Blockstream Launches Bitcoin Mining-As-A-Service

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About: Bitcoin USD (BTC-USD)
by: Donovan Jones
Summary

Blockstream has announced the initial launch of a colocated Bitcoin mining service in Canada and the U.S.

The service enables enterprises and other large entities to run Bitcoin mining operations in a colocated managed service environment.

Small businesses and individuals will be onboarded at a later time.

The service adds a potentially cost-effective way to reduce reliance on China-based Bitcoin mining operators.

Hashrate growth and the price of Bitcoin have a significant long-term relationship and this new investment is a bullish signal for BTC in the long-term.

Details

Prominent Bitcoin (BTC-USD) firm Blockstream recently announced the launch of Blockstream Mining, a hosted colocation service for businesses to remotely manage their mining equipment.

Operating with an energy contract with non-fossil-fuel energy provider Hydro Quebec and in the U.S. state of Georgia, the service may provide enough energy in its present configuration to power up to 100,000 ASIC mining units that could produce 6 exahashes per second processing power, or up to 7.5% of the current network hashrate at full capacity, to secure the Bitcoin network.

Additionally, Blockstream announced the adoption and commitment to further develop the BetterHash protocol, originated by Matt Corallo, that promises to improve pooling operations for greater decentralization, an important aim for the health and robustness of security for the Bitcoin network.

Mining Background

The Bitcoin network is secured and transactions are grouped into blocks and verified by mining computers that compete to be the first to solve a cryptographic puzzle in order to win the current 12.5 BTC block reward, every ten minutes.

Mining 'pools' are groups of usually thousands of mining units that contribute their hash power to a network that competes for Bitcoin mining, potentially getting more cost-effective results and dividing the Bitcoin rewards among the mining units according to their pro-rata hashpower.

It is estimated there are currently in excess of 3.1 million mining units worldwide securing the Bitcoin network. Each unit produces a certain number of hashes per second (hashrate) and the chart below shows the current estimated hashrate distribution among the most popular mining pools:

Source: Blockchain.com

Historically, a large number of Bitcoin mining processors and pools have been located in China. Reasons for this are numerous, but include greater early interest in Bitcoin on an institutional scale, the availability of cheap sources of energy needed to run and cool the processors, and a willingness to develop ASIC (Application Specific Integrated Circuit) chips that perform better, resulting in competitive advantages in a fundamentally competitive mining architecture within the Bitcoin protocol.

Hashrate & BTC Price

Generally speaking, Bitcoin's hashrate has steadily risen from 2010 to the present day, as new miners join the network to compete for Bitcoin payments.

The chart below, by noted Bitcoin analyst Willy Woo, shows the hashrate (the top, brown line) compared to the price of Bitcoin in USD (the second, yellow line) and also the price per hash (the bottom, maroon line):

Source: Woobull Charts

As the chart further shows, the hashrate tends to correspond to the price of Bitcoin, as miners apparently place their financial resource bets on the future expected price increase of Bitcoin.

Furthermore, since the reward for each ten-minute block is cut in half every four years, with the next 'halvening' to occur in May of 2020, the increase in hashrate historically appears to occur despite the drop in the number of Bitcoins in the reward.

It is likely that miners are thus banking on a greater increase in Bitcoin price to more than offset the cur in Bitcoin reward every four years.

The Takeaway

So what to conclude from Blockstream's 'mining-as-a-service' offering and does it have any bearing on prospects for the price of Bitcoin?

My belief is that the value of this type of service, which will likely not be the only one of its kind as competitors are sure to arrive, is that it contributes to the security and decentralization of the Bitcoin network.

Also, it will add significant hashrate to the network, which as the Bitcoin Hash Price chart above suggests, is consonant with continued BTC price increases over the long term.

While short-term BTC prices may continue to be volatile, and the addition of hashrate may not necessarily be a leading indicator on BTC price or even highly correlated, the two metrics appear to have a continued long-term relationship.

The addition of up to 7.5% of Bitcoin's hashrate with the announcement of the Blockstream mining-as-a-service is bullish for Bitcoin's price in the medium-term.

I expect to see additional firms offer such services, also adding to hashrate and providing individuals and firms with the ability to earn mining rewards as part of securing the Bitcoin network.

Disclosure: I am/we are long BTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.