Cloud crypto mining has long been a hotly debated topic in crypto forums, and the general consensus is that they are unprofitable and therefore a waste of money. HashFlare – a cloud crypto mining company – has proven the industry critics correct, as it started shutting down its SHA-256 contracts. Crypto mining has provided a lifeline to Venezuelans that are battling a severe case of hyperinflation.
While it isn’t the worst the planet has ever seen – that award goes to Hungary with an astonishing 41.9 quadrillion percent – it has crippled the economy and is forcing the country to turn to crypto. Mining has been slated for being too centralized and gives too much power to large corporations, with HashFlare giving the critics all the ammunition they need.
The Fall of HashFlare’s SHA-256 Contracts
The whole process has been a PR nightmare for HashFlare, as it approached the subject of informing the public in a similar way to a teenage breakup. Rather than creating a nice press release on its website, it decided to announce the news on its Facebook page – which is pretty poor form.
HashFlare was brought to life in 2013 as a cloud mining service that enabled users to invest small sums of money to rent hash rate from HashFlare. Users were then rewarded with a percentage of the mining rewards that the HashFlare pools received, based on the amount of hash power that user contributed. In short, the more rented space the greater the returns.
With the rising difficulty level of mining Bitcoin and a volatile market price, mining has become unprofitable for the firm and it has decided to end its Bitcoin mining operations. On its website, the details of the Bitcoin cloud mining package are still there, but simply displays the text “Out of Stock”.
Mining Is Becoming Expensive
With the mining difficulty increasing and large mining pools – such as Bitmain – taking most of the Bitcoin rewards, smaller pools are struggling to keep up and cannot afford to continue running. In Canada, crypto miners are paying up to double the price as regular businesses for electricity, a huge factor when it comes to mining profitability.
However, New York has recently reduced electricity rates for miners, giving new hope to the crypto mining industry. This combined with the volatile price of Bitcoin means mining is becoming more expensive, forcing smaller firms to shut down.
Higher Maintenance Costs Will Cause Mining Centralization
With smaller miners shutting up shop, there will be a significantly reduced amount of hash rate available for the Bitcoin network. This poses a significant issue in the battle against centralization as with fewer players in the market, the mining power becomes more concentrated. Bitmain is already close to 51% of the network hash rate and the Bitcoin community aren’t fans of this.
Developers like Matt Corallo are working on new mining protocols to end centralization in the mining process. Earlier in the year, Morgan Stanley said that – on average – miners will be running their operations at a loss while Bitcoin is below $8,600. While Bitcoin is slowly recovering from its yearly lows of $5,800, it’s still $1,000 shy of the profitability price.
Mining is the backbone of the blockchain industry, as without miners transactions won’t be processed. Ensuring that miners have access to affordable resources should be a priority for any government looking to welcome blockchain to their country. New York seems to be leading the way with lowering energy costs, but others are slow to catch up.
Higher running costs will cause companies like Bitmain to control the majority of the network power, and this can lead to abuse of the network, potentially spelling disaster. Thankfully firms like Hut 8 are taking up the challenge and expanding operations to take on the big players.