Mining is an integral part of cryptocurrencies based on the Proof of Work protocol. In addition, for many private miners and mining companies, this is a good form of income. Like any other industry, mining also has its problems. Tokenization can help many companies with cost control in the mining industry and improve productivity in mining. Want to know how? Be sure to read this article to the end.
The more popular cryptocurrencies became, the more people became interested in mining cryptocurrency and how to minimize mining operating costs. The first users mined bitcoin on CPUs. Then came the time of video cards, and today the industry has come to use special integrated circuits – ASICs. There is huge money in the industry today, and many companies earn on mining by creating pools, offering cloud mining for users, and other ways.
When ASICs appeared, private miners and small companies that had previously used the power of ordinary home computers turned out to be not profitable. However, it is still possible to make money from mining if solutions to the main problems are found.
Now the lion's share of profits from mining is received by the one with the most modern equipment. Unfortunately, the number of such equipment on the market is limited. Companies engaged in mining on an industrial scale should plan for equipment upgrades and leave pre-orders at least six months in advance. New generation ASICs are very expensive, and purchasing several units of such mining equipment hits companies hard.
There is also an opinion that using ASICs leads to mining centralization. When the first units of such equipment appeared, they radically changed the situation on the market. In just a few weeks, 62% of all coin mining came under the control of miners who had already bought ASICs. In addition, some ASIC producers gather in pools and, with huge capacities, control most of the mining worldwide. For example, 43.4% of bitcoin mining today belongs to the Bitmain company and its two pools.
High energy costs
From the very beginning, the main disadvantage of bitcoin has been its high electricity consumption and environmental impact. As a result, many environmentalists and activists are calling for a ban on mining due to carbon emissions.
However, miners keep earning, unite hundreds of ASICs into pools, and pay substantial electricity bills. Because of this, industrial mining is a constant search for countries and regions with cheap electricity where cryptocurrency mining is still allowed. Companies also prefer areas with stable low air temperatures to minimize mining operating costs and save on equipment cooling.
One solution to the problem is data centers powered by renewable solar and hydroelectric power, which allows cost reduction in mining operations. So, large companies such as Hydrominers, Burency, or HIVE Blockchain Technologies place their mining rigs near geysers, hydroelectric power stations, and geothermal sources.
As shown in recent years, despite the widespread adoption of cryptocurrencies and the development of the crypto sphere, coins are still very volatile. For example, the bitcoin rate can rise sharply to 60 thousand dollars and fall to 30 thousand dollars a month later. This greatly affects the profits of mining companies and causes distrust on the part of investors, banks, and ordinary users. Thus, mining companies exist in a permanent state of limbo and cannot predict how much profit they can make in the next quarter and how to reduce mining costs. For this reason, mining pools usually are engaged in mining several cryptocurrencies at once with automatic switching to more profitable coins at the right time.
How can tokenization make mining more efficient?
To sum up all the problems of modern companies, the main issues are associated with high costs and the need for cost control in the mining industry. Companies need to:
- constantly upgrade and purchase new equipment;
- rent new space for equipment placement;
- build infrastructure;
- introduce new cooling methods;
- move the business to other regions where energy is cheaper;
- explore new ways of energy supply, including wind and water power;
- plan marketing and other expenses.
This requires large amounts of money, which a traditional business can obtain by contacting investors or a bank for a loan. However, mining companies are deprived of such opportunities.
Banks do not have a methodology for assessing mining risks, so they will offer a very high interest on the loan even if they agree to issue a loan to a mining company. Traditional investors are also in no hurry to invest in mining, as they are poorly versed in this area and need guarantees of profit. The solution to raising funds could be tokenization and the launch of an STO.
Tokenization works at the intersection of finance and blockchain. It allows you to transfer the rights to a particular asset to the blockchain and issue security tokens, which will correspond to the share of this asset and provide certain rights (the right to receive profit, participate in voting, etc.). Regulators consider security tokens in many countries as traditional securities, which means an STO is 100%-compliant and investor rights are protected.
Tokenization has several advantages for mining companies:
- Opportunity to lower the entry threshold for investors. You can attract any number of investors with a small budget. For example, one token can cost $100.
- The geography of an STO is not limited. You can attract investments from people from all over the world or limit the list to selected jurisdictions. There are some legal nuances here that Stobox experts can talk about during the consultation.
- Fast setup process. The period from the planning stage to the launching of an STO takes only 3-4 months. For example, conducting an IPO in the traditional finance sphere takes about one year and is extremely expensive for companies.
- Attracting risk-averse investors. As a rule, an STO is interesting for investors who are familiar with the crypto industry and are willing to take some risk in exchange for potentially high returns.
- No need to go public. You can launch a security token offering on behalf of an existing company or create an SPV to ease legal nuances in some jurisdictions.
Conducting an STO allows receiving investments quickly and easily. Investors will see where the money you receive is directed, and you will get reliable partners from all over the world.
Mining of bitcoin and other cryptocurrencies remains a sought-after business in which big money is spinning. However, for mining to be profitable, companies must overcome the challenges of buying expensive equipment, finding cheap energy sources, and maintaining a stable profit. Tokenization is an excellent solution for companies that require additional investment for development. In addition, conducting an STO allows you to attract interested investors and give them guarantees. Contact our experts if you want to know more about what opportunities tokenization can open for you.