Power hikes in SA make Bitcoin mining unprofitable
Although Bitcoin, the world's largest crypto-currency, shot up to $4 739 this week, its biggest jump in 2019, mining Bitcoin in SA will not be profitable unless miners have their electricity bill subsidised, say local industry players.
Bitcoin's latest price is way below the $20 000 at which the digital currency peaked in December 2017.
Electricity prices increased in SA from1 April. Last month, energy regulator Nersa said it had granted power utility Eskom the following tariff increases over the next three years: 9.41% or allowed revenue of R206.34 billion for 2019/2020; 8.10% or allowed revenue of R221.8 billion for 2020/2021, and 5.83% or allowed revenue of R233.1 billion for 2021/2022.
"It is definitely not profitable to mine Bitcoin in South Africa at the moment if your electricity bill is not subsidised," says Carel de Jager, a consultant at the Blockchain Academy.
He points out there are several online calculators available that determine profitability by taking the current mining difficulty, electricity tariffs and Bitcoin price into account.
It shows that on average, mining produces 10% to 20% less revenue than operating costs at current South African residential electricity prices, says De Jager.
"Since the mining of Bitcoin is completely dependent on the availability of electricity, load-shedding has also had a massive impact on mining farms. The power that a mining computer consumes is comparable to that of a heater or air-conditioner, so installing renewable capacity to power these machines is very capital-intensive and in most cases infeasible."
De Jager believes the only way miners in SA can stay profitable at the current Bitcoin price is to source their electricity at a lower rate.
"This can be achieved by building their plants near alternative energy producers, or applying for industrial electricity rates from Eskom or their local municipality, which are usually lower than residential tariffs."
He noted that many miners around the world are not currently mining for profit.
"The ability to convert electricity (a tax-deductible expense) into real-time liquidity is enough incentive for many entities to mine at a loss. This keeps the mining difficulty high and results in miners moving their operations to rural renewable sources such as hydro-generators.
"These power stations are often far away from power-hungry industries and lots of potential electricity is lost due to lack of demand. Bitcoin mining hardware, on the other hand, is easily transportable and ideal for these sites."
Farzam Ehsani, CEO and co-founder of crypto-currency platform VALR, says the profitability of Bitcoin mining really comes down to four things: the cost of energy a miner can secure; the efficiency of the mining equipment they are using; the Bitcoin "difficulty" level which indicates how much hashing power (or how much other miners are mining) on the Bitcoin network; and the price of Bitcoin.
He notes that while the price of Bitcoin has come down significantly over the last year, there are still miners in SA that are able to make a profit.
"Mining is still lucrative for some players," says Ehsani. "If it weren't, they would turn their miners off. Some have, indeed, already turned their mining equipment off. But the beauty about the Bitcoin network is that it is dynamic and adjusts to supply and demand.
"As miners shut off their equipment, the 'difficulty level' reduces, and as it reduces, it becomes more viable to mine, bringing more miners back into the ecosystem."