Galaxy Research

Bitcoin’s Big
Halving Year

Annual Bitcoin Mining Report:
Facing Hashprice Volatility
FEBRUARY 12, 2024

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

Author &Acknowledgements
This report was authored by:

Brandon Bailey

Samuel Kiernan

Simrit Dhinsa

Guillaume Girard

VP Mining

Mining Associate

Mining Associate

Mining Analyst

This report is a product of Galaxy Research, a research organization within Galaxy, the leading provider of financial services in thedigital assets, cryptocurrency, and blockchain technology sector. Galaxy Research provides top-tier market commentary, thematic views,
tactical insights, and deep protocol research.
This report was written between December 18, 2023 and February 12, 2024.
View our publicly available research at www.galaxy.com/research. Contact us at research@galaxy.com.

2Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

3

Contents
Executive Summary

4

Key Takeaways

42023 Year in Review
Network Metrics
Regulatory
Insights and Trends from Public Miners

5
5
8
9

Predictions for 2024
Transaction Fees and Blockspace Dynamics into the Halving
Risk Management Strategies
Bitcoin Miner Strategy DivergenceImpact of the Bitcoin ETF on Public Miners
Mergers and Acquisitions

12
12
17
19
21
21

Hashrate Forecast
Methodology

22
22

How Much Hashrate May Come Offline at the Halving

26

Conclusion

28

Glossary28

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

4

Executive Summary
As we wrote a year ago, 2022 was one of the most challenging
years for bitcoin miners, as miners faced a perfect storm of
headwinds that forced them to cut costs, sell assets, and liquidate
their bitcoin treasuries at depressed prices. In contrast, 2023
was a rebound year, highlighted by significant growth in bitcoin
price, transaction fees, and network difficulty. Bitcoin’s pricerebounded from the low of $16,524 at the end of 2022 to finish theyear at $42,217 (+155%), driven largely by the anticipation that a
spot Bitcoin ETF would be approved. Transaction fees increased
336% YoY due to the introduction of the ordinals protocol andinscriptions, which has led to the burgeoning development of
web3 applications and tokenization on Bitcoin. The combination ofrising bitcoin price and transaction fees resulted in a significant
improvement in hashprice. Hashprice improvement combinedwith newer and more efficient ASICs hitting the market, caused
significant growth in network difficulty (+104% YoY). Despite thetremendous growth in network difficulty, 7D trailing hashprice still
finished the year at $0.095 (+57%). 2023 was also highlighted by arise in international hashrate from geographies such as the Middle
East, South America, Bhutan, China, and Russia. In preparation forthe halving, several large miners have utilized equity financing to
make significant ASIC purchases to increase the size and improvethe efficiency of their fleets. In this report, we delve into each of
the major events and trends that have impacted the Bitcoin mining
industry in 2023 and provide our outlook and perspectives on thelandscape for 2024, including the upcoming 4th halving.
As the title of this report suggests, hashprice volatility is a newfrontier that miners will have to master after fine tuning theiroperations during the bear market. With challenges like the halving
and transaction fee instability at the forefront, conquering the
Hashfrontier will be paramount for the survival of existing players.

Key Takeaways• Following a tumultuous 2022, miners got a much-needed
reprieve in 2023 driven by improvements in bitcoin price, spikes
in transaction fees, and the easing of energy prices. Offsettingsome of these moves was the meteoric rise in hashrate, whichrose 104% in 2023.
• Transaction fees were a massive dark horse in 2023. Transaction
fee spikes that occurred periodically in 2023 helped drive miner
revenue significantly higher. Transaction fees totalled 23,445
bitcoin in 2023, of which Ordinals transactions contributed 5,000
bitcoin. Fees in 2023 were over 4x the sum of transaction fees in
2022, which totalled 5,375 BTC.
• We expect hashprice volatility to increase in 2024 as demandfor blockspace ebbs and flows, causing sharp movements intransaction fees, which will lead to further changes in hashrate.
• Over the course of the year, public miners purchased over 94 EH
worth of machines valued at more than $1.53B. Miners particularly
focused on acquiring new generation machines with efficiencies
under 20 J/TH to update their fleet ahead of the halving.
• We estimate that roughly 15-20% of the network hashrate at theconclusion of 2023 (86-115 EH) could come offline at the time ofthe halving. Based on our analysis, we expected 2024 network
hashrate to end in a range between 675 EH and 725 EH.

• In 2023, global mining power costs, primarily influenced bynatural gas, remained remarkably stable, especially in the U.S.
This contrasted with the volatility in 2022, attributed to Eastern
European disturbances. The stability was driven by record-high
U.S. natural gas production, surplus inventories, reduced demand
due to milder temperatures, and a slight industrial consumption
decline, providing miners with a stable energy cost environment
leading up to the impending halving event.• Transaction fees
were a massive dark horse in 2023. Transaction fee spikes
that occurred periodically in 2023 helped drive miner revenue
significantly higher. Transaction fees totalled 23,445 bitcoin in
2023, of which Ordinals transactions contributed 5,000 bitcoin.
Fees in 2023 were over 4x the sum of transaction fees in 2022,
which totalled 5,375 BTC.
• Bitcoin miners, facing revenue volatility and heightened
reliance on transaction fees, are actively assessing new risk
management strategies, including instruments such as hashrate
derivatives contracts, to ensure revenue predictability, stability,
and to maintain investor confidence.

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

52023 Year in Review
Network Metrics
Bitcoin Price

Bitcoin price began the year at $16,524 and finished the year at$42,217, a 155% increase. The increase in Bitcoin price throughout
2023 was driven by a few commingling factors:• Base effects emanating from bitcoin’s low start to the year,
which was brought by forced selling at the end of 2022 following
the collapse of FTX and several prominent bankruptcies• The banking crisis which shed a spotlight on the use casesof Bitcoin• The announcement of several spot Bitcoin ETF filings/re-filings,
which drove enthusiasm around immense capital flooding into
the asset following the ETF’s approval• The historical price action that has been observed aroundprevious halving events

Transaction Fees

Transaction fees totalled 23,445 BTC in 2023, over 4x the 5,375 BTC paidby users in 2022. The proliferation of inscriptions in 2023, especially
activity surrounding the minting and trading of BRC-20s, led to periods ofsustained fee pressure in May, November, and December. Fees generated
from Ordinals transactions amounted to over 5,000 bitcoin in 2023.

Bitcoin Price

Source: Galaxy Research

Data: Public miner press releases and filings

Total Daily Tx Fees and Tx Fees as a % of Total Block Rewards
Source: Galaxy Research

Data: Coinmetrics

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

Network Difficulty and Hashrate

Network difficulty rose from 35.3 T (implied hashrate of 253 EH)
to 72.0 T (implied hashrate of 515 EH) in 2023, a 104% increaseover the course of the year. The hashrate increase in 2023
far exceeded hashrate growth in previous years. Hashrateincreased 45.7%, 30.5%, and 34.8% in 2022, 2021, and 2020,
respectively. Several tailwinds drove hashrate higher this year,
some of which we outlined in our 2023 Mid-Year Report, including:• One of the biggest contributing factors to the hashrateincrease was the delivery of ASICs and new projects coming
online from the previous bull run that were started in 2022
• New generation of machines from Bitmain and MicroBT at
relatively cheap prices
such as the M50 series, M60 series, S19k Pro, S21, and T21• Natural gas prices subsiding in 2023, driving energy costs
lower for miners

Network Difficulty
Source: Galaxy Research

Data: Coinmetrics• Bitcoin price propelling higher over the course of the year
• Transaction fees periodically surging, providing miners withadditional revenue• International hashrate coming online• ASIC manufacturers maintaining their production capacity
at foundries and releasing new, more efficient models• Miners underclocking machines to improve breakevens• Equity capital markets opening up slowly over 2023, allowing
public miners to raise capital for near term growth opportunities

6

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

Hashprice

The combination of movements in Bitcoin price, transaction fees, and network difficulty caused hashprice to fluctuate between$0.06 and $0.10 for much of 2023. Hashprice is a metric that refers to the expected value of 1 TH/s of hashing power per day andis a function of BTCUSD, difficulty, and miner revenue (block subsidy + fees). Hashprice did briefly drop below this range at theend of August and also went above this range in May, November, and December when transaction fees spiked.

Hashprice

Source: Galaxy Research

Data: Coinmetrics

Henry Hub Natural Gas Spot and Future Price (Dollars per Million Btu)
Source: Galaxy Research

Data: Bloomberg and New York Mercantile Exchange (NYMEX)

7

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

Energy Prices

Natural gas is a crucial price setting component for the majorityof power utilized by miners globally, especially in the U.S. where
30-35% of the implied global hashrate resides. Natural gas prices
were remarkably stable throughout 2023. This stability stands instark contrast to the volatility witnessed in 2022, where natural
gas experienced significant fluctuations, partly attributed to
disturbances in Eastern Europe, creating uncertainties in gas
pipelines and global energy trade. This period prompted a global
urgency to produce and store gas amidst the prevailing uncertainty.
Several contributing factors have contributed to the relative
stability in natural gas prices throughout 2023. In the UnitedStates, record-high natural gas production outpaced the growthin consumption, playing a pivotal role in maintaining stable prices.
Simultaneously, an increase in natural gas inventories further
contributed to this stability. The first half of 2023 witnessed mild
temperatures across the United States, resulting in reduced
demand for space heating, particularly in residential andcommercial sectors. This consistent and flat pricing trajectoryhas bestowed miners with a more stable energy cost environment
throughout 2023, offering a welcome margin relief and positioning
them favorably as we approach the impending halving event.

Regulatory• The extension of the Bank Secrecy Act (BSA) proposed by
Senator Elizabeth Warren as part of the Digital Asset Money
Laundering Act would extend the Know-Your-Customer (KYC)
requirements to miners.
Other developments outside of the US suggest that countries are
now competing to attract Bitcoin miners and provide regulatory
clarity on mining.
• Russia continues to expand its regulatory framework to treat
Bitcoin as an exportable commodity. By equating Bitcoin mining
with natural resource extraction, Russia is not only recognizing
the significance of Bitcoin but also integrating it into theireconomic framework. This should continue to boost the country’s
recent expansion into mining and is providing a “businessfriendly” alternative to countries with more restrictive policies.

Regulatory Trends in 2024

In the last year, the debate on Bitcoin environmental impact
appears to have shifted towards cautious optimism and we expect
this dynamic to continue in 2024, especially since the approvalof spot Bitcoin ETFs will change how institutions approach theindustry. Near-constant antagonism to Bitcoin mining in major
media has given way to more nuanced conversations about
electrical grid balancing, renewable energy incentivization, andwaste consumption. Some notable, nuanced, and positive coverage
and reports are listed below:

2023 was marked by a few key pieces of legislation that had thepotential to impact miners’ ability to operate, particularly in ERCOT:• KPMG – Bitcoin’s Role in the ESG Imperative• Texas Bill 1929, introduced in the first half of 2023, requires theregistration of virtual currency mining facilities in the ERCOT
power region that demand a large load of interruptible power,
was put into effect on September 1st, 2023.

• Bloomberg Intelligence – Bitcoin’s Energy Narrative Reverses as
Sustainable Exceed 50%• Texas Bill 1751 proposed the prohibition of miners fromparticipating in ancillary services and grid balancing programs
but failed to go further than the Committee on State Affairs.
This bill had a profound impact on the industry sentiment as it
represented the first instance of an offensive bill against mining
in the ERCOT region.
• The DAME (Digital Asset Mining Energy) Tax was proposed by
the Biden Administration and would impose a significant new tax
on Bitcoin mining operations, though the tax was removed fromthe budget in a significant win for Bitcoin advocates.
• New FASB rules to allow for the measurement of bitcoin atfair value on companies’ balance sheets. This rule change
was discussed in our previous EOY report (2022) and will mostly
benefit miners with large BTC treasuries by allowing them toaccount for their value at current prices, which will make their net
income figures more attractive. This change is expected to go
into effect in 2025 but earlier adoption will be allowed.

8• Financial Times – A fresh look at Bitcoin’s ESG Credentials• MIT paper• Forbes – Why Bitcoin Mining Might Actually be Great for
Sustainability
However, we believe that the status of mining pools in the US may
be challenged as new mempool dynamics emerge (MEV) and newpool technologies are adopted.
• More focus on the role of pools and miners in the transaction
selection process. The latter half of 2023 saw the birth of two newpools (OCEAN and DEMAND) focused on decentralizing pooledmining by using StratumV2 and other technologies. The primary
benefit of StratumV2 is that it allows for miners of a pool toparticipate in the block template construction process which hassolely been determined by the pool operator. The democratizationof block template construction is great for decentralizing mining,but the feature is opt-in for miners and due to certain regulatory
risk from a KYC/AML standpoint it is unlikely that most miners will
want to create their own block templates.

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

Insights and Trends from Public Miners
Treasury Management Strategy

Despite earning more throughout 2023 due to BTC priceappreciation and notable fee spikes, publicly traded miners mostly
sold less BTC throughout the year.
In 2022 and during the bull run of 2021, public miners largely
adopted a HODL strategy with their production. As the market
turned and bitcoin price declined, many of these public miners
became forced sellers in order to deleverage their balance sheets

Publicly Traded Miner BTC Sales
Source: Galaxy Research

Data: Public miner press releases and filings

Publicly Traded Miner BTC Holdings
Source: Galaxy Research

Data: Public miner press releases and filingsand cover operating costs. Public miners’ treasury management
strategies have since evolved towards more prudent methods
by taking a balanced approach to holding bitcoin or selling all of
it outright for cash. As mining economics improved during thesecond half of 2023, public miners became more comfortableholding more bitcoin and taking on price risk likely due to the ETF
and halving narratives. Now that FASB has updated its guidance
to allow for fair value accounting of bitcoin holdings on publiccompany balance sheets, public miners may reembrace holding
bitcoin on their balance sheet to an even greater extent.

9Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

Public Miners Share of Network Hashrate

The crypto market’s destruction in 2022, coupled with risinginterest rates, made it extremely difficult for publicly traded bitcoinminers to raise new equity capital or issue debt. As a result, equity
and debt capital markets remained largely closed off during
the first half of 2023, making it challenging for public miners toprioritize growth during much of 2023. This allowed miners in othergeographies to cut into North American miners’ share of hashrate.
In the second half of 2023, as mining economics improved, there
was greater demand for mining exposure in the equity capital
markets. North American miners’ access to capital via the publicmarkets gives them a tremendous advantage during growth cycles
in mining versus private miners and miners in other geographies.

ASIC Investments

10

In the first half of 2023, most miners were still focused onenergizing previous ASIC purchase orders made in 2022, while
a select few miners made significant ASIC purchases. As equity
capital markets improved in the second half of 2023, particularly
in Q4, several miners announced large ASIC purchase orders.
Notably, public miners raised a total of $1.1bn of equity capital overthe first 3 quarters of 2023. That likely accelerated further in Q4(public miner financials unreleased at the time of writing) as bitcoin
price and sentiment improved as we got closer to the spot Bitcoin
ETF approval. In comparison with equity capital, only $44M of debt
capital was raised, highlighting the extreme challenge miners have
had with relying on debt as a means to fund growth.

Public Miner Hashrate Growth vs. Rest of the Network
Source: Galaxy Research

Data: Company press releases and filings. Public miner set includes Argo, Bitdeer, Bitfarms, Cipher, Core Scientific,
Greenidge, HIVE, Hut, Marathon, Riot, Terawulf, Northern Data, CleanSpark, Stronghold, and Iris Energy.

Bitcoin Miner Source Funds
Source: Galaxy Research

Data: Company filings of Argo, Bitfarms, Cipher, Core Scientific, Greenidge, Sphere 3D, HIVE, Hut, Marathon, Riot, Terawulf, CleanSpark, Stronghold, and Iris Energy.

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

Public Miners ASIC Order Volumes for H1 vs. H2 2023
Source: Galaxy Research

Data: Public miner press releases and filings

With the halving quickly approaching in early Q2, the primary focus
for miners in 2024 has been improving fleet efficiency (reducing
J/TH) with infrastructure and capacity expansion being more thesecondary objective.

Types of Machines Ordered
Throughout 2023 by Public Miners
Source: Galaxy Research• Over the course of the year, public miners purchased over 94 EH
worth of machines valued at more than $1.53B.
• In the second half of 2023, miners increased their purchaseorders by 59.3% from 39.4 EH to 62.8 EH. Miners particularly
focused on acquiring the new generation of machines withefficiencies under 20 J/TH like the S21/T21 & M66/M56 from
Bitmain and MicroBT, respectively.
• So far in 2024, miners have already purchased over $393M
in machines with CleanSpark and Pheonix leading the pack.

Data: Public miner press releases and filings

11Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

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Predictions for 2024
Transaction Fees and Blockspace
Dynamics into the Halving
Transaction Fee Volatility Go Up
The market for blockspace fundamentally changed in 2023
due to Ordinals and other emerging token standards.
As we have discussed at length into our Ordinal focused reports(Bitcoin Inscriptions & Ordinals: A $5bn Market and Bitcoin
Inscriptions & Ordinals: A Maturing Ecosystem), this year has
seen some incredible new developments on Bitcoin that have
led to new sources of demand for Bitcoin blockspace. In turn,this demand has also introduced or exacerbated some
mempool dynamics in a way that is not yet fully understood by
all market participants.
One direct consequence of this new activity has been increasedtransaction fee volatility and periods of mempool congestionthat have demonstrated how little activity was needed on theblockchain to push fees to sustainable levels for Bitcoin miners(enough to cover the ever-decreasing issuance of BTC).
Transaction fees as a percentage of overall block rewards is themetric generally used to compare fee levels across time. In 2023,
the network experienced both an absolute increase in transaction
fees and frequent spikes above 25% of rewards, which would
correspond to about half of miner revenue after the halving.

Mempool Size vs. Fees as a % of Total Block Reward
Source: Galaxy Research

Data: Mempool.space and Coinmetrics

Transaction fees resulting specifically from Ordinals and othermetaprotocols will likely be the biggest “wildcard” for Bitcoinminers’ revenue in 2024, but this usage tends to be volatile. As it
stands, most miners (and pools) are not accounting for a material
portion their revenue to be dependent on volatile transaction fees.
For example, while we might expect hashrate to drop following thehalving, a significant fee spike around the same period could boost
revenues sufficiently high, enabling less efficient miners that would
otherwise be unprofitable to still mine at the margin. Furthermore,while most industry participants are focused on the impact of thehalving on miners’ profitability, large changes in transaction fees
over a given year could lead to significant hashprice volatility thatwould make it harder for miners to forecast their revenues.
To mitigate this, we suspect that further financialization of themining industry will lead to the emergence of blockspace futures
and transaction fee forwards, allowing miners to hedge out sometransaction fee volatility. We could even see the emergence of a newclass of opportunistic miners, coming online only when fee spikes
occur, in a type of arbitrage opportunity similar to Texas miners
taking advantage of power market fluctuations within ERCOT.
The emergence of Bitcoin as a settlement chain for new typesof economic activity (NTFs, DeFi, Stablecoins) will consolidate
demand for Bitcoin’s blockspace and lead to new mempool
dynamics. If 2024 is anything like 2023, we’re likely to witness someBitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

narrative altering innovations on Bitcoin that bring new utility to
Bitcoin and therefore drive more value to its native currency (BTC).
Below is a list of potential innovations that could have such aneffect on the Bitcoin protocol next year:• Taproot Assets: Taproot Assets (formerly known as TARO) willallow users to create NFTs and assets on-chain using Taproot
Merkle Trees that will be interoperable off-chain directly throughthe Lightning Network. It is anticipated that the Stablecoins
will be one of the major use cases for this new protocol, withthe hope of directly competing with other chains to settle
transactions at a low cost and instant finality. Taproot Assets
has the potential to amplify the “token/DeFi on Bitcoin” narrative
while bringing more transaction fees for miners.
• Runes and new BRC token standards: “Runes” are being
developed by Ordinals creator Casey Rodarmor as an alternative
to BRC-20 by using the OP_RETURN field of Bitcoin transactions(this field is limited to 80 bytes by most routing nodes). Whileusing this field is not new (it was even used by Tether to issue
stablecoins on Bitcoin back in 2014), the new Runes protocol’s
use of it could be more efficient for token issuance than thecurrent reliance on JSON inside inscriptions. The CBRC token
standard is also another contender when it comes to newcoins. By being between 60% to 70% more efficient to mint andtransfer, they hold a significant advantage over BRC-20 and havethe potential to increase the economic density of blocks.
• Covenants: The potential introduction of Covenants (TX_HASH
proposal and “LNHANCE” proposal) to Bitcoin will lead to anincreased usage of blockspace by users looking to take advantageof new functionalities such as VAULTS, Timeout Trees, and others.
• DLCs and other types of smart contract execution layers:
Discreet Log Contracts and innovative protocols like BitVM
could lead to a major narrative for Bitcoin vs other chains as the
protocol could become a new contender in the “Smart Contract”
space. We have long believed the thesis that Bitcoin will become
the ultimate “Settlement Chain” where most of the blockchain
economic activity ends up and this kind of proposal would get us
significantly closer to it.
• New Layer 2 protocols: Scaling protocols such as ZeroKnowledge Rollups will also emerge as companies compete
to bring rollups to Bitcoin. For example, Chainway’s rollup isdesigned to publish L2 state proofs and represent a consolidated
set of transactions using the ordinals protocol to publish proofs.
Other scaling solutions like Ark (introduced in May 2023) could
provide a “base load” for the mempool as Ark Service Providers(ASPs) continually settle L2 transactions on-chain on behalf ofusers. This source of new demand would only increase demandfor blockspace but would also allow for the onboarding of
millions more of users to the Bitcoin blockchain.
Another thing to consider in 2024 is the likely emergence ofmore complex forms of MEV on the Bitcoin blockchain. We’ve
experienced two types of “MEV-like” events during 2023, with bothhaving significant implications for market participants.

13• Sophon, the mint killer: The bot dubbed “Sophon”, createdby Rijndael (CTO of Taproot Wizards) works by scanning the
mempool for BRC-20 token mints and creating a duplicate
transaction with a higher fee and a total supply for the tokenof 1 such that the deployer can claim the totality of the genesis
token mint for himself. This bot caused the BRC-20 mint volumes
to drop to near zero during the month of October as everyone
saw their issuance transactions get replaced. Rijndael stopped
running the bot himself because of the cost of running theattack, but the bot had a 75% success rate at frontrunningthese mints. (This specific type of attack works specifically with
BRC-20 mints due to their design and would not necessarily work
against other token issuance protocols).
• PSBT Front-running: Sniping of BRC/Ordinal transactions(transactions that are being spotted in the mempool before
being mined and then replaced by the “attacker’s” own versionof the transaction to make a profit) is a sort of MEV and miners
could take advantage of such opportunities. While it appears
that most of this new phenomenon is due to PSBT trades
between individuals and not actually miners extracting values
from unsuspecting users (rather, the highest paying transactions
are just correctly mined first by pools), this could change in the
future if the opportunity cost for miners becomes attractive
enough (Fee Sniping could also become more common as theopportunity cost to replace a mined blocks becomes attractive).
New types of “MEV-like” behaviors could also emerge in 2024:• “Sat Hunting”: Because the value of Ordinals can be increased
by inscribing images on specific sats, it is entirely possible thatminers will start competing to mine the “rarest” sats in a not-sodistant future. With the halving coming up, we could even witness
the first instance of a block reorganisation caused by miners
fighting to get the first “Halving sat.” (On this point, the first block
after the halving is also when Rodarmor’s “Runes” protocol
launches, a launch which is likely to draw significant transaction
fees and further increases the likelihood of reorganization).
• Layer 2 related MEV: As Bitcoin developer Gregory Sanders pointed
out recently, concerns about Ephemeral anchors with Lightning
related transactions could lead to the emergence of some formof MEV where miners deliberately choose to mine one transaction
without another tied to it in order to maximize their block reward.
• Non-Standard Transactions: We can expect the share of“non-standard” transactions to increase as miners try to extract
as much value per block as possible. These “non-standard”
transactions are transactions that would not be usually
relayed by nodes but can be sent directly to pools. For example,
transactions over 100 kvB would not be relayed but in the caseof large Inscriptions (Image or video), they can be sent directly toa pool to be mined in exchange for a fee paid Out-Of-Bands (notusing the blockchain but by paying the pool directly). While thistype of behavior causes centralization concerns, we expect it togrow as new forms of demand for blockspace emerge. Bitcoin
developer 0xB10C estimates that over 20,000 non-standardtransactions were mined since November 2021.

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

The Usage of RBF in a High-Fee Environment
will Shape Mempool Activity

Fee bumping usage is becoming more common and useful for
average users. RBF or “Replace-By-Fee” is one of the solutions that
Bitcoin users can use to bump up their transactions when they
become “stuck” in the mempool due to increasing fees. RBF allows
users to increase the fee attached to their previously broadcast
transaction, thereby growing the incentive for miners to include it ina block. With other solutions like Child Pays for Parent (CPFP), RBF is
useful during fee spikes as it allows users to have their transaction
confirmed faster by the network if the need arises. As we’ve explained
previously, 2023 was a volatile year for transaction fees, and as aresult, it was harder for users to know and set the “right” feerate for
their transactions, leading to a significant increase in RBF usage.
In turn, increased RBF usage leads to higher feerates in the
mempool and higher revenues for miners. The typical replacement
feerate ranges between 20% to 50% higher than the originaltransaction’s feerate, increasing the incentive for miners to include
these transactions in a block.
While technical users will generally use RBF to increase their
feerates, other solutions have emerged to help the averageuser. Known as “Transaction Accelerators”, these services arebeing advertised by pools like Binance and data aggregators like
Mempool.Space. Accelerators allow users to pay the pool directly(off-chain with fiat currency or BTC) to include their transactionin the next block. These Out-Of-Band (OOB) transactions are notreflected in the total rewards of a block but can contribute to asignificant increase in revenues for miners.

RBF: Average % Change Analysis
Source: Galaxy Research

Data: Mempool.space and Coinmetrics

14

Because the optimal feerate for a transaction is becoming lesspredictable as competition for blockspace increases, we can
expect OOB transactions to make up a larger percentage of pools’/
miners’ revenues as the financialization of blockspace continues.
The share of fees from RBF transactions will increase in 2024
as transaction fees continue to rise. A surprising finding of thisanalysis of RBF replacements is the amount of fees generated
from this type of transaction:• The share of transactions fees generated by RBF replacements
hovers between 10% and 20% under normal mempool
conditions, with a spike during low-fee periods reaching a peak of
50% in September 2023.
With the halving coming up and transaction fees doubling asa share of block rewards, RBF transactions will become more
relevant for miners therefore providing a greater incentive forminers to run a Full RBF node in order to see those transactions in
the mempool and include them in their block template. According
to research by Bitcoin developer Peter Todd, 31% of hashrate, overat least 4 different pools, is mining full-RBF as of August 2023
(could be upwards of 70% as of January 2024). The introductionof the “One-Shot Replace-By-Fee” proposal by Peter Todd will also
be a leading factor in providing miners with additional incentives
to run full-RBF nodes. Indeed, this new RBF policy would work by“allowing the replacement to only happen when it [the feerate]would immediately bring a transaction close enough to the topof the mempool to be mined in the next block or so” which would
increase the competition between high-time preference users of
the blockchain. In a sense, this new form of RBF could provide aconstant level of demand for the next block which dictates overall
transaction fees for miners.

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

15

Fee Increase from RBF vs. Total Daily Fees
Source: Galaxy Research

Data: Mempool.space and Coinmetrics*It should be noted that the data used to make this analysis of RBF transactions was likely incomplete and only represents a sample of all RBF transactions tracked by mempool.space. Therefore, theconclusions on this research reflect a general trend rather than an exactly accurate situation.

Going forward, we expect mempool-focused proposals suchas Cluster Mempools, Package Relay, V3 transaction relay andEphemeral Anchors to make more tools and policies available
for users to target the optimal feerate for their needs and avoid
overpaying for transactions while also benefiting miners byallowing them to build more efficient block templates.

Exploring the Relationship Between
Blocktimes and Feerates
Historical data shows a strong relationship between block
times and feerates. Given the potential for unprofitable miners tocome offline around the halving and blocktimes to increase, in theanalysis below, we quantify the impact that increasing blocktimes
could have on exacerbating fee pressures.
With the exception of 2009 and 2021, average annual blocktimes
were faster than the 10 min interval between blocks set by the
Bitcoin network. Just over the past 3 years (since Jan. 1, 2021),
blocktimes averaged 9 min 51 sec, corresponding to a meteoric
262% rise in mining difficulty over the same time period, leading
us to believe that this phenomenon would have had a significant
impact on miners’ revenues by naturally reducing feerates at the
mempool level. While the concept is easy to understand and logicalin nature (more frequent blocks = less time for fee pressure to buildup), we found that its consequences are often disregarded.
First to do this, we ran a correlation analysis between Blocktimes
and Average of Median Transaction Sats/vByte per Block forblocks 390,000 (mined in December 2015) to 825,460 (mined in
January 2024) to identify if the relationship was confirmed byon-chain data. In general, Median Sats/vByte (feerates) steadily

increased in tandem with blocktimes, with the relationshipbecoming less obvious as blocktimes ticked further away from 10
minutes. The chart below shows the total number and the MedianTransaction Sats/vByte per Block for blocks mined within different
one minute intervals from 0 mins to 100 mins.
Furthermore, by running a regression analysis between blocktimes
and Median Transaction Sats/vByte per Block, we can quantify
the relationship between these two variables. The analysis below
indicates that, on average, for every minute that a block comesin faster than the 15 mins, feerates decrease by around 2.2 Sat/vByte per minute (or about 4% of the roughly 54 Sats/vByte medianblock fee for blocks mined around 10 minutes). However, for eachminute above 15 mins, feerates increase by 0.71 Sat/vByte perminute (or about 1% of the roughly 54 Sats/vByte median block fee
for blocks mined around 10 minutes). We distinguish trendlines forblocktimes below and above 15 mins because there is a noticeablechange in slope at around this blocktime. After the 15 min mark,increases in blocktimes have a diminishing impact on feerates. A
reasonable explanation of this phenomenon is that after 15 mins,
block templates are likely nearing their finalized form, and barring
any major mempool changes (i.e. from an ordinals collection being
inscribed), it becomes increasingly unlikely for other transactions
to displace those currently anticipated to be in the block.
A corollary to these findings is that feerates have been naturally
lowered by the expanding network hashrate over the past few
years and will continue to be in 2024 with the possible exception of
the period following the halving where a decline in hashrate could
add feerate pressure.

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

16

Block Fees/Count for Different Block Time Intervals
Source: Galaxy Research

Data: Mempool.space

Blocktime vs. Median Sats/vByte
Source: Galaxy Research

Data: Mempool.space

While hashrate itself may not serve as the primary catalyst for theoverarching feerates, it undoubtedly has the potential to amplify
existing trends in feerate dynamics. For example, the recent surge infees was predominantly fueled by a surge in demand for blockspacerather than corresponding shifts in hashrate. Nevertheless, hadblocktimes been slower in 2023, it could have intensified these spikes,
resulting in prolonged intervals between blocks and consequently
allowing fees to accumulate at a more pronounced rate.
Next, we use the above to understand what the impact of thisrelationship between block times and transaction fees on miners’
revenues could be as transactions fees become even more

relevant after the halving. By expanding the results of this analysis
to overall mining revenues, we can begin to explore how feerates will
be impacted both by the Halving and the continued race between
miners to increase their mining capacity. One example of how miner
activity impacts block times and feerates is when the network
experiences a sudden rise in feerates when most miners in ERCOT
simultaneously curtail their operations due to high power prices.
To illustrate this, if we expect around 20% of network hashrate
to come offline during the halving, blocktimes would on averageincrease by 20% before being adjusted. This is because of amechanism called the “difficulty adjustment”, where mining difficultyBitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility(the average expected time to find a block) is adjusted every two
weeks (2016 blocks) in order to keep blocktime around 10 minutes.
Using the relationship we previously derived for blocktimes less than
15 mins, this leads to a corresponding increase in average feerates of
8% (12 min blocktimes, implying 2 mins above 10 min target times 4%
per min increase - all else being equal). To put this in perspective, if we
apply this to a volatile fee period, such as epoch 407 (between blocks
820,512 and 822,528, +6.98% upward adjustment), an 8% increase infees over this difficulty epoch would represent an additional 355.7
bitcoin ($15M at $42,000 bitcoin price) in fee revenues for miners.
On the other hand, if the average blocktime in 2024 is around 9.5
minutes (average blocktime in 2023 was 9.74 minutes), we could
expect the theoretical negative impact on miners’ revenue to beabout 2% of transaction fees. (This analysis is solely focusing
on the fee impact of hashrate and not the increased revenue
associated with a decrease in difficulty following the halving).
*However, one could say that because miners mine more blocks
than the network anticipated over a given year, the additional
revenue from receiving more block subsidy would more thanlargely compensate for the lost income of suppressed feerates. In
reality, both ways of looking at the situation are valid and dependon your time preference (ie. Miners are generating more revenues
over a given year, but they accelerate the coming of anotherhalving by mining blocks faster).
To conclude, the confluence of heightened inscription activity,
escalated usage of Replace-By-Fee (RBF), and a decelerationin block times may collectively harmonize, giving rise to an
unprecedented surge in fee pressures and volatility coinciding
with the occurrence of the halving event in April.

Risk Management Strategies
Power Hedging

The expected volatility of hashprice around the upcoming halving
in April 2024 has added an additional layer of complexity to miner
energy strategies. Miners, dispersed across diverse geographicalregions, power operations in a multitude of ways including standard
grid connection, renewables colocation, wasted gas generation,and many more. Miners with exposure to variable grid pricing
around the world will need to take a prudent approach to theirenergy management strategies.
The table below shows the breakeven revenue in dollars per MWhgenerated at different fleet efficiency and hashprice combinations.
Power costs above this breakeven threshold would cause ASICs
to run unprofitably. At the time of writing, hashprice is $0.082 ($43k
BTC price, 10% fees, 520 EH), and all else equal, would drop to$0.045 post halving. At this hashprice level, a miner that has a 30 J/
TH fleet efficiency would need energy prices to be below $63/MWhin order to have a positive gross profit.
Several miners with grid interconnection are confronted with the taskof delineating the proportion of their overall capacity that they want tohedge. Miners that opt for more index exposure expose themselves tothe risk of energy prices settling higher than the marginal breakevenof their fleet for prolonged periods of time, causing increased
downtime and fewer bitcoin mined. Miners that hedge their energy
prices can withstand energy price volatility and gain upside exposure,but risk locking in a fixed hedge price that exceeds their marginal
breakeven and where spot power prices settle.

Breakeven Revenue ($/MWh) for Different Combinations of Machine Efficiency and HashpriceHashprice

Source: Galaxy Research$0.030$0.035$0.040$0.045$0.050$0.055$0.060$0.065$0.070$0.075$0.080$0.085$0.090$0.095$0.10035.0 J/TH
$36
$42
$48
$54
$60
$65
$71
$77
$83
$89
$95
$101
$107
$113
$119

32.5 J/TH
$38
$45
$51
$58
$64
$71
$77
$83
$90
$96
$103
$109
$115
$122
$128

30.0 J/TH
$42
$49
$56
$63
$69
$76
$83
$90
$97
$104
$111
$118
$125
$132
$139

17

Fleet Efficiency
27.5 J/TH
25.0 J/TH
$45
$50
$53
$58
$61
$67
$68
$75
$76
$83
$83
$92
$91
$100
$98
$108
$106
$117
$114
$125
$121
$133
$129
$142
$136
$150
$144
$158
$152
$167

22.5 J/TH
$56
$65
$74
$83
$93
$102
$111
$120
$130
$139
$148
$157
$167
$176
$185

20.0 J/TH
$63
$73
$83
$94
$104
$115
$125
$135
$146
$156
$167
$177
$188
$198
$208

17.5 J/TH
$71
$83
$95
$107
$119
$131
$143
$155
$167
$179
$190
$202
$214
$226
$238

15.0 J/TH
$83
$97
$111
$125
$139
$153
$167
$181
$194
$208
$222
$236
$250
$264
$278

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

18

Gross Margin % for Different Combinations of Machine Efficiency and HashpriceSource: Galaxy Research

Fleet Efficiency

Hashprice$0.03035.0 J/TH

32.5 J/TH

30.0 J/TH

27.5 J/TH

25.0 J/TH

22.5 J/TH

20.0 J/TH

17.5 J/TH

15.0 J/TH(124%)(108%)

(92%)

(76%)

(60%)

(44%)

(28%)

(12%)

4%

$0.035

(92%)

(78%)

(65%)

(51%)

(37%)

(23%)

(10%)

4%

18%

$0.040

(68%)

(56%)

(44%)

(32%)

(20%)

(8%)

4%

16%

28%

$0.045

(49%)

(39%)

(28%)

(17%)

(7%)

4%

15%

25%

36%

$0.050

(34%)

(25%)

(15%)

(6%)

4%

14%

23%

33%

42%

$0.055

(22%)

(13%)

(5%)

4%

13%

21%

30%

39%

48%

$0.060

(12%)

(4%)

4%

12%

20%

28%

36%

44%

52%

$0.065

(3%)

4%

11%

19%

26%

34%

41%

48%

56%

$0.070

4%

11%

18%

25%

31%

38%

45%

52%

59%

$0.075

10%

17%

23%

30%

36%

42%

49%

55%

62%

$0.080

16%

22%

28%

34%

40%

46%

52%

58%

64%

$0.085

21%

27%

32%

38%

44%

49%

55%

60%

66%

$0.090

25%

31%

36%

41%

47%

52%

57%

63%

68%

$0.095

29%

34%

39%

44%

49%

55%

60%

65%

70%

$0.100

33%

38%

42%

47%

52%

57%

62%

66%

71%

As an example, around the clock hedges for load zone West in
ERCOT for May – Aug 2024 (the few months following the April
2024 halving) have peaked at around $80/MWh. At this level,
hashprice would have to settle at greater than $0.07 for miners
with a machine efficiency of at most 35 J/TH to remain profitable.
If hashprice falls below this threshold and real time energy prices
also settle below $80/MWh, a miner would neither be able to mine
profitably, nor be able liquidate their hedge in the money. Miners
may be more comfortable hedging only a portion of their fleet andtaking on more index exposure to reduce the risk of these hedge
obligations forcing them into unprofitable scenarios, while also
retaining the ability to capitalize on upside power price swings ifthey do occur. With increasing their index exposure allocations,although downtime may increase, miners would have more
flexibility over their operating periods, rather than being forced
to operate (or liquidate hedges) to cut losses if the marginal
breakeven settles below the fixed strike of the hedge.
This analysis also shows the need to prioritize machine efficiency.
While older generation fleets with machine efficiency of 35 J/TH
become unprofitable if hashprice falls below $0.07 in the scenario
above, miners with a fleet comprised of S21s would need hashprice tofall below $0.04 to be unprofitable with a hedged power cost of $80/
MWh. In the hosting context, miners with newer generation machines
would still be able to withstand higher fixed fee contracts post-halving.
We can also observe the magnitude of how the improvement inefficiency impacts gross margins. In the table below, we adjust theprevious table to assume a fixed energy price of $80/MWh andcalculate gross margins at different hashprice levels for machine
fleets with different efficiencies.

The table above shows that at a hashprice of $0.07, fleets withefficiency of 35 J/TH generate a meager 4% gross margin, whereas
fleets with efficiency of 17.5 J/TH are still at a robust 52%.
In conclusion, the decision for miners to enter different forward
hedges becomes convoluted post-halving and is heavily dependenton fleet efficiency. Miners risk entering into a hedge where the fixedprice they take surpasses both the marginal breakeven of theirmachines and spot electricity prices, causing them either to mine
unprofitably or liquidate the hedge at out of the money prices.

Production Hedging

Bitcoin mining draws intriguing parallels with traditional commodity
production businesses, such as the practices observed in
the oil and gas industry. In some cases, the similarities are
striking. However, a notable disparity arises in the realm of risk
management, a facet that may witness increased attention frompublic miners, potentially leading to greater disclosure.
The year 2023 unfolded as a volatile period for miners, particularlyin the context of block rewards. As we wrote above, this volatility
can be attributed to spikes in transaction fees resulting frominnovative bidding strategies and the utilization of block space.
As the much-anticipated halving event approaches, miners
find themselves increasingly dependent on transaction fees tosustain their top line, aiming to offset the impending reduction inblock subsidies. This heightened reliance and the accompanying
uncertainty are propelling miners to explore hedging strategies,
serving as a pivotal element in more robust risk management
practices. This move not only seeks to reassure investors but alsosuggests a strategic shift towards leveraging various derivatives
tailored to their risk profiles and speculative inclinations.

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

The strategic advantages of adopting hedging strategies in 2024
are multifaceted, as eloquently outlined in a comprehensive reportfrom GSR.
• Predictability: As miners’ revenues are intricately tied tohashprice, miners have a greater range of options when devising
their risk management strategies. Hedging BTC price, the primaryelement in the equation (hashprice), is often more straightforward
and liquid. This is due to its ease of underwriting by desks, offeringa degree of predictability in revenue for miners with respect
to price they produce BTC at. This enhanced predictability
contributes to a more certain top line. However, with thecontinuous growth in network hashrate and the accompanying
rise in difficulty, coin production declines. To foster predictability
in this dynamic environment, miners can utilize hedging products
such as hashrate orientated derivatives, to secure a portionof their revenue. This segues into the second aspect – miners
who hedge coin production through hashrate derivatives canestablish a more stable ‘cost to mine.’ This assumption holds
provided that all other contributing factors to the cost to mineremain constant, including power, OPEX, and uptime. Miners whochoose to hedge both their power costs and production gain thehighest degree of control over their cost to mine. This strategy
allows them to lock in more predictable and stable cost ranges.
Such an approach proves particularly advantageous during
periods of increased ambiguity and uncertainty in other facets
influencing production. Instances such as blackouts, machine
malfunctions, or fluctuations in pool luck, and alterations in pool
payout structures leading to a decrease in expected BTC mined
can be effectively navigated with a robust hedging strategy
covering both power and production.
• Access to Capital & Shareholder Value: In the current market
landscape, asserting that public mining stocks trade purely on
fundamentals is challenging. Market rewards for miners often
manifest through increased capital liquidity, facilitating growth,
infrastructure investment, and addressing other financial
obligations. Public miners facing revenue volatility due to thevariable nature of BTC prices need to demonstrate stability
to shareholders. This stability can be effectively achieved andcommunicated to the market through prudent hedging strategies,
which is likely to enhance how shareholders may value of aminer’s public equity. With more stable cash flows, clear visibility
into the ability to cover existing debt, and the capacity to financeexpansion, miners embracing hedging provide investors with
an opportunity to invest in stability within the dynamic realm of
Bitcoin mining—a valuable asset in today’s market.
• Production Alpha: With the increasing significance oftransaction fee revenue for miners, a potential alpha opportunity
arises through the strategic utilization of hashrate derivatives.
In periods when transaction fees are at peak levels, miners canlock in production at those rates, allowing them to maintain highproduction levels even if transaction fee rates recede. Given theongoing volatility in transaction fee spikes, a trend that showsno signs of diminishing, miners can capitalize on this variability.
On the flip side, miners can engage in hashrate swaps whenanticipating short-term transaction fee spikes, providing themwith a versatile approach to the use of derivatives.

19

While there are several positive aspects associated with using
such derivative products, they also pose a multitude of challenging
problems, potentially contributing to the scarcity of sell-side offerings
and a simultaneous lack in buy-side activity. The complexity of thesecontracts, especially the distinction between cash-settled andphysically settled variants, introduces intricate challenges. Physicallysettled contracts, in particular, carry the burden of significant
counterparty risks, involving not only the hashrate operator (miners)
but also their chosen pool, and other factors that contribute to uptime.
The market reflects these complexities, evident in the shallow
liquidity for such structured products, underscoring the inefficiency
in their pricing. As we step into 2024, a new year brings a fresh
horizon of miner revenue volatility, shaped by the halving and an
upswing in ordinal and inception activities. The evolving landscape
prompts a revaluation of the intricate dynamics surrounding thesederivative contracts.
Hashrate derivatives aside, miners have a plethora of options tohedge and integrate various risk management products into theirstrategy. This includes options, costless collars, and forwards.
These straightforward structures are highly liquid and boast quick
execution times.

Bitcoin Miner Strategy Divergence
In 2023, significant divergence emerged among Bitcoin minerbusiness models, propelled by the onset of a low hashprice period in
2022 and compounded by uncertainties surrounding the impending
2024 halving event. Industry-wide introspection into cost structures
ensued, prompting miners to identify ways to improve margins. With
electricity costs constituting a substantial portion of total cash
expenditures, miners refined energy strategies and moved closer tothe source through vertical integration to avoid additional hostingfees. Amidst this paradigm shift, miners with hosting business lines
found themselves compelled to recalibrate contract economics tobetter align with mining cash flows. And finally, as capital dwindled in
the mining industry, several miners ventured into the realm of HighPerformance Computing (HPC) in a bid to tap into other sources ofcapital, particularly as valuations in the AI sector surged. Below, wedelve into the viability and implications of these different businessmodels in 2024 as the halving approaches and with the spot Bitcoin
ETFs having been approved.

Vertical Integration

In 2024, we expect hashprice volatility to increase, caused byfluctuating fee/mempool dynamics, approval of the spot Bitcoin
ETFs and its impact on price, and the potential for sharp moves
in difficulty following the halving. In an effort to better shieldthemselves from this hashprice volatility, we expect miners topush for further vertical integration to position themselves lower
on the cost curve by removing additional costs from hosting
intermediaries. Hosted proprietary mining operations cancertainly help miners generate cash flow on machines if they lack
infrastructure, and miners that choose to pursue this route will
have to focus on plugging in new generation machines and finding
hosting partners with conducive terms.

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

Most of the efforts to vertically integrate so far have come fromminers owning their own sites, electrical infrastructure, andmachines. However, miners have also started to diversify how they
are vertically integrating to improve efficiency at different parts ofthe construction, hardware, software, and energy generation stacks.
Some examples so far include Riot’s purchase of ESS Metron,
which has given them better control of electrical supply chains,
Marathon’s stake in ASIC manufacturer Auradine, which could drive
down future ASIC procurement costs, Marathon’s operation of theirown pool (which eliminates pool fees), and Hut8’s recent stalking
horse bid victory, giving them control of energy generation.
The path of least resistance is movement closer to the energy
source, where we expect further integration between generationand mining because of the clear synergies that exist between the
two. This can be manifested in several ways including colocation
with renewable generation or construction of operations poweredby wasted energy sources. However, as miners consider future
expansion opportunities, we expect more partnerships to form
between miners and ASIC manufacturers, as there are also naturalsynergies between the two. Miners can reduce their capex burdenand ASIC manufacturers can gain a better sense of future production
requirements to avoid periods of sustaining superfluous inventory.
We expect vertical integration to continue in 2024 as miners compete
to differentiate themselves and bring in capital for future growth.

Hosting Business

The hosting landscape will change in 2024. Hosting providers will
likely prioritize engaging with clients that are able to plug in newer
generation machines that have higher breakeven dollar per MWh
thresholds to ensure that clients can stay online as much as possible.
Contracts, particularly those with miners with older fleets, will also
have to be structured in a way that aligns the cash flow generationof the miners. This means that hosting contracts will shift awayfrom fixed price contracts to cash flow splits, especially for clientsthat seek to plug in older generation machines. Cash flow splits
allow the hosting provider to benefit from the upside of hashpriceand miners to stay profitable if hashprice falls. Energy curtailment
splits may also become prevalent, offering both the miner andhosting provider upside exposure to energy prices and driving
down the blended cost to mine a bitcoin.
Hosting still provides miners with a way to grow in a capital efficientmanner by filling interim capacity that is available with third party
machines to monetize as much power available as possible.
Those that can manage their energy prices effectively are able togenerate a relatively stable cash flow stream that can help with
infrastructure underwriting.

High Performance Computing (HPC)

Several miners announced expansion plans into the HPC
datacenter space in 2023 because of the low hashpriceenvironment, lack of capital available to fund mining growth, and
the AI boom. These companies aimed to diversify revenue streams
heading into the halving and access different sources of capital.
The general scarcity of large power generation in primary and20

secondary markets in the US has provided further tailwinds forminers to transition to HPC.
The transition from bitcoin mining to HPC is a convoluted
undertaking and the business models are fundamentally different.
From a construction and design perspective, HPC datacenters havemore complex, parallelized networking structures finely tuned to
optimize data throughput for faster runtime. They also adhere to
more stringent redundancy and cooling requirements to ensure that
there is minimal inadvertent downtime. While uptime requirements
are dependent on the client and can be relaxed in certain instances,
it is imperative that HPC datacenters also have appropriate cachingmechanisms in place to facilitate the seamless resumption ofoperations from the point of interruption when systems are restored
online, which is not the case with bitcoin mining datacenters. Asa byproduct of these more nuanced build specifications, capitalrequirements for HPC datacenter construction are orders ofmagnitude larger than bitcoin mining datacenters.
From an operations and finance perspective, the businesses
also have their differences. HPC businesses either can either
co-locate with another Cloud Service Provider (CSP) or create
their own Cloud platform. The former is much simpler, and thedatacenter operator would enter into a lease type agreementwith the CSP and focus primarily on site management with little
end-user interaction. Cash flows in this lease structure are
generally stable and recurring in nature with higher margin thatmining hosting businesses. In the latter, the firm would have tobuild out more expansive software, sales, and billings teams togrow their client base and bolster the user experience. Unlike inthe lease scenario, offering cloud services likely means that the
datacenter operator has also invested in GPUs that the cloud
platform interacts with. This adds significant additional capitalneeded. As the CSP, however, these businesses would likely be able
to charge substantially more to the end client instead of having anintermediate CSP that interfaces with the end client.
There are also external variables out of the control of the company
that pose risks to the energization of operations. The soaring
demand for new generation GPUs and related infrastructure has
caused a medium-term supply shortage, making it difficult for firms
to receive their equipment on predictable timetables.
Cash flow generated may be higher and less volatile than bitcoin
mining and while HPC expansion announcements have accelerated
valuations for certain companies, paramount to the success of
this business segment is the ability to execute on the construction,
design, operations, and finance aspects of the business while also
navigating around the previously mentioned external risks. The
companies that had ventured into this segment in 2023 were still inthe early stages of growth, and 2024 will be the true test of viability.
The foray into HPC in a bear market helped miners locate
new sources of capital in 2023. However, there is an inherent
opportunity cost of allocating power to bitcoin mining versus
to HPC workloads. With spot Bitcoin ETFs approved and capital
anticipated to return to the industry, companies will likely pivot
back to growing mining operations. Companies that expanded tooBitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

quickly in HPC may see reduced correlations to bitcoin price in thelonger term and capped upside as investors value the businessmore as traditional datacenters than bitcoin proxies.

Impact of the Bitcoin ETF
on Public Miners
With the approval of Bitcoin ETF products, investors can now
access direct exposure to bitcoin price. Prior to the approval of theETF, public mining stocks were one of the only traditional vehicles
through which investors could get exposure to bitcoin priceappreciation. In the short-term, the approval of the ETF is likely to
be a consideration for investors in evaluating whether to invest in
public mining stocks. Retail investors are likely to continue to viewand trade miners as a leveraged long bitcoin trade with the ETFs
as the primary benchmark for performance. On the other hand,institutions are seemingly more likely in the short run to go long the
Bitcoin ETFs and short mining stocks, which we’ve seen start toplay out since the beginning of 2024.
In the longer term, a Bitcoin ETF should pose competition for public
miners. As more savvy investors enter the market, bitcoin miners
will have to demonstrate through earnings why they would be abetter investment over spot bitcoin. Miners’ beta to bitcoin andtrading multiples should be determined by the individual company’s
ability to generate strong free cash flow. This could pose capitalraising challenges in the equity market for lower margin, higher cost
operators with weaker track records for return on capital. Miners stock
price should also react much more negatively to dilution as a meansof funding growth unless the miner is able to demonstrate strong
prospects for return on capital as investors can just buy the ETF andnot have to worry about dilution. However, bitcoin miners could benefit
from the inclusion in a broader array of ETFs and fund products aswell as research and coverage where those benefits outweigh someof the cons of increased competition from the Bitcoin ETFs.

Mergers and Acquisitions
In retrospect of our Mid-year report, where we discussed effective
strategies for miners preparing for the impending halving in
2024, M&A emerged as a key strategic move. In 2024, miners may
consider M&A for a variety of strategic reasons including reducing
their high-power costs, satisfying a lack of a compelling growthnarrative, becoming more vertically integrated, or raising capital.
As we previously wrote, miners faced capital-raising difficulties,
especially when BTC was trading between $18k-$25k. Investor
caution prevailed as miners utilized cash and BTC reserves to coverworking capital needs, with uncertainty surrounding future revenue
growth amid climbing difficulty levels and sideways BTC price action.
Today, the situation has markedly changed with improving mining
economics driven by a rise in hashprice due to BTC performanceand increasing transaction fees. Low natural gas prices have further
contributed to manageable energy costs, positioning gross mining
margins significantly better than the earlier part of 2023.

21

However, despite these positive developments, the fourth
halving poses a potential challenge. While fleet upgrades andjoint ventures have been instrumental in enhancing operational
resilience, miners unprepared for the halving may find themselvesin a precarious position. Some reasons for an uptick in 2024 M&A
activity are listed below:• Attractive Small Caps: Public miners with smaller market
capitalizations may become appealing targets for better
capitalized and more liquid miners, particularly those withlower debt levels.
• Aiming Vertical: Private miners, especially those that are morevertically integrated, may become targets for acquisition or
merger with synergistic players who can lower their cost to mineand take more control of their own destiny. For example, someless vertically aligned miners have not have the ability to curtail
operations when their power exceeds their breakeven price.
• Value Trade: Private miners with low valuations, that areundergoing restructuring, or that are seeking a route to survival
could be attractive purchases. Acquirers may view these as value
trades, anticipating future gains when market conditions improve.
• Real Option: Mining operations demonstrate instant cashflow
positivity, assuming low energy costs and minimized operational
expenditures at current hashprice levels, presenting an enticing
entry point for a robust IRR. This proposition becomes evenmore appealing when the site acquisition cost falls within an
acceptable range, particularly when managed by operators withprior experience in running mining facilities. Additionally, sites
located in deregulated markets could be viewed more valuable
by bidders, as these facilities serve as a proxy for monetizing
power that might otherwise face curtailment. The strategic
positioning of mining operations in such markets enhances theirvalue proposition, aligning with the broader trend of industry
players seeking to optimize operational efficiency.
Over the past year, miners faced capital constraints and poor liquidity.
The strategy of raising funds through ATM equity offerings, albeit at
steep discounts and shareholder dilution, primarily aimed at upgrading
ASIC fleets, has left miners with an increased sense of urgency tofinding suitable locations to accommodate the influx of hashrate.
With existing sites at full capacity and limited visibility on additional
capacity coming online, the opportunity arises to explore
acquisitions of sites or entities capable of accommodating onorder fleets. Identifying such opportunities may prove challenging,as many energization timelines extend into 2025/26, and backorders for electrical infrastructure have lengthy lead times.
However, 2024 is poised to be a pivotal year for turnkey sites
which are ready to be filled with this new hashrate. Miners, now
trading considerably better than compared to the beginning of2023, are eager for acquisitions to meet their growing liquidity
and capacity needs.

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

Hashrate Forecast
Estimating network hashrate during the year of a halving event is an exceedingly difficult task due to the sensitivity ofvarious assumptions that have a significant impact on the economic viability of mining. With that being said, we used
a top-down approach, leveraging a series of scenario modelling to try and provide what we feel is a reasonable rangeof expectations for end of year network hashrate. We present one method of projecting hashrate. There are otherapproaches to take such as bottom-up methods that may yield somewhat different conclusions. Based on our analysis,
we expect end-of-year 2024 network hashrate to end in a range between 675 EH and 725 EH.

Methodology
In our initial analysis, we wanted to understand how much hashrate the network could bear given various bitcoin pricelevels and various levels of implied hashprice post halving assuming transaction fees are at 20% of block rewards.

Implied Hashrate Sensitivity Table
Source: Galaxy Research

Data: Assumes a post halving bitcoin block subsidy of 3.125 BTC and transaction fees of 20% of the block subsidy or 0.63 BTC

22

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

Breakeven Hashprice of Various ASIC Models
Source: Galaxy Research

Data: Assumes manufacturer specifications

Using the table above, we can see what implied hashrate is atvarious levels of hashprice and BTC price. We estimated that
$0.035 could be the new hashprice breakeven floor for the network
post halving with increased energization of new generation
machines. To arrive at this estimate, we analyzed the breakevenhashprice of various ASIC models at various power costs. We
used a hashprice breakeven floor of $0.035 as an educated guess
for the hashprice low of the next cycle which represents a 36%
decrease from the hashprice low of the current cycle. Furthermore,$0.035 represents the average breakeven hashprice of new
generation machines at a $75 per MWh power cost.

Based on these two studies, if bitcoin price ranges between$45,000 and $55,000 for 2024, network hashrate could reach as
high as 694 EH – 849 EH assuming a hashprice floor of $0.035.
The ASICs that would likely make up the majority of the networkin order to operate profitably under these conditions would be
the S21, T21, M60S, S19 XP, and M50 series machines. However,the primary constraint will be the supply chain and production
volumes for these new generation of machines as well as accessto capital to be able to acquire them. It is likely that we won’t see
the new generation of machines surpass the S19 and M30 seriesof machines until 2025 based on current delivery schedules.

As illustrated by this analysis, the newest generation of machines
such as the S21, T21, or M60S series are able to mine profitability
at very low hashprices even if miners have relatively high-power
costs. This suggests that there is substantial room for hashrate
to increase post halving even if bitcoin price does not materially
improve. Additionally, miners will still be able to operate S19j Pros
profitably, if they have access to cheap power or if they underclock
their machines. With S19j Pros currently making up the large
majority of network we may not observe a significant percentageof these machines come offline post halving.

Next, we wanted to put into context some of the constraints on
hashrate growth such as infrastructure availability. To do this,we quantified how much hashrate the network could bare if we
assumed that all existing machines were currently replaced withnewer generation machines. In the left-hand column of the table,
we sensitized current network efficiency to calculate the impliedamount of power capacity currently supporting the network
assuming 500 EH of network hashrate.

23

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

24

Implied Network Capacity Based on Efficiency and Implied Hashratewith 100% Replacment by New Generation ASIC Models

Estimated Network Efficiency

Source: Galaxy Research

Efficiency

GW

S21

M60S

T21

S19 XP

M50S++

Average25.0 j/TH

12.5 GW

714 EH

676 EH

658 EH

573 EH

568 EH627 EH

26.0 j/TH

13.0 GW

743 EH703 EH684 EH

596 EH

591 EH

652 EH

27.0 j/TH

13.5 GW

771 EH

730 EH

711 EH

619 EH

614 EH

677 EH

28.0 j/TH

14.0 GW

800 EH757 EH

737 EH

642 EH

636 EH702 EH

29.0 j/TH

14.5 GW

829 EH784 EH763 EH

665 EH

659 EH

727 EH

30.0 j/TH

15.0 GW

857 EH

811 EH789 EH

688 EH

682 EH

752 EH

31.0 j/TH

15.5 GW

886 EH

838 EH

816 EH

711 EH

705 EH

777 EH

32.0 j/TH

16.0 GW

914 EH865 EH

842 EH734 EH

727 EH

802 EH

33.0 j/TH

16.5 GW

943 EH892 EH

868 EH757 EH750 EH827 EH

34.0 j/TH

17.0 GW

971 EH919 EH895 EH

780 EH

773 EH853 EH

35.0 j/TH

17.5 GW

1,000 EH

946 EH

921 EH803 EH

795 EH

878 EH

Data: Assumes manufacturer specifications

If we assume that the existing average network efficiency is 30 J/
TH, which equates to 15 GW of power capacity, network hashrate
could reach a theoretical ceiling of as much as 757 EH if you
assume every existing ASIC in the network was replaced with aneven distribution of the ASIC models presented in the analysis. 30
J/TH is a reasonable baseline assumption as it is equivalent to themachine efficiency of the S19j Pro.

Next, we sensitized the net increase in hashrate from replacing
existing machines in the network with newer generation machines
assuming that the average machine in the network had an efficiencyof 30 J/TH. The previous sensitivity table reflected a theoreticalceiling based on the assumption that all machines in the network
were replaced with new generation machines. However, in reality, weknow that is highly unlikely to happen due to supply chain and capitalconstraints as well as miners being able to operate older generation
machines profitably by underclock or having low power costs.

Machine Replacement Sensitivity Table

Percent of Machines Replaced

Source: Galaxy Research

S21

M60S

T21

S19 XP

M50S++

Avg. of ASICs

15.0%

54 EH

47 EH

43 EH

28 EH

27 EH

39 EH

17.5%

63 EH

54 EH

51 EH

33 EH

32 EH

45 EH

20.0%

71 EH

62 EH

58 EH

38 EH

36 EH

52 EH

22.5%

80 EH

70 EH

65 EH

42 EH

41 EH

58 EH

25.0%

89 EH

78 EH

72 EH

47 EH

45 EH

65 EH

27.5%

98 EH

85 EH

80 EH

52 EH

50 EH

71 EH

30.0%

107 EH

93 EH

87 EH

56 EH

55 EH

78 EH

32.5%

116 EH101 EH

94 EH

61 EH

59 EH

84 EH

35.0%

125 EH109 EH101 EH

66 EH

64 EH

91 EH

37.5%

134 EH

117 EH109 EH

71 EH

68 EH

97 EH

40.0%

143 EH124 EH

116 EH

75 EH

73 EH

104 EH

42.5%

152 EH132 EH

123 EH

80 EH

77 EH

110 EH

45.0%

161 EH140 EH

130 EH

85 EH

82 EH

117 EH

47.5%

170 EH148 EH138 EH

89 EH

86 EH

123 EH

50.0%

179 EH

155 EH145 EH

94 EH

91 EH

130 EH

Data: Assumes manufacturer specifications

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

The chart suggests for example that if we assume 25% ofmachines are replaced with M60S machines there would be a net
78 EH increase in network hashrate.
Next, we created a sensitivity table for additional infrastructure
capacity that might be energized in 2024 assuming that this new
capacity would be energized with various new generation ASIC models.
If we assume the average efficiency of a machine that was energizedin 2023 was 30 J/TH, then that would imply 8 GW of new capacity forthe year. However, much the growth and expansion capacity deliveredin 2023 is attributable to the investment cycle of 2021.
To bring all the analysis together, we combined the results of
the Machine Replacement Sensitivity Table and the Capacity
Expansion Sensitivity Table to create the table below, which showsa range of total potential hashrate for year-end 2024. It works bytaking the end of year network hashrate of 500 EH and adding theamount of hashrate that would be added to the network comingfrom various amounts of capacity expansion and percent ofexisting machines being replaced in the network assuming an even
distribution of S21, T21, M60S, S19 XP, and M50S++ machines.
Due to public miner’s announcements around infrastructure
expansion and ASIC purchases we think it’s reasonable that anadditional 2 – 3 GW of infrastructure capacity will be energized in
2024 and that between 25 –35% of existing ASICs will be replaced
over the course of 2024 with new generation machines. Given
our analysis, we estimate a potential year-end hashrate range for2024 of 675 EH to 725 EH, which equates to a 35 – 45% increase in
network hashrate for the year.

Capacity Expantion Sensitivity Table
Additional Capacity Expansion in 2024

Source: Galaxy Research

S21

M60S

0.50 GW

29 EH

27 EH

26 EH

23 EH

23 EH

25 EH

0.75 GW

43 EH

41 EH

39 EH

34 EH

34 EH

38 EH

1.00 GW

57 EH

54 EH

53 EH

46 EH

45 EH

51 EH

1.25 GW

71 EH

68 EH

66 EH

57 EH

57 EH

63 EH

1.50 GW

86 EH

81 EH

79 EH

69 EH

68 EH

76 EH

1.75 GW

100 EH

95 EH

92 EH

80 EH

80 EH

89 EH

2.00 GW

114 EH108 EH105 EH

92 EH

91 EH

101 EH

2.25 GW

129 EH

122 EH

118 EH103 EH102 EH

114 EH

2.50 GW

143 EH

135 EH132 EH

115 EH

114 EH127 EH

2.75 GW

157 EH149 EH145 EH126 EH125 EH

139 EH

3.00 GW

171 EH

162 EH

158 EH138 EH136 EHT21

S19 XP

M50S++

Avg. of ASICs

152 EH

Data: Assumes manufacturer specifications

End of Year 2024 Hashrate Sensitivity Table
Source: Galaxy Research

Additional Capacity Expansion in 2024

The Percent of ASICs being Replaced with Newer Generation Machines Over the Course of 2024
15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

0.50 GW

564 EH

577 EH

590 EH603 EH

616 EH629 EH

642 EH

655 EH

0.75 GW

577 EH

590 EH603 EH

616 EH629 EH

642 EH

655 EH

668 EH

1.00 GW

589 EH

602 EH

615 EH

628 EH

641 EH

654 EH

667 EH

680 EH

1.25 GW

602 EH

615 EH

628 EH

641 EH

654 EH

667 EH

680 EH693 EH

1.50 GW

615 EH

628 EH

641 EH

654 EH

667 EH

680 EH693 EH

705 EH

1.75 GW

627 EH640 EH

653 EH

666 EH

679 EH692 EH

705 EH

718 EH

2.00 GW

640 EH

653 EH

666 EH

679 EH692 EH

705 EH

718 EH

731 EH

2.25 GW

653 EH

666 EH

679 EH692 EH

705 EH

718 EH

730 EH743 EH

2.50 GW

665 EH

678 EH691 EH704 EH717 EH

730 EH743 EH

756 EH

2.75 GW

678 EH691 EH704 EH717 EH

730 EH743 EH

756 EH769 EH

3.00 GW

691 EH704 EH717 EH

730 EH743 EH

755 EH

768 EH

781 EH

Data: Assumes manufacturer specifications

25

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

26

How Much Hashrate May
Come Offline at the Halving
According to data from Coinmetrics, roughly 19.7% of network
hashrate at the conclusion of 2023 is made up of M20S, M32, S17,
A1066, A1246, and S9 machines. With year end network hashrate
at roughly 515 EH, the implied contribution to network hashrate
coming from this group of machines is 98 EH. To come up with anestimate for the percentage of machines that could come offline
we calculated the breakeven $/MWh of popular ASIC models in
the network based on estimated post halving economics including
a block subsidy of 3.125 and transaction fees making up 15%of rewards and a bitcoin price of $45,000. We then analyzed a
combination of forward-looking power prices and implied power
costs from public miners to inform our percentage of estimatedhashrate to come offline by ASIC model.

Breakeven Hashprice of Various ASIC Models
Source: Galaxy Research

Data: Assumes manufacturer specifications

Given how sensitive the breakevens are for the various ASIC
models to bitcoin price and transaction fees as a percent of
rewards we estimate that between 15 – 20% of network hashrate
coming from the ASIC models presented below could come offline,
which represents between 86 – 115 EH.
It is likely that miners operating these older and more inefficientmachines are running custom firmware to improve the efficiency of
the ASICs and thus improve their breakeven threshold. Furthermore,
it is probable that instead of certain ASIC models fully exiting the
network they will just change hands to miners with cheaper power
costs. For miners that can no longer run S19s profitably and need
to upgrade, miners who are currently running S17s or less efficientmachines may upgrade their machines with S19s or S19j Pros.

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

Low End of Range
Source: Galaxy Research

Efficiency% of Network
Hashrate

Amount ofHashrate

S9

98.0

2.28%

11 EH

$20.66

99.0%

11 EH

A1066

65.0

1.90%

10 EH

$31.15

99.0%

9 EH

M32

54.0

3.52%

18 EH

$37.50

99.0%

17 EH

M20s

49.4

5.60%

28 EH

$40.98

60.0%

17 EH

S17

45.0

1.83%

9 EH

$45.00

50.0%

5 EH

A1246

38.0

4.54%

23 EH

$53.29

17.5%

4 EH

S19

34.2

23.80%

119 EH$59.19

10.0%

12 EH

S19j Pro

30.5

29.20%

146 EH$66.39

7.5%

11 EH

72.67%

363 EH

Efficiency% of Network
Hashrate

Amount ofHashrate

S9

98.0

2.28%

11 EH

$20.66

99.0%

11 EH

A1066

65.0

1.90%

10 EH

$31.15

99.0%

9 EH

M32

54.0

3.52%

18 EH

$37.50

99.0%

17 EH

ASIC Model

Total

ASIC Breakeven $/MWh Estimated % of Hashrate
Post Halving
to Come Offline

Amount of Hashrate
to Come Offline

86 EH

Data: Assumes manufacturer specifications

High End of Range
Source: Galaxy Research

ASIC Model

ASIC Breakeven $/MWh Estimated % of Hashrate
Post Halving
to Come Offline

Amount of Hashrate
to Come Offline

M20s

49.4

5.60%

28 EH

$40.98

90.0%

25 EH

S17

45.0

1.83%

9 EH

$45.00

90.0%

8 EH

A1246

38.0

4.54%

23 EH

$53.29

33.0%

7 EH

S19

34.2

23.80%

119 EH$59.19

15.0%

18 EH

S19j Pro

30.5

29.20%

146 EH$66.39

12.5%

18 EH

72.67%

363 EH

Total
Data: Assumes manufacturer specifications

115 EH27

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

28

Conclusion
2023 was a year of growth and recovery for the mining industry. Over the course of the year, miners enjoyed higher bitcoin prices,increased transaction fees, and lower energy costs, resulting in a meaningfully higher hashprice and margins even in the faceof network hashrate doubling for the year. Looking ahead to the halving, miners are taking advantage of improved liquidity anddemand in the equity capital markets to fund new infrastructure expansion and ASIC purchases to improve fleet efficiency.
As we get closer to the halving, we expect to see hashrate continue to rise driven largely by installations of new generation
machines such as the T21, S21, and M60 series. Mergers and acquisitions of private miners and developed infrastructure is likely
to see an uptick in activity as we get closer to the halving as well as miners continue to position themselves and adapt for post
halving economics. Lastly, we see transaction fee volatility as being the biggest wildcard for the mining industry post halving as
it will be significant driver of hashprice, difficulty, and block time variance as well as have broader implications for pool payout
schemes and miner curtailment signals.

Glossary• Network Hashprice – Network hashprice, often simply referred
to as hashprice, is a measure of dollar-denominated daily
expected revenue from mining with a single terahash per secondof hashrate on a daily basis given current conditions around
bitcoin price, block rewards and network hashrate.

• Transaction Fees – Blocks can contain many transactions withfees attached to incentivize their confirmation and prevent
spam. In addition to the block subsidy, miners also receive thetransaction fees for all of the transactions included in the blockthat they mine.

• Sats per TH – Is a measure of bitcoin-denominated daily
expected revenue from mining with a single terahash per secondof hashrate on a daily basis given current conditions aroundblock rewards and network hashrate. 1 satoshi represents one
one-hundred millionth of a bitcoin.

• Block Reward – The block reward is the combination of theblock subsidy and all transaction fees paid by transactions in a
specific block.

• Operational Breakeven Cost – Operational breakeven costattempts to quantify all recurring expenditures that require atrue cash outlay and includes cost of revenues, selling, general,and administrative (SG&A) expenses, and interest expenses,
while excluding all non-cash expenses such as employee stockbased compensation and depreciation and amortization.
• Network Hashrate – The network hashrate is the cumulative
processing power of mining machines securing the network.
• Ordinal – A serialization methodology for individual satoshis
following “Ordinal Theory”• Inscription – An inscription is the arbitrary data stored in thewitness field of a transaction.
• Block Subsidy – The block subsidy is the amount of new bitcoin
minted in each block. The block subsidy halves every 210,000
blocks (roughly every 4 years) according to Bitcoin’s issuanceschedule and is currently 6.25 BTC.

• Hashrate – Hashrate is a measure of the computational power
per second used when mining.
• Power Draw – Power draw is a measure of the amount of electricity
consumed to operate an ASIC or mining machine per hour.
• Mining Pool – A mining pool is a middleman that aggregates
multiple miners’ hashpower. Mining pools aggregate pool members’
hashes, submit successful proofs of work to the network, anddistribute rewards to contributing miners proportionately to theamount of work performed. Mining on a pool reduces payout
variance for miners, who would otherwise have to deal withsignificant risk from finding blocks at unpredictable intervals.
• Terahash – A terahash (TH) is one trillion hashes, which isequivalent to making one trillion guesses at solving the puzzle to
add the next block to bitcoin’s blockchain. The hashrate of mostmining rigs is measured in terahashes per second (TH/s).
• Exahash – A exahash (EH) is one quintillion hashes, which isequivalent to making one quintillion guesses at solving the
puzzle to add the next block to bitcoin’s blockchain. The total
network hashrate is typically measured in exahashes per second(EH/s), as is that of some large mining operations.

Bitcoin’s Big Halving Year – Annual Bitcoin Mining Report: Facing Hashprice Volatility

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