Understanding the Dynamics of the Open Hash Rate Market

Understanding the Dynamics of the Open Hash Rate Market-1

The Lumerin Hashpower Marketplace will for the first time allow Bitcoin mining hashrate to be traded on the open market in a decentralized, peer-to-peer fashion.

This commoditization of hash rate opens up a wide range of possibilities and reasons for both parties to transact.

Let’s dive into the logic behind Bitcoin mining hash rate buyers and sellers, and what motivates them to trade on the Lumerin Hashpower Marketplace.

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Demand-Side Rationale: Who Will Buy Bitcoin Mining Hashrate and Why?

Demand for Bitcoin mining computing power has been growing over the years. This is visible in on-chain metrics like Bitcoin’s total hash rate or mining difficulty, but also in industry trends such as the emergence of enterprise-level mining companies and the release of more efficient ASIC models.

However, due to various reasons such as geographical restrictions or supply chain problems, this demand cannot obtain Bitcoin mining computing power.

In this regard, what is the reason behind the growing demand for hashrate? How does Lumerin Hashpower Marketplace meet the needs of buyers?

#1: Keep up with increasing difficulty

Bitcoin mining has become more competitive over time, requiring greater efficiency to remain profitable. Large miners can take advantage of instant, remote, and on-chain hash rate acquisition to keep up with higher mining difficulties in real time, maintaining a competitive edge until they can scale physical operations and install new hardware.

Understanding the Dynamics of the Open Hash Rate Market-2 #2: Quick Actions Extension

Miners targeting growth may find different obstacles preventing them from doing so, such as supply chain constraints, hardware availability, lack of resources or equipment, etc. Through the hash rate contract, these miners can solve these obstacles and quickly expand their hash rate without investing in hardware or infrastructure.

#3: No access to newer hardware

Hardware – especially newer models of ASIC miners – can be difficult to come by. With only a handful of manufacturers, supply is limited and shipments may be months behind release. Not to mention that miners in certain geographic regions cannot access them at all. In contrast, miners can visit the Lumerin Hashpower Marketplace and buy Bitcoin mining hashrate from anywhere with an internet connection.

#4: Expensive local electricity bills

Electricity prices are crucial in determining the viability of a bitcoin mining business. Miners located in areas where prices are particularly high may never be able to operate sustainably. In this case, it may be more convenient for them to buy hash power from another miner somewhere cheaper than mining it themselves at high cost.

#5: Lack of resources or infrastructure

Physical mining operations are intensive. The machine must be installed, connected and maintained manually. A physical cooling system with fans or immersion technology is a must to prevent overheating. Machines could break down in the middle of the night, among other unpredictable complications.

Understanding the Dynamics of the Open Hash Rate Market-3

If mining organizations lack the proper manpower or infrastructure to deal with this situation, they may not be able to expand or even launch their mining operations. Hash rate contracts allow these miners to go about their business as usual without having to worry about these uncertainties.

Supply-Side Justification: Why Are Miners Selling Their Bitcoin Mining Power?

We’ve seen why experienced and aspiring miners alike can get the hashrate they need through the Lumerin Hashpower Marketplace. Now, let’s focus on the other side of the transaction: those offering hashrate on the open market.

What interest would motivate miners to sell their Bitcoin mining hashrate instead of directing it to their mining pools to mine Bitcoin themselves?

#1: Hedge Bitcoin Volatility

Storing the treasury only in Bitcoin is a double-edged sword that can have disastrous consequences during strong market corrections. In this regard, miners can split their revenue into two distinct streams of BTC and LMR to mitigate Bitcoin volatility risk while building a tokenized hash rate reserve to boost their Bitcoin mining if needed ability.

#2: Revenue Predictability for Specific Periods and Hashrates

It is nearly impossible to predict how much a miner can earn from Bitcoin mining. Rewards vary based on luck, pool payout terms and distribution schedule, and difficulty adjustments. Hash rate contracts allow miners to charge a fixed price in LMR for providing a specific amount of hash rate after a defined period of time. This provides guaranteed returns, giving miners greater predictability.

Understanding the Dynamics of the Open Hash Rate Market-4 #3: Energy Arbitrage Opportunities

Some miners have access to much cheaper electricity than others due to geographic location, government subsidies, repurposing unused power generation sites, individually negotiated contracts with power generation companies, and many other things. These miners can arbitrage those below-average prices by selling hash rate contracts at the market price and keeping the difference.

#4: Simplify operations with short-term capital inflows

The price volatility and unpredictability of many of the aforementioned aspects of Bitcoin mining can hurt miners’ expansion plans. Dividing computing power into short-term contracts allows miners to efficiently allocate resources to ensure they have the funds they need to complete their business development plans.

Understanding the Dynamics of the Open Hash Rate Market-5

With Lumerin, Computing Power Becomes Another Commodity

By providing the necessary infrastructure and technology to transfer ownership of hashrate, the Lumerin hashrate marketplace enables everyone with an internet connection to trade it like any other commodity.

In this short article, we’ve listed some of the reasons why people want to buy and sell commoditized Bitcoin hashrate, but that only scratches the surface of the potential applications.

We hope that eventually, the mining community can build its own commoditized computing application on top of the Lumerin protocol according to its own needs and possibilities, further enriching the Bitcoin mining ecosystem.

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