Bitcoin miners' lifeline: plummeting transaction fees and soaring costs, what will the future hold?

Author: Alvis, Mars Finance

Bitcoin is truly "finished" if there are no new ecological hotspots. The survival pressure on miners has reached its limit, with transaction fees plummeting and costs soaring, many small miners are already considering shutting down. Once miners start to exit, the hash rate will decline, block generation will slow down, and the network's security will also be threatened. Moreover, in the context of price instability, without new ecological developments to drive demand growth, Bitcoin will fall into a vicious cycle.

Shrinking Income: Miners' Profits Under Multiple Pressures

The profitability of Bitcoin mining has significantly deteriorated, with multiple key indicators showing a weakening in profitability. First, the unconfirmed transaction Bitcoin mempool has dropped to a multi-year low, indicating a decline in network demand, which directly affects miners' transaction fee income. Historically, a decrease in transaction activity usually leads to a bear market, which, while not necessarily indicating a price drop, may suggest structural changes in the network.

Additionally, the gradual decline of SegWit transaction types has reduced network efficiency, further increased the demand for block space, and compressed miners' income margins. Although Bitcoin prices have risen, the trend of declining earnings highlights the impact of rising network difficulty and intensified competition.

Accelerating Industry Consolidation: Small Miners Face Exit Risks

The key indicator of miners' income/hash rate is at a historical low, and the decreasing earnings indicate that rising network difficulty and intensified competition are eroding profitability.

With the halving of block rewards, small miners, in particular, are under survival pressure. The decline in profitability and reduced transaction fee income puts small enterprises at risk of exiting the market, accelerating the pace of industry consolidation. In the future, only large miners with strong capital and advanced technology will be able to maintain competitiveness, leading to increased market concentration.

Increasing Network Difficulty: Rising Costs Force Miners to Seek Survival Strategies

The Bitcoin network difficulty has reached a new high, putting greater cost pressure on miners. With rising energy and hardware costs, especially for small miners with outdated equipment, survival pressure has intensified. Some miners are turning to low-cost, sustainable energy sources, such as hydropower or geothermal energy, while others are seeking breakthroughs through diversified income sources or mergers and acquisitions.

This trend may accelerate the centralization of the industry, with the most capital-rich and efficient miners dominating, thereby impacting Bitcoin's decentralized characteristics. In the future, the geographical distribution of miners and mining security models may change, raising concerns about network security.

Market Rebalancing: Higher Industry Barriers

As operating costs continue to rise, inefficient miners will be eliminated, and the industry will undergo a natural "rebalancing." This change may exacerbate industry centralization, with only large miners able to survive in fierce competition, further solidifying Bitcoin mining as a high-barrier industry.

However, market centralization also raises questions about the decentralized spirit of Bitcoin. The reduction in dominant miners may lead to network security being concentrated in the hands of a few miners, potentially affecting the long-term stability and censorship resistance of the network.

Impact on Bitcoin

In the short term, Bitcoin miners face dual pressures from declining transaction fees and rising costs, which may lead to small miners exiting the market, resulting in a decrease in network hash rate and a tightening of Bitcoin supply. The compression of miners' income may affect market confidence in Bitcoin, leading to increased price volatility in the short term, and the network's decentralized characteristics may be threatened, increasing security risks.

In the long term, with technological innovation and optimization of energy costs, miners may restore some profitability and reduce operating costs, which will help alleviate profit pressures and stabilize the market. Although there may be short-term risks of price declines, with sustained demand growth and tightening supply, Bitcoin prices may trend upward in the long term, especially as market demand for Bitcoin steadily increases.

Currently, Bitcoin urgently needs a new ecosystem, clearly not just speculative trading of "buying and buying," but rather more application scenarios, smart contracts, decentralized applications, and even a new financial system to support it.

If Bitcoin does not have a sufficiently strong ecological chain, once miners can no longer maintain profitability, the operation of the entire network will become difficult, and market trust in Bitcoin will wane. The exit of miners could become a "crisis" in Bitcoin's future, while the prosperity of ecological construction is the key to Bitcoin's survival.