BTC Block Reward Mining Concentration Got a Little More Concentrated This Week

BTC’s block reward mining concentration got a little more concentrated this week, amplifying concerns about the future of the network’s proof-of-work consensus mechanism.

Cory Klippsten, CEO of Swan Bitcoin, announced on July 22 that the company will likely discontinue its Managed Mining business in the near term. This decision comes amid pessimism about generating significant revenue from the unit, which led to the company’s decision to pull its plans for an initial public offering (IPO) in the near future.

To make matters worse, Klippsten noted that the derailment of the IPO plans will necessitate staff cuts across many functions, though the scale of these cuts was not disclosed. He praised his former staff, vowing to help them find new roles in the crypto sector.

Despite being actively engaged in mining since last summer, Swan only announced the launch of its Managed Mining service a few months ago. The launch highlighted Swan’s capability to “take a large amount of capital and deploy it quickly and efficiently into a mining operation owned by the investor that meets their particular strategic requirements.”

However, given Klippsten’s pessimism regarding the generation of “significant near-term revenue,” it now appears that the Managed Mining unit’s not-so-unique selling point was its ability to take a large amount of capital and burn it quickly.

This is not a slight against Swan but rather a reflection of the harsh realities affecting the entire BTC block rewards mining sector. Following the scheduled ‘halving’ of the block subsidy earlier this year, the economics of BTC mining are no longer adding up.

Even as the fiat value of the BTC token has recovered a substantial portion of the losses incurred over the past couple of months, it is still often not high enough to cover the massive electricity costs of successfully mining a BTC block.

This unfortunate reality has led many miners to sell their BTC block rewards as soon as they are earned, in an effort to keep their lights shining and their hardware humming. However, as jurisdictions assess the burdens imposed on their electrical grids by mining sites and taxpayers learn of the sweetheart deals negotiated by some of these sites, the future viability of BTC mining appears anything but assured.

BTC is essentially in a no-win situation here. With the network’s throughput being artificially constrained in 2017 by BTC Core developers seeking to transform Bitcoin from peer-to-peer electronic cash into ‘digital gold,’ BTC can never process enough transactions to realize Satoshi Nakamoto’s vision of transaction fees eventually supplanting block rewards as miners’ primary compensation.

It is becoming increasingly clear to miners that BTC’s fiat price cannot be perpetually relied upon to "go to the moon," a height at which the current block subsidy would be sufficient to cover their costs. Even if it does, this will only encourage miners to add more hash power, creating another technological ‘arms race’ in which local utility companies will be the only winners.

With mining profitability at a six-year low, the BTC economic model is undeniably broken. For far too long, the accepted wisdom has been ‘price follows hash,’ but this fallacy has been unceremoniously debunked by the market.

BTC is already under the de facto control of just two mining groups, and this concentration will only worsen over time.

In an attempt to ensure favorable treatment, some major U.S.-based miners are donating millions to Donald Trump’s presidential campaign, evidently believing that he will have their back if he returns to the White House. This is quite a hypocritical turn for some of these formerly diehard anti-statists, whose economic futures now hinge on a potential government bailout.

Other miners are unwilling to wait until next January; instead, they are ‘pivoting’ to serve as artificial intelligence (AI) data centers, which currently offer an opportunity to earn actual revenue. The fact that AI promises to benefit a wider swathe of humanity than a relative handful of BTC bagholders may also ensure that AI data centers retain the goodwill of the utilities, at least for now.

Contrast BTC’s downward spiral with that of the BSV blockchain, which imposes no upper limit on its transaction throughput, thereby providing a clear pathway for realizing Satoshi’s long-term vision of how Bitcoin would evolve. Considering that Satoshi left a detailed roadmap for all to see, you have to wonder how everyone in BTC ended up choosing this transactional dead-end.

Caught with their mints downThere’s a curious sidebar to the Swan surrender, specifically, the fact that the entity behind the Tether (USDT) stablecoin had provided a “significant commitment” to Swan’s mining operations. Less than three months ago, Tether CEO Paolo Ardoino claimed to be “thrilled about the future of this collaboration” with Swan.

One would have thought Ardoino might have been able to read the tea leaves more accurately, given Tether’s historic role in propping up BTC’s price. Consider BTC’s abrupt resumption of its allegedly inexorable upward trajectory around mid-July, which just so happened to coincide with Tether’s minting of another $2 billion in its USDT stablecoin.

A leading theory is that Te