How to set up a profitable and sustainable Bitcoin mining operation

Are you tasked with designing, building, implementing and maintaining an enterprise-level Bitcoin mining infrastructure?

If so, everything from your choice and management of Bitcoin hardware like Application Specific Integrated Circuit (ASICs miners) and Bitcoin mining software to your hosting service provider, and the location-specific Internet infrastructure, climate and geopolitics will affect your ultimate success.

It’s true that setting up a profitable and sustainable mining operation isn’t easy - even for the world’s top Bitcoin transaction processors with access to enterprise-level budgets.

And so, to help you get your lay of the land, we collaborated with Lars Jorgensen, Chief Operating Officer at TAAL Distributed Information Technologies to compile our latest eBook, ‘A framework for ensuring a profitable and sustainable Bitcoin mining operation.’

To entice you to download your free copy of the eBook and sign up for our Introduction to Bitcoin Infrastructure course, we spoke to Lars about the evolution of mining hardware, the response to China’s Bitcoin mining ban, energy efficiency and mining pool trends.

Lars Jorgensen on Bitcoin mining strategy

How the bull market is stifling innovation in Bitcoin mining hardware

In November 2021, TAAL acquired a lucrative mining asset, the 60,000 sq/ft Cornerstone facility in Grand Falls, New Brunswick. In partnership with NB Power they’ll have access to 50 megawatts of power to supply a dedicated Bitcoin mining and transaction processing operation of up to 2 Eh/s of mining capacity. As Chief of Operations of such an ambitious mining venture, Lars has his finger on the pulse with all things mining.

And yet, Lars admits it’s difficult to foresee how mining hardware technology will evolve. ‘The current coin prices have created a sellers market where manufacturers feel little pressure to innovate. Bitmain and MicroBT are the dominating manufacturing companies, but there are also significantly smaller ones that are playing a much larger role than they would have under different market conditions. Even MicroBT and Bitmain's latest hardware is based on air cooling.’

Though there are other cooling techniques in the market, ASIC manufacturers don’t have a drive to support them at the moment.

‘One of these alternative cooling technologies is liquid immersion cooling where you submerge your machine in a fluid. It's unbelievable, but it works!’

The evolution of cooling techniques

Methods such as immersion cooling would naturally increase the efficiency of a mining operation (significantly!), as you'd spend the same amount of energy to get a higher performance out of your machines, or get the same performance but spend less energy on cooling.

Although mining equipment manufacturers are not supporting it right now, Lars is aware of R&D in this area.

‘At a recent digital miner summit in Dubai, it was hinted that manufacturers are working towards introducing immersion cooling technology. As soon as coin prices drop and the supply/demand balance shifts, they’ll have to offer more innovative solutions to remain competitive.’

The big reveal of a bear market

Once the price drops, manufacturers are bound to bring out their secret weapons. And they’ll do all they can to get and secure their advantage.

‘I expect that once suppliers introduce new cooling systems, it will be tailored to work with their machines alone. You'll need to buy the whole package from the same supplier, including the container, the liquid, the heat exchange mechanism and other parts that make up the system.’

Lars suspects the package might even involve purchasing a prefabricated container with a number of miners set up within the system.

Hacking your cooling system

What about those mining operators who are keen to jump the gun with a DIY immersion cooling system? Lars would not be surprised.

‘There are hosting providers that have implemented immersion cooling systems themselves by circulating a dielectric fluid through their machines and then through a heat exchange outside the building. Not only does it reduce the consumption of electricity from running cooling fans, but it reduces the noise of the operation.’

If you're going for such a self-implemented solution, Lars warns that you're likely to void every warranty and guarantee of your equipment manufacturer, as you're not using it according to its intended use.

Hacking your cooling system will introduce other complexity too, he warns. ‘If you're going to tweak your system manually, you also have to keep in mind the impact of the changes on your firmware. These machines are installed to expect information input from a fan. If you remove the fan, you'll have to override or tweak the firmware to the state you need it.’

Although you'll have to tweak your own system if you want to use immersion cooling at present, Lars is 100% sure that it will be coming to the market soon.

‘Manufacturers are keeping their cards close to their chests, and yet it's clear that they're developing alternative cooling techniques.’

Apart from immersion cooling, what other techniques are people experimenting with?

Download our eBook, ‘A framework for ensuring a profitable and sustainable Bitcoin mining operation’ to find out.

China’s ban on Bitcoin mining

It’s been months since China shut down Bitcoin mining operations, with no reprieve in sight. How have mining operators in the region responded, and what longer-term strategy does Lars foresee them taking?

‘Mining farms with hundreds of thousands of machines had to shut down overnight. After having purchased all of the expensive equipment and counting on China's cheap power (with a large proportion of hydropower), the operators had to respond instantaneously. They had to find a location where they would be able to put them to use, so they moved to the closest place with the cheapest energy: Kazakhstan.’

Although Kazakhstan offered an immediate alternative, Lars sees the situation as less than ideal and short-lived.

‘The problem is that a lot of Kazakhstan's power is generated from coal as the country is rich with coal deposits.’

Another issue is that Kazakhstan's legal framework is less reliable than countries like the USA and Canada, where a business can turn to the courts to enforce their rights. Miners are already moving to North America where places like Texas are known for having super cheap power and a reliable legal framework.

Greener Bitcoin mining

For TAAL, environmental sustainability is a key part of their strategy as illustrated through their recent acquisition of a building in New Brunswick, Canada, which has access to 50 megawatts of power, 80% of it non-emitting and 40% from renewables.

If strategically managed, renewable energy not only supports values like social responsibility, but it can make business sense too.

‘50 megawatts is significant, and it's not available just anywhere. Even if I wanted to move to Texas where power is cheap, you're unlikely to gain access to such an amount of power. It might take 9 - 15 months from buying a property to develop the power infrastructure to that level.’

What other factors are you looking for when setting up a mining operation?

Download our eBook to find out about the factors - from human resources, procedures and quality standards, Internet infrastructure, to transport networks and future proofing - that ensure a profitable and sustainable Bitcoin mining operation.

On adjusting your hash rate to capitalise on instantaneous energy tariffs

With many electricity providers pricing their energy according to instantaneous demand, mining operators could theoretically ramp their hash rate up and down accordingly. Is this a key focus area for miners’ seeking to improve their profitability?

‘It depends on the agreement you have with your hosting provider,’ Lars points out. ‘One of our providers charges a fixed price per kilowatt hour, regardless of whether it's Sunday or Tuesday, the middle of the night or peak hour. This arrangement makes it easy to calculate if we can run our operation profitably.’

While the simplicity of a steady rate can be preferable for some operators, others might see an opportunity in adjusting their hashing rate to capitalise on fluctuating energy prices. ‘You'd put your machines in worker groups according to their model or other specifications. Then you would use a piece of software to calculate the operation's profitability based on the electricity price, the individual worker groups' power consumption, performance, coin price etc. If the power price changes every 10 minutes, the software would recalculate and turn off some of the worker groups when the profitability threshold is getting close.’

Because of Bitcoin’s high prices and the level of competition, the concept of shutting down hash power is still largely theoretical. Lars explains: ‘Profitability is dependent on the coin price and the total computing power in the network. If the price drops or somebody brings a lot of computing power to the table, you will still need to consume the same energy, but you will have less profits.’

Mining pools vs individual miners

The Bitcoin network is starting to see the emergence of successful and growing pools such as Gorilla pool. Does Lars see the developing trend towards the network having more hash control by individual miners and managed by pools continuing?

‘These big pools are trying to commercialise mining in any way possible. What they do to maximise their profit is to create a range of auxiliary services that all pool members will be locked into but will also be extremely valuable for individual miners. They will offer financing programmes for new equipment, for example.’

If you were on your own, it would be extremely difficult to do lifecycle management of your machines.

‘Considering the 25% or more you have to pay the moment you place an order (even if it will only be delivered a year later) - and that full payment is required before receipt, you'd need a serious cashflow to keep your machines up to date. Most miners don't want to sell their coins the moment they've made them either, because they count on the price going up to increase their value. In the meantime you still need to pay your hosting provider and other expenses.’

Given this setup, it will become increasingly difficult to be profitable as an individual miner and it will make most sense to join some kind of pool arrangement. Of course it depends on how big you are.

‘Keep in mind that if you had 5,000 machines which are worth a lot of money, you'd still be a very small miner. If you mined on BTC that has a lot of hash power on it, you'd be a small fish in a big pond,’ Lars points out.

Lars recognises the incentives in joining a pool. ‘You'd be guaranteed to receive a part of the reward every time they mined a block. Such a steady income can be quite attractive for miners with running costs. You'd be paying a fee to the pool, typically between one and a half to two and a half percent of your proceeds, but they will also handle a lot of the cumbersome parts of the operation.’

Although you’d get the entire reward to yourself if you mined individually, the significantly lower probability of success will result in long stretches without an income, during which you'd still have to pay your bills.

An introduction to Bitcoin infrastructure

If the topic of Bitcoin mining and infrastructure is within your professional purview, you’ll benefit from the BSV Academy’s introduction to Bitcoin Infrastructure course.

This certificate course is focussed on providing students a solid understanding of the role that nodes and node operators play in the construction of the network. In particular it focuses on the incentives that drive enterprise operators to spend large sums of money to build and operate their infrastructure.

To sign up for this free course, head over here.

Lizette Louw

Technology Writer