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Current mining challenges and ways to overcome them
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Current mining challenges and ways to overcome them

The mining industry is going through difficult times right now. In this article, we will talk about the main risks and opportunities and how tokenization can help mining businesses.

Many experts agree that cryptocurrencies like bitcoin are the future of money. However, bitcoin, like many other coins, is based on mining. Once, it was possible to mine bitcoin on your PC at home, and the mining efficiency was high. But competition and the difficulty of mining blocks have led to bitcoin mining becoming a multi-billion dollar business. Today, many companies mine bitcoin and other coins on an industrial scale. Their business processes require well-established infrastructure, expensive hardware, software, energy sources, etc. Industrial mining is going through a lot of challenges right now. In this article, we will talk about key mining issues and how tokenization can help businesses related to cryptocurrency mining.

Main mining challenges

For mining to be profitable, companies must constantly adapt and understand the needs of the industry. Those who mine bitcoin and other cryptocurrencies on an industrial scale still face many challenges:

Shortage and high cost of equipment

In order for the mining of bitcoin and other top currencies to be profitable, it is necessary to use the most advanced equipment and modern technologies. But at the moment, the industry is experiencing a shortage of equipment, and now it is not so easy to order the right ASIC miner at any time. Most companies that mine on an industrial scale are forced to pre-order the necessary equipment in advance (often a year or more). The most demanded equipment is limited in quantity and controlled by only two large companies. They sell chips to a limited number of customers and release new models at certain times of the year.

Lack of capital

Mining is a capital-intensive business. To continue being efficient, the company needs to get investments and find the most advantageous location with low electricity costs. However, it is incredibly difficult for mining companies to raise funding, and it’s one of the current leading mining challenges. Banks are reluctant to issue loans to mining companies as they do not have a methodology for assessing risks in such a niche. Banks willing to cooperate with miners offer very high-interest rates and strict loan collateral requirements. Institutional investors also avoid investing in mining.

Search for energy sources

It is no secret that mining requires a lot of electricity. For mining to be profitable, an enterprise must receive inexpensive and sustainable energy. At the moment, there are various options, including wind and water power. Society is increasingly talking about mining polluting the environment when using traditional energy sources. Therefore, companies are looking for alternative and more environmentally friendly solutions for better risk management in mining.

Personnel crisis

Mining is a new industry with a critical lack of experienced personnel. All employees of mining companies are in a state of constant learning, and finding someone with a very high technical competence is a great success. The task is complicated by the fact that universities still do not have degrees in cryptocurrency mining. However, numerous professional courses are trying to replace them. 

Regulation of mining in various jurisdictions

Not all countries favor cryptocurrencies. From recent news, we can highlight the bans of Iran and China on mining. Such decisions can bring down many plans overnight and not only affect the situation within the country but also the price of the mined cryptocurrency around the world. Also, such announcements force companies to urgently transport equipment and personnel to other countries where mining is allowed, which also requires capital.

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Cryptocurrency price volatility

Cryptocurrencies are highly volatile and speculative assets. An example is the bitcoin price, which can fall from $60,000 to $30,000 in a matter of months. Such wild fluctuations lead to some miners leaving the industry forever. To remain profitable during a downturn, one must be more flexible in its operations.

key issues in mining

How can tokenization overcome the main mining challenges?

Tokenization is the transfer of asset rights into the blockchain. You can tokenize various company assets and carry out both full and partial tokenization. As a result, the company issues security tokens regulated by key global jurisdictions as securities. Each token corresponds to a particular share of the company’s asset and provides certain rights to the holders of such tokens – for example, the right to receive a percentage of the profits from the company’s operations. The company can offer the purchase of these tokens to investors as part of the STO (security token offering).

Why is an STO a good way out for mining companies?

First of all, tokenization and launching an STO solve the key issue in mining – the problem of raising capital. As we wrote above, this industry is capital-intensive, and traditional investors and banks are in no hurry to provide funding for mining companies. STO allows you to raise the necessary funds quickly and legally. Here are the main advantages of this solution:

  • Opportunity to attract retail investors. You can issue any number of tokens. One token can cost, for example, $500. This is a much more affordable investment for retail investors.
  • Fulfillment of the terms of the transaction in accordance with smart contracts. Smart contract technology automatically executes programmed actions when certain conditions are met. So, it is possible to set up automatic payments to investors.
  • Compliance with legal regulations. Regulators in many countries consider tokens as securities; accordingly, there will be no problems conducting an STO with proper legal preparation.
  • Opportunity to attract investors willing to take risks. Cryptocurrencies are a high-risk industry. Launching an STO and running an advertising campaign can attract investors interested in modern technologies who want to add a high-risk asset to their portfolio.
  • Quick launch of the STO. With the help of a professional consulting company like Stobox, the whole process takes about 3-4 months.
  • Opening secondary market. Investors who want to sell their tokens for any reason can quickly do so with the help of a liquidity pool or a p2p platform.

Summary

Cryptocurrency mining remains a profitable area, but many companies are experiencing difficulties in choosing the proper jurisdiction, purchasing equipment, and raising funds. Mining companies must constantly evolve and upgrade their equipment and infrastructure to remain profitable. Tokenization can help increase the necessary funds without directly contacting private investors and banks. STO launch is a legal and reasonably fast route for mining companies to get new investments. If you want to learn more about tokenization, sign up for a free consultation with our experts!

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