On Cassiopeia’s podcast FinancialFox we have been taking an in-depth look at bitcoin. We recently investigated how bitcoin mining is driving innovation in power generation and encouraging the creation of sustainable energy — it’s game-changing and has the ability to not only increase jobs but also provide basic resources like clean drinking water in developing countries.
We’ve been unearthing more about the world’s first digital asset — Bitcoin- in our FinancialFox podcast series. We recently spoke about Bitcoin mining, an area that has grown exponentially over the past few years and simultaneously become very topical because of the rising energy associated costs and of energy and the focus on new sources of energy that are more sustainable and environmentally friendly. of the production of increased energy and its impact on the environment.
Paving the way for innovation in the energy mix for a more sustainable future is Fred Tiel, Chairman and CEO of Marathon Digital Holdings one of the largest technologically advanced and energy-efficient mining companies that’s listed on the Nasdaq under the ticker MARA. Fred is no stranger to the tech world having been in the industry for over 40 years. His foray into the digital assets industry came via a former CTO who worked for him who in 2013 said he was entering bitcoin. Despite his brief intro to digital assets in 2013 by his colleague, Fred only took a more active interest in bitcoin in 2015/2016 and asked himself the question “I’m a technologist, what problem can I solve related to bitcoin?.”
One of the problems was that bitcoin was traded on islands of exchanges in places like Japan and Europe and it was very challenging to get liquidity from those exchanges. The ideal way to solve this was by building an exchange that would sit as an umbrella over all those exchanges and solidify their books. Fred, then wrote a white paper and talked to regulators in the US as he believed this could only happen if regulated and despite receiving a no — he continued the path and approached FINMA, the regulators in Switzerland where they were open to crypto, however having an American company proved to be an issue because of banking regulations. This didn’t stop Fred who went to Liechtenstein, who noted that they don’t have exchanges and laws about crypto and they asked him what it would take to create a law allowing people to have a crypto exchange? That discussion set the path in motion to create the first laws for people in Liechtenstein to trade crypto (Bitcoin and ETH only at the time). Fred created an OTC trading desk and then the FMA said they may need a banking licence to continue with this business.
Marathon Digital is a company specializing in bitcoin mining, a process that involves validating transactions and adding them to the blockchain by solving complex mathematical calculations. They operate large data centers housing approximately 200,000 specialized Bitcoin mining computers located near abundant energy sources.
Bitcoin mining is capital-intensive, and Marathon Digital faces challenges related to business sustainability, including fluctuating fees and energy costs. Being a publicly listed company provides opportunities to raise funds through stock offerings and maintain liquidity in a competitive market.
Energy is a significant cost in bitcoin mining, the cost to produce energy has increased to the highest that they have been in years. According to the World Bank coal and gas prices have all reached historic highs. Only European natural gas prices have reached all-time highs and remain substantially above their previous peak in 2008. Similarly coal prices are close to their 2008 peak, while oil prices remain a little way below. This has a direct knock on effect to the entire bitcoin mining industry — where energy plays a crucial role. However, that’s not the only factor impacting bitcoin mining the impact of bitcoin mining further erodes the profitability of the miners and when you consider the two main costs of the industry i. Paying people and ii. Paying for computers to mine iii. Cost of energy. It’s a challenging environment that has seen multiple miners put out of business and the industry consolidate. It’s a classic trend in the tech industry which enables companies that are well capitalised and have access to funding to continue their operations and expand and innovate.
Argo blockchain is one example that saw the company sell its largest facility to stay afloat and issued warning of bankruptcy in December last year. Similarly Core Scientific filed for chapter 11 bankruptcy; while some may say the extended bear market has contributed to the respective fate of these companies; the resources required to operate a mining facility are cost intensive and companies need to be liquid in order to navigate the bitcoin mining landscape if they are to remain operational. Compute North revealed that it owed as much as $500 million to more than 200 creditors when it filed for chapter 11 bankruptcy. Even Celsius Mining, which was the mining unit of the cryptocurrency lender Celsius Network filed for Chapter 11 bankruptcy protection in July last year. The combination of high input costs and slim margins coupled with a hostile market — make bitcoin mining challenging for smaller miners and those wanting to enter the industry.
Marathon explores renewable energy sources, like wind and solar, to offset expenses. They collaborate with energy providers, particularly in regions like the UAE, to create symbiotic relationships where excess energy benefits both Bitcoin mining and local communities.
The company also sees opportunities in providing energy and infrastructure development in third-world countries, creating jobs and improving access to resources like fresh water.
In the context of ESG (Environmental, Social, and Governance) considerations, Marathon aims to be carbon neutral by operating near renewable energy sources and offsetting energy usage with renewable energy credits. They are also exploring partnerships and societal benefits in their mining locations.
The convergence of AI and bitcoin mining is noted, with the potential for AI to benefit from data centers operated by miners. Ensuring data integrity and minimising bias in AI training data is a challenge, and blockchain technology can play a role in addressing this issue. Cybersecurity is a concern, but the bitcoin blockchain is considered highly secure. However, the risk of quantum computers breaking the blockchain exists.
Regulations vary by region, with some places like Europe and Singapore providing clearer guidelines. In the U.S., regulatory measures are evolving due to political and economic factors. Marathon Digital complies with regulations and supports Bitcoin core developers and the Bitcoin ecosystem.
Bitcoin is primarily seen as an investment asset, and companies are exploring ways to expand its relevance by integrating blockchain technology into various industries such as data storage, provenance tracking, and more.
Bitcoin’s upcoming halving event, where mining rewards decrease, indicates the potential implications for miners’ profitability. The industry is growing, with non-public miners emerging, particularly in Russia.
Bitcoin mining, as pursued by Marathon Digital, presents opportunities in energy, technology, and holistic ecosystem development across multiple sectors.
Follow Cassiopeia on Twitter