# Green mining

Crypto mining is actually a fancy name. In crypto mining, machines designed for the purpose continuously run the algorithm of the blockchain. In this way, all the machines in the world running that algorithm together authenticate every single transaction that takes place on that blockchain. For this authentication, the machines (miners) are rewarded. Although you do not need to have any cryptocurrency holdings to do this, it is the oldest method of earning passive income in the crypto space.

Miners in the Bitcoin network have been able to operate for the past 10 years without any problems, and the system has worked without any glitches. It is likely that it is currently the only financial clearing system in the world that does not allow for human error, is not affected by labour market dynamics, senior decision makers, or banal IT glitches, and transactions are always accurate. The huge electricity demand guarantees the security of the system. It should be stressed that switching from PoW to PoS is not possible.

The miners' income is the block reward, which they receive according to their computing capacity. Currently, it is 6.25 BTC/block, distributed according to the hash rate provided.

**Only the adaptable can survive: the link between energy efficiency and competitiveness**

We have already seen how important the amount of electricity used is for costs. Since the energy requirements of the more secure PoW protocol are particularly high, the cost of the electricity used has a significant impact on profitability. The vast majority of miners use less energy-efficient, outdated servers. When the Bitcoin exchange rate drops below a certain level, their high operating costs simply make it no longer worthwhile for them to mine, and they have to turn off their computers. The market will, therefore, squeeze out the weak ones, and in the long run, only the efficient miners will remain competitive.

**Why it is so difficult to find the optimal mine site: variables in the decision matrix**

There are 5 factors that miners need to consider before deciding on a final location for their servers. The first is the cost of electricity. The lower the price of electricity used, the longer they can operate profitably. In the WPF Ecosystem, electricity is not a cost. In fact, the higher the electricity demand, the more profitable we are.

The second factor is the weather. Since servers give off a significant amount of heat during operation, it is not advisable to place them in a warm climate. WPF DATABOXes are typically located in Central Europe, in the area of our waste processing plants. The heat generated is not wasted but used for beneficial purposes. We want to provide the thermal energy needed for charitable projects for the benefit of the population living in the area around the landfill (vegetable growing, medical cannabis cultivation, firewood drying, etc.).

The analysis of the legal environment adds further complexity to the decision matrix. When establishing a mine, it is important to choose a location with a transparent legal system and consistent legal consequences.

Finally, we must mention the need for available labor. Although data centre operation is not a labor-intensive sector, it requires regular maintenance as well as professional IT skills. The WPF team owns the most established crypto mining company in Central Europe, offering a full, premium service to miners, whether experienced, beginners, or those just interested in crypto mining.

**What does the future hold for mining hardware?**

Over the past few years, chips have seen huge advances in both size and computing power. The Antminer S9, based on a 16 nm chip, is the most common server today and is capable of 13.5 Th/s performance. But the latest model, the Antminer S19, due in 2020, is now capable of more than six times the performance with only 7 nm chips. Yet around 50% of miners worldwide still use 16 nm chips. However, the pace of chip development is slowing down over time. One of the most popular manufacturers, Bitmain, has already launched its third generation of 7 nm chips, which have undergone two optimization cycles. In fact, the size reduction is getting smaller: from 28 to 16, then to 10, and now stagnating at around 7 nm. The WPF Ecosystem uses only the latest high-performance mining machines.

You probably already know that the number of Bitcoins will be limited to 21 million, and mining will stop once this number is reached. This is one of the reasons why Bitcoins are also called "digital gold," because, like precious metals, there is a limited amount in the world, and there will come a point when it will all be mined.

In the long term, halving is likely to significantly reshape the mining landscape. There are around 6-7 million miners worldwide, 70% of whom were using low-energy 16 nm chips when the halving occurred in 2020.

The vast majority of these miners are expected to be forced to turn off their mines, as they could only be profitable if they received electricity for less than USD 0.03/kWh. Given the world's growing demand for energy, this will only be affordable for a very small number of crypto mining companies in the future. However, mining will remain profitable for competitive players, as the market value of Bitcoin is expected to rise. Miners equipped with state-of-the-art 7 nm chips could particularly benefit from these changes, as if the network hashrate decreases globally, their block reward will certainly increase, allowing them to earn more per block mined. Even if the profitability of the system will suffer in the short term, halving will ensure the stability of the system in the long term.

Our profitability projections for different scenarios show that estimates have been made of the cost structure of Bitcoin mining for three different scenarios: low, medium, and high.

<figure><img src="https://enerhash.hu/wp-content/uploads/2020/07/btc-ba%CC%81nya%CC%81szat-nyerese%CC%81g-becsle%CC%81s-1024x576.jpg" alt=""><figcaption><p>Of course, the estimates are not precise because they are based on an imaginary scenario. The figures are intended to illustrate the non-linear effect of the exchange rate.</p></figcaption></figure>

Intuitively, it is clear from the graphs that profitability and market value are highly correlated: when the market is willing to pay more for a Bitcoin, miners' earnings are higher. Following the same line of thought, we can notice that the cost of hardware, i.e., computers, is inversely proportional to the price. The share of depreciation costs becomes more negligible as the exchange rate increases. However, the role of electricity is worth paying special attention to. The doubling of the exchange rate does not significantly reduce the role of electricity, which remains the most important element in the cost structure. Knowing that electricity costs will always play a key role in profitability, regardless of the Bitcoin exchange rate, it will always be a key factor of competitiveness. The WPF Ecosystem will therefore be an inevitable player in the crypto mining market in the future.

Unlike most crypto mining companies, WPF does not intend to immediately sell the "mined" coins, but to use them as the basis for a DeFi lending portfolio, and through this to generate profits for the WPF Ecosystem.
