Miners are central to the value proposition of Bitcoin. If miners were to stop showing up for work tomorrow, the network would effectively grind to a halt. Thankfully for those who recognize the power of blockchain and appreciate Bitcoin specifically, it was designed by a veritable genius in Satoshi Nakamoto. The incentive structure is such that miners keep showing up for work and the lights stay on.
That being the case, miner profitability (known as ‘hashprice’) itself is on the decline. Although miners work extremely hard to source low-cost power and time ASIC markets to maximize capital allocation and ensure optimum profitability, revenue has fallen as the hashprice has diminished.
Earlier this year, in the wake of the fourth halving, a report indicated that only five mining companies were operating profitability due to a combination of spiraling energy costs, decreased transaction fees, and the reduction in block reward. Miners now have to work harder than ever to reduce their operating costs, principally by finding cheap energy but also by sourcing efficient rigs. In any case, the need to access other income streams is clear.
Bitcoin Miners Are Diversifying
There are multiple options open to those interested in mitigating the effects of declining mining profitability. One is exSat, a master extension layer for Bitcoin which allows miners and mining pools to stake their bitcoin to earn $XSAT tokens. Envisioned as a docking layer that exists between the Bitcoin blockchain and its various Layer-2 networks, the scaling solution has already teamed up with several established mining pools to pioneer this concept of a ‘Layer 1.5’.
Like Bitcoin itself, exSat seeks to use miners and mining pools to ensure data integrity across the network. They do this by acting as synchronizer nodes, submitting block headers and block data to the docking layer in exchange for rewards.
As explained in the exSat whitepaper, synchronizers “receive 10% of the block’s token incentive for submitting verified BTC block data first” with the reward increasing to 50% “if the synchronizer is also the miner of the bitcoin block.”
This model is designed to align the interests of Bitcoin miners with the exSat network, encouraging contributions to both ecosystems simultaneously.
It is also possible to become a data validator node, with the minimum staking threshold set at 100 BTC. Validator nodes enjoy flexibility to configure their desired commission fee percentage, among other benefits. Leading crypto exchange Bitget recently announced that it had become an exSat validator, the second industry heavyweight to do so after global mining pool SpiderPool.
The Promise of DePINs
Another method miners use to generate revenue in a time of declining profits is to plug into a decentralized physical infrastructure network – a DePIN. Typically, dePINs work by tapping into the computing power of a vast web of users, then serving it up to companies developing GPU-intensive AI solutions.
Although miners are not currently repurposing their rigs en masse to chase dePIN profits, some have started to make their capacity available through dePIN marketplaces. Livepeer CEO Doug Petkanics says dePINs are a potential lifeline for struggling Bitcoin miners. This is especially true given the rising demand for GPU processing power, which is needed to power applications like ChatGPT.
Although it is impossible to say what the landscape will look like for Bitcoin miners in a year, let alone five, it is encouraging that alternative means of generating revenue are emerging. Expect this trend to continue.
