Riot Blockchain, a Nasdaq-listed cryptocurrency mining firm, released its annual 10-K report to the SEC where it outlined the effect the COVID-19 virus outbreak may have on its mining operations. Under the headline of ‘general risk,’ the company was compelled to list two specifics that have emerged surrounding the ongoing pandemic.
Bitcoin mining, as an operation, requires mostly hardware and energy to operate as mining rigs are set up to solve logarithmic equations to unlock new blocks, and receive Bitcoin rewards for doing so. These mining rigs use substantial amounts of energy but require little management or human operation.
However, the mining firm is still being struck by the pandemic as its workers have been forced to either self-isolate, quarantine themselves in line with a global humanitarian response to the virus. However, their supply chain in getting equipment out has been hit hard due to border controls and factory closures.
Bitcoin mining, quite understandably, has not been classified as an essential business, and thus the running of these mining farms and companies is being directly affected by the pandemic and its global shutdown. According to the 10-K report: “If we are unable to effectively service our miners, our ability to mine bitcoin will be adversely affected as miners go offline,” Riot wrote.
Blockchain: Notable effect?
The Bitcoin mining industry is an essential part of the whole Bitcoin ecosystem as it not only unlocks new blocks, but confirms transactions and most importantly provides ongoing security to the network through its hashing power.
The proof-of-work algorithm that is employed by Bitcoin benefits from increased ‘work’ or mining, which is translated into hash rate. When the price of Bitcoin fell rather spectacularly earlier this month, the hash rate fell with it.
This is not a strange occurrence as the price of Bitcoin is directly linked to mining efforts as the higher the price of the coin, the better the profit margins for miners in this incentives system. So, when the price dropped, miners may have turned their rigs off leading to a drop in hashing power.
However, the price has recovered somewhat, and the mining difficulty has actually dropped, yet the hash rate is still down. It may well be that the issues seen by Riot Blockchain around the Covid-19 pandemic could be part of the reason for the lowered hash rate.
Blockchain: Seen it before in China
Chinese mining farms felt a similar pinch as Riot Blockchain is now Experiencing as PandaMiner Chief Operating Officer Abe Yang told CoinDesk, in early February, his company had difficulty operating some of its farms due to quarantine controls in certain provinces because they had limited staff repairing machines and running the hardware.
Riot runs a rather large operation in Oklahoma City as it features 4,000 Bitmain S17 Pro Antminers purchased over December 2019 for $6.35 million total. Those rigs replaced Riot’s older fleet of about 8,000 S9 models, now offline, the 10-K shows.
This use of capital to try and boost Riot Blockchain’s potential earnings has now been scuppered by this pandemic which is affecting just about every conceivable sector on the planet. The effect of it on mining farms will be worth watching in the coming months to see how it impacts Bitocin — especially with the mining reward halving set to take place in May.