terms and types, hosting may be an option worthy of exploration. 

3. Know your model and how to optimize it.

The next natural lesson following our stern warning for the hosting curious, is the requirement to know your model and how to optimize it. From the outside, mining seems immensely simple in principle. You procure machines and infrastructure; you procure power; you run the machines on your electricity and make more in bitcoin than you consume in power; you do this forever–The end. 

Really, this is only where the story begins. The only universal feature of a bitcoin mining business is that, at some point in business operation, an ASIC chip consumes power and hashes the SHA - 256 algorithm. There is no fundamental model of bitcoin mining that conveniently unifies the strategies of on-grid mega miners, behind the meter co - locations, off - grid oil and gas miners, or pleb miners heating their homes throughout the chilly months. 

The most publicly known revenue metric in bitcoin mining is hashprice. That is the value of a terahash or petahash over the course of a given period, often a day. Outside of easily knowing the value of a hash, we have no idea what other terms govern the profitability of a given mining business.

Megamining operations use their access to capital and fleets of machines to negotiate favorable supply agreements and electrical pricing as well as a suite of ancillary services with grid providers that generate extra revenues.

Behind the meter co - locations may be partnered with their sources of generation, meaning the bitcoin business is actually an internal arm of a totally distinct power generating company. Oil and gas miners often find themselves using bitcoin mining as a way to improve oil production, reduce emissions, and remain within their required regulatory frameworks.

Many oil and gas miners could care less about bitcoin. They just want more well production and less environmental scrutiny. Home miners may want heat, or simply the option to discreetly acquire bitcoin through their power bill. 

It would be incorrect to theorize that all mining will trend towards one form or another. Rather, it is often most appropriate to look at these businesses as arms of various other industries entirely.

Bitcoin miners are not merely digital wildcatters seeking the lowest cost and highest return opportunities, but also valuable service providers for a suite of outside industries with unsolved problems in load management and heat generation.

Whether you are helping offtake excess electrical production from non dispatchable renewables like solar and wind farms, providing curtailable load for grid operators, or heating commercial spaces over the cold season, your farm may provide ancillary services for a suite of unrelated industries. 

4. Aftermarket tools make your model work.

The natural final lesson in our current exploration is to point ourselves from what cannot be known in the individual model of bitcoin miners, to what is known and is shared amongst miners–aftermarket tools and services. Miners commit to their operational fleets by purchasing machines en masse for their farms.

These machines are sold by manufacturers under a rated efficiency and total terahash, but these numbers alone do not define the operation and profitability of the farm. 

A suite of existing and emerging aftermarket tools and services, such as software management, firmware, and aftermarket hardware components, have emerged to optimize miner operations under unique business cases.

Meeting the great Braiins team on Bitcoin 2023 conference.

Pleb miners have found themselves hacking apart PSUs, control boards, and even hashboards down to the level of the chip, for the purposes of creating discreet pleb mining machines, and home heater setups. These builds have sparked the creation of software management tools oriented around the home and open - source cases that can even be easily 3d printed.

On the other end of the scale spectrum, large miners are exploring complex communications and networking tools that allow an operator to not only control the internal operations of a farm, but to also respond to external market conditions (the price of electricity, or requests to curtail their load), as well as the local ambient conditions (how hot or cold it is).

The emergence of these tools promise to support optimization of the various emerging business models in the bitcoin mining space, and will only become more critical to machine operation port halving.

Pyasic - a set of modules for interfacing with many common types of ASIC bitcoin miners, using both their API and SSH.

The Halving Approaches

As the halving draws near and miner profitability is algorithmically slashed in two, it would be wise to consider the above lessons as you look into the next epoch. If any one idea can summarize the above, it is that bitcoin mining is still an emerging industry (Insert: we are so early meme).

We are transitioning from an era of plugging in machines and praying for price appreciation, to an era of deep business modeling, specialized suppliers, and risk management.

No longer should miners think only of their next deployment, but they must also consider the optimization of their current deployments and the elements required for survival into this halving and many halvings to come.

THANK YOU ROBERT

Robert Warren is an author and entrepreneur turned Bitcoin miner. He currently works with Riot Platforms on mining projects and operational analysis.

We are thrilled to have him contribute to Braiins Blog and look forward to more pieces in the future.

Follow Robert on X @BikesandBitcoin

Become a PUBLISHED AUTHOR with Braiins

We are looking for the best and brightest paid external contributors for the blog. Send us a direct message us on X with your ideas and become a published author—our top content might make it in our next book.

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