Following the reduction in Chinese Bitcoin mining operations, several North American mining firms have begun filling the gap in the market. Bitcoin mining can be highly profitable given the right circumstances. That said, the technical risks and initial costs can deter many investors. However, Bitcoin mining firms that are publicly traded, such as Bitfarms, Hut 8, and Marathon Digital, make it simple to gain exposure to Bitcoin and the success of Bitcoin mining without setting up your own mining farm or directly investing in the underlying asset.
In this article, we’re going to dive deep into the world of Bitcoin mining and publicly traded mining stocks. Also, we’ll explore the top crypto mining firms, including Bitfarms, Hut 8, Marathon Digital, and more.
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What is Blockchain?
Before we dive into Bitcoin mining and mining companies, let’s first take a look at the underlying technology behind Bitcoin. Bitcoin uses a form of distributed ledger technology (DLT) called a blockchain. A blockchain is a distributed ledger or record of transactions. It uses a network of decentralized nodes to verify transactions instead of a single entity or centralized authority like banks.
Furthermore, blockchains facilitate peer-to-peer electronic cash systems like Bitcoin. Bitcoin payments operate on the blockchain. Each transaction is stored immutably on-chain and is interlinked with every previous transaction. Also, Bitcoin is a digitally, verifiably scarce asset with a maximum supply of 21 million BTC. Accordingly, many view Bitcoin as “digital gold” because of the properties the two assets share.
Blockchains such as the Bitcoin blockchain achieve decentralization via a network of node operators running the Bitcoin Core software. Nodes validate transactions and relay data to the network. This network of nodes uses a consensus mechanism to enable all participants to agree on the validity of transactions. The roles of each node vary, with some nodes responsible for just validating transactions and some responsible for minting new coins.
What is Bitcoin Mining?
The process of creating new Bitcoin is known as “mining”. The term points to the traditional use of the word, as in mining precious metals and commodities. This is because mining things like gold requires time and resources. Accordingly, time and computational resources are essential for creating new Bitcoin. Furthermore, the Bitcoin source code stipulates that a fixed supply of 21 million BTC can enter circulation. This mimics the finite existence of gold and other natural resources.
Bitcoin mining serves as an incentive for network participants to build a decentralized ecosystem and issue cryptocurrency without a centralized authority. Instead of intermediaries, nodes across the network validate transactions and receive compensation as they expend computational resources. Also, Bitcoin miners effectively audit every transaction on the network to ensure it is legitimate and network participants are honest. The aim of this is to avoid double-spending, whereby funds are used twice for the same transaction.
Bitcoin miners compete to solve a complex numeric equation in a process known as “proof-of-work” (PoW). This involves trying to establish a 64-digit hexadecimal number known as a “hash”. The first miner that generates a hash equal to the target hash wins the right to append a block full of verified transactions to the blockchain and earn the block rewards for doing so.
Finding the hash requires trillions of attempts. Accordingly, the energy consumption for these computations can be expensive. However, this cost acts as a financial incentive for miners to act honestly, as bad actors can be penalized and may not be able to earn further block rewards.
Now that we’ve discussed how Bitcoin mining works, let’s take a look at some of the most prominent Bitcoin mining companies. Below, we'll look at the top five Bitcoin mining companies according to "bitcointreasuries.net," arranged by total BTC holdings.
Marathon Digital Holdings
Founded in 2010, Marathon Digital Holdings, Inc. is a cryptocurrency mining firm that aims to create the largest enterprise-scale Bitcoin mining operation in North America. Based in Las Vegas, NV, Marathon Digital enables investors to gain exposure to Bitcoin without directly investing in the asset.
Furthermore, Marathon Digital is striving to reduce the cost of energy for Bitcoin mining. The 20 acre “Data Center” in Hardin, Montana, operates in conjunction with the Beowulf power plant. Beowulf is an equity shareholder in Marathon Digital. This facilitates sustainably low energy prices, which is a considerable advantage for any mining operation. However, Marathon Digital retains all of the Bitcoin mining output. Moreover, the firm can currently deploy up to 30,000 S19 pro miners and aims to deploy 133,000 miners by mid-2022.
Hut 8 is an “innovation-focused” cryptocurrency mining operation and infrastructure provider in North America. With proprietary hardware and software, the firm aims to be at the forefront of the "fourth industrial revolution". Also, Hut 8 commits to promoting financial inclusion and sustainability throughout the mining ecosystem. As such, the company strives to minimize the environmental impact of Bitcoin mining operations.
Furthermore, Hut 8 has two data mining centers in Alberta, Canada, combining ASIC and GPU mining equipment. These centers harness the natural energy sources of the region, including wind, gas, and green energy. Also, Hut 8 operates in freezing temperatures, which is ideal for Bitcoin mining. As such, the firm benefits from minimal operational costs.
Hut 8 recently acquired the “cloud and colocation data center” from TeraGo Inc. This center spans 36,000 square feet and uses emission-free energy sources, and offers a range of blockchain infrastructure services for a broad range of Web3 applications. Accordingly, Hut 8 is set to become one of the most prominent players in the blockchain space.
Bitfarms is a leading Bitcoin mining firm in North America. The industrial-scale mining operation provides “strong returns on capital” for investors thanks to a partnership with electrical contractor Volta Electrique. The cost-effective infrastructure uses renewable energy. Plus, all equipment and infrastructure are 100% fully owned.
Currently, Bitfarms operates across seven facilities in Canada, the U.S., and Paraguay. However, Bitfarms has four further sites in the pipeline for future development, including a facility with a 210 MW capacity in Río Cuarto, Córdoba, Argentina. Moreover, this site will mark a substantial increase from the current maximum capacity of 30 MW at the Bitfarms Sherbrooke site in Quebec, Canada.
Argo Blockchain is a North American cryptocurrency mining firm that uses established infrastructure to mine Bitcoin and proof-of-stake (PoS)-based digital assets using hydropower and renewable sources. Furthermore, Argo Blockchain operates across three sites. Plus, the firm uses proprietary software and technology to facilitate cost-effective mining in all weather conditions.
The Helios site is the flagship facility, based in Dickens County, Texas. It covers 100,000 square feet and can run up to 800 MW of mining rigs. In addition, the Baie Comeau site covers 40,000 square feet and uses 100% renewable energy created by the Baie Comeau hydroelectric dam. The third site, Mirabel, is the original Argo Blockchain mining facility. Mirabel is home to several key operations. Plus, the site is also responsible for overseeing PoS mining and infrastructure requirements.
Bit Digital is the largest Bitcoin mining fleet available on the NASDAQ stock exchange. With over 27,000 miners, the company offers “a publicly-traded vehicle for investors to earn a return on capital”. The New York-based operation promotes sustainability, with most operations using carbon-free energy sources. Furthermore, the Bit Digital fleet spans across the U.S. and Canada and benefits from a series of institutional-grade hosting providers.
Why Invest in Mining Companies?
Investing in mining stocks with a reputable mining company provides indirect exposure to digital assets. Also, mining stocks could help to safeguard the Bitcoin network and create a sustainable path towards future decentralization. That said, as mining stocks are available on the free market, the potential for a small handful of entities to own a majority share in mining companies could be a concern for some investors.
Nevertheless, Bitcoin mining stocks appear to some investors as a less risky alternative to a direct investment in the underlying asset. Plus, mining stocks can be easier to account for in terms of taxes, especially for inventors who are unfamiliar with crypto. Remember, always conduct your own research before making any investment decisions.
What to Look for in Bitcoin Mining Companies
First and foremost, a Bitcoin mining company should be profitable. In addition, it should be future-thinking. Good indicators for the potential expansion of operations include the use of sustainable and renewable energy and proprietary infrastructure.
Also, Bitcoin mining companies need access to reliable cheap energy. In some cases, mining firms strike partnerships with electricity providers to create novel ways to reduce energy consumption. Another consideration is the carbon footprint of a mining company. A commitment to green energy use points to a forward-thinking operation that can withstand the rising energy costs. Moreover, a solid team of industry experts signifies a robust and effective mining operation.
In addition, it is worth considering the geo-political climate of any mining operation you decide to invest in. If the county that a mining company operates in is not crypto-friendly or does not produce its own green electricity, the long-term success of an operation could be in jeopardy.
Can Anyone Mine Bitcoin?
Technically speaking, anyone with an internet connection and a computer that fulfills minimum specifications can mine Bitcoin. Indeed, the early Bitcoin mining rigs were largely conventional computers. However, the computing power needed to compete for Bitcoin mining these days requires substantial upfront and ongoing costs. State-of-the-art mining equipment provides the highest probability of being selected to append a block to the Bitcoin blockchain. Thus, a standard computer stands little chance against purpose-built Bitcoin mining rigs.
Furthermore, the ongoing electricity costs can render small-scale mining operations unprofitable. The price of electricity will be a huge determining factor for any Bitcoin mining operation. Also, the attitudes of local regulators and policymakers could determine how challenging a mining operation could become in your local area.
That said, Bitcoin mining can be profitable and is a viable way to earn a passive income with crypto. However, mining other cryptocurrencies that are less computationally demanding could be a more profitable option for anyone without significant startup capital.
Not only does Bitcoin mining require powerful computers, but mining in hot climates requires cooling systems to prevent overheating. As such, mining operations tend to thrive in cooler climates.
Top 5 Bitcoin Mining Companies to Look Out For - Summary
While many crypto investors have made substantial returns over the past twelve months, crypto mining stocks have outperformed the broader market. Companies such as Hut 8, Bitfarms, Marathon Digital, Argo, and Bit Digital offer indirect exposure to Bitcoin by providing investment opportunities for the underlying architecture of the Bitcoin network. Furthermore, several Bitcoin mining companies can turn a profit during a bear market, which is often not the case for smaller mining operations. Moreover, Bitcoin mining stocks remove many of the complexities associated with owning Bitcoin itself.
To learn more about Bitcoin mining and the fundamentals of blockchain technology, check out the Blockchain & Bitcoin 101 course at Moralis Academy! This course is for anyone who wants to gain a firm understanding of crypto and Web3 technologies. Furthermore, if you want to learn how to manage a team of blockchain developers, check out the Blockchain Business Masterclass course at Moralis Academy. Also, save our “Corporate Training” article for later to learn how to teach your employees about Web3 and blockchain!
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