Energy is getting more expensive due to negative macroeconomic events while the value of BTC is gradually declining. Bitcoin miners are starting to run into economic problems and it is realistic that some of them will go bankrupt. The EU is considering banning PoW mining over the winter if there is a power shortage. This is not good news for the security of the Bitcoin network. PoW's dependence on electricity has always been presented as Bitcoin's biggest advantage. In times of crisis, this dependency is becoming more of a nightmare. Cardano is not facing network security problems. Delegators regularly receive rewards from the protocol and have no reason to worry. In PoW networks, there is strong competition among miners. In the Cardano ecosystem, the main competition is not between delegators, but between pool operators. This has interesting implications. TLDR The average cost of mining one bitcoin is higher than the current market value. Miners are selling almost all the bitcoins they mine, but their profits are declining. Some started selling ASIC hardware. The collapse of mining companies will have negative effects on Bitcoin decentralization. Bitcoin is not anti-fragile as we cannot say that it tends to perform better during the current period of risk and uncertainty. While Bitcoin security is declining and miner collapse is imminent, Cardano security is stable and even growing. ADA delegators are friends, miners are enemies. If someone sells ADA coins, someone else can buy them immediately. If a miner shuts down the hardware, it immediately affects the size of the hash rate. If competition leads to centralization, this is rather bad news for anti-fragility. Miners will go bankrupt if the value of BTC doesn't rise At the time of writing, the average cost of mining one bitcoin is $22,700 by the MacroMicro web. This is $2,200 more than the current market value of BTC. In some countries, mining remains profitable. Miners operating in countries facing an energy crisis are running into problems. In July 2022, the cost of mining 1 BTC was approximately $21,100 in the US, $25,500 in China and $50,500 in Germany. There are countries where mining is very profitable. For example, in Kazakhstan, the cost of mining 1 BTC is only $8,700 and in Mongolia $11,100. Take a look at the differences in mining costs between countries. As recently as May, the market value of BTC was above $30,000. In June, the market plunged and the value of BTC approached $20,000. Since then, the value has remained at about the same level. Miners ran into critical problems within a quarter of a year. In September 2022, one of the largest Bitcoin mining pools, Poolin, suspended withdrawals from its wallet service in an effort to stabilize assets and preserve liquidity. Poolin has run into liquidity problems due to the market downturn. The result is that miners cannot collect rewards for the hash rate provided. This can get them in trouble for paying electricity costs. Core Scientific, one of the largest publicly traded crypto mining companies in the U.S., raised the possibility of bankruptcy in a statement filed with the Securities and Exchange Commission. The company also disclosed that it will not make its debt payments coming due in late October and early November. Argo Blockchain's said a deal to raise 24 million British pounds from a strategic investor has fallen through, sending the bitcoin mining company's shares tumbling as much as 72%. Should Argo be unsuccessful in completing any further financing, Argo would become cash flow negative in the near term and would need to curtail or cease operations. In an attempt to secure short-term liquidity, Argo sold 3,843 Antminer S19J Pros for $5.6 million. It had previously intended to sell 3,400 miners for $7 million. Other mining companies are also facing problems. Most of them are trying to sell bitcoins quickly once the market value increases. Unfortunately, the selling pressure caused by miners is driving the value down. The miners are cutting the branch they're sitting on. They often speculate on selling some of the bitcoins profitably later in a bull market. That would provide them with a relatively solid profit. Few expected the market value of BTC to fall below the average cost of mining. The collapse of mining companies will have negative effects on Bitcoin decentralization It is premature to draw any conclusions at this point. However, if mining companies go bankrupt and are forced to sell their mining hardware at a lower price, it is very likely that this will strengthen the companies that survive. This will lead to greater centralisation of mining. Currently, bitcoin mining is unprofitable in most western countries. It is profitable in developing countries where people cannot financially afford to buy an expensive ASIC miner. Hobby mining will suffer further blows. Bitcoin's security is dependent on electricity. Miners can only buy as much energy as the current value of BTC will allow. Security is thus based on the value of BTC. No other significant factor is at play. If the market value of BTC goes down, so does the security. No one can predict how secure Bitcoin will be this time next year, as it is hard to predict the market. If the macroeconomic outlook remains negative, miners will go bust. This will lead to a short-term reduction in Bitcoin security. Bitcoin will very likely survive. This crisis has exposed the downside of depending on a physical resource. There may be plenty of ASIC miners on the market at a low price. The cost of a 51% attack goes down along with the lower market value of BTC coins. ASIC miners from bankrupt companies will not be bought by individuals, but more likely by competitors. This will lead to further centralization of mining. It is expensive and costly to move mining hardware, so we may see a temporary dramatic drop in hash rate. Bankrupt mining companies can also have a negative impact on Bitcoin's reputation. Imagine hiring a security firm to guard a factory and the owner tells you that they are cutting the number of guards in half because the cost of equipment has gone up. Your factory will be less secure and you will look for another security firm. What is more Anti-Fragile? What is anti-fragile? If an asset is anti-fragile, this can mean that it tends to perform better whenever there is risk and uncertainty. Some experts, such as Nassim Nicholas Taleb, have argued that Bitcoin falls into this category. Later, Nassim revoked the argument. The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. An anti-fragile system should be resistant to black swan events. In the context of Bitcoin, the declining value of BTC coins and the rising value of energy can be considered a black swan event. Is Bitcoin anti-fragile? It turns out that it is not, because we certainly cannot say that Bitcoin is doing well or even better in the current crisis. The threat of bankruptcy of mining companies and the growth of centralization is more of a negative effect. Cardano uses a PoS consensus that does not depend on excessive power consumption. As the market value of ADA coins decreases, the cost of a 51% attack decreases. The difference against Bitcoin is that it is not only the market value of the coins that matters but their distribution among delegators. Cardano's security depends not only on the market value of coins but also on decentralization and the willingness of delegators to sell coins at a loss. While PoW miners face existential problems ADA delegators regularly receive rewards from the Cardano protocol every 5 days. Delegators are economically motivated to continue to hold and stake coins when the market falls, as they do not want to sell them at a loss. This essentially protects the security of the protocol even in times of risk and uncertainty. In addition, they are rewarded for doing so, so their wealth increases. That is if they are thinking in the long term. If an attacker wanted to get 51% of the ADA coins that are used for staking, he would have to invest huge resources in the attack. Still, it is unlikely that he would succeed. Imagine if the market value of ADA coins started to rise during a crisis despite everything else, including the value of BTC, falling. The FOMO would be enormous. Despite the ongoing bear market, the number of delegators is slowly growing. We can conclude that while Bitcoin security is declining and miner collapse is imminent, Cardano security is stable and even growing. Greater distribution of ADA coins among users increases the security and decentralization of the protocol. At the moment, it does not look like the ADA delegators want to stop staking. The Cardano protocol pays out rewards and there are no media reports that any large pool or delegator is in economic trouble. Could Cardano be considered an anti-fragile system? It's hard to imagine a system being anti-fragile if it depends on something it doesn't have complete control over. The protocol cannot control the electricity market and chip production. The competitive struggle takes place outside any control of the protocol. Bitcoin would be more anti-fragile if it could increase rewards during a crisis (bear market) and decrease them during a bull market. However, this would require some degree of centralization, or decentralized governance. Bitcoin cannot prevent the bankruptcy of companies that are part of the critical infrastructure and ensure its security. Some see anti-fragility as meaning that if some firms go bankrupt, they will be replaced by others. This is certainly true, and it applies to pretty much all other protocols, including Cardano. The details are important. Anti-fragility is also about the quality of decentralization. With Bitcoin, security can grow regardless of the number of pools and miners. Unfortunately, as centralization decreases, the single point of failure problem grows. With this, the anti-fragility decreases. From our perspective, an anti-fragility system is one that can maintain key properties at the same level over time, or improve these properties over time. Cardano is still a young project, but so far the key properties of the network are stable and tend to improve. ADA delegators are friends, miners are enemies Miners compete with each other in the Bitcoin ecosystem. The economically stronger ones can subsidize mining in the short term despite economic losses in an attempt to destroy the competition. This is a common business practice. A bankrupt miner will be forced to sell ASIC hardware at a discount and may never return. The position of the winner will be strengthened. Note that Bitcoin pool operators are not much affected by the competition between miners. Poolin is a pool that has run into economic difficulties that are impacting miners, but you could say that it is due to a bad business model. Pools seek to attract as much hash rate as possible. If an influential miner who has delegated all the hash rate to a particular pool goes bankrupt, it will weaken the pool's position. The only effect will be that the pool will mine fewer blocks and receive fewer rewards. The main competition is between miners who want to drive each other out of business. In the Cardano ecosystem, there is no competition between delegators. Once anyone holds a certain number of ADA coins, they cannot lose them until they voluntarily sell them. If delegators choose to hold coins throughout the bear market, they are not at risk of crashing like PoW miners. PoS delegators decide what pool to delegate coins to. They do this independently and the decision only affects the total stake of the chosen pool, not the other delegators. For pools in both the Cardano and Bitcoin ecosystems, they want to attract as many delegators as possible. They can do this by setting their profit. The smaller their profit, the more will be left for delegators. This competition is healthy as it forces pool operators to set fair profit margins. Moreover, it forces them to behave in line with the expectations of the delegators. If a pool started censoring transactions, for example, delegators would decide to find another pool. In addition to the declining value of BTC coins, competition between miners is another reason for the current problems of Bitcoin. Competition forces miners to take risks, borrow money, and promise the impossible. Everything can only work well until the economic crisis hits. Some miners misjudged the situation. If someone sells ADA coins, someone else can buy them immediately. The number of staked coins does not change substantially in the short term. It's more complicated with mining hardware. Moving to another country, say from America to Kazakhstan, is a very long and expensive process. Bankrupt miners may no longer have the financial resources to do so. If a miner shuts down the hardware, it immediately affects the size of the hash rate. Competing miners may not be able to get ASIC miners quickly. Is competition between miners good or bad in terms of anti-fragility? In a highly competitive environment, only the best can win. Less efficient miners will be forced out of business. Unfortunately, high competition can lead to monopolization unless there are some external rules of the game. Bitcoin has no such rules. If competition leads to centralization, this is rather bad news for anti-fragility. The design of the Cardano project seems to us to be more anti-fragile than in the case of Bitcoin. The competitive struggle is only between pools, not between delegators. Cardano relies on a digital resource for consensual power distribution, not a physical resource. This gives Cardano more control over its own decentralization and security. Economic incentives are set to make decentralization grow. In times of uncertainty and risk, it is advantageous to have the ability to dynamically adapt to new circumstances rather than remain constant. We believe that decentralised governance will be a great advantage in terms of resilience to overcome crises, as it will allow systems like Cardano to evolve and adapt to negative events or phenomena. Delegators have the same interests in terms of network functioning and do not compete with each other in terms of maintaining their own stake. However, delegators may differ in their views on the future evolution of the protocol. Once Cardano faces some critical problems, and this is very likely to happen, there will be a mechanism to correct the system. All ADA coin holders will vote. There will always be more ADA holders than PoW miners. Thus, there is a greater chance that the solution chosen will be the correct one, or the one preferred by the majority. Of course, it will depend on the distribution of resources among the individual delegators. Conclusion The economic crisis is likely to continue and the market value of energy may rise during the winter period. Bitcoin is mostly mined in the US, China, Kazakhstan, Russia, Canada and Germany. It is only profitable in Kazakhstan and Russia. In the other named countries, mining is unprofitable at the moment. We don't want to be prophets of bad news, but if the value of BTC coins continues to decline, it will impact miners who currently have approximately 70% of the mining share. This certainly does not mean that all mining companies will go out of business. However, turmoil is to be expected in the Bitcoin ecosystem. Cardano does not have these problems because it does not depend on excessive power consumption. The authorities have no reason to impose restrictions on staking like the EU is about to do in the case of mining. Cardano is designed to be as anti-fragile as possible even in times of crisis such as the current one. The number of delegators is growing and users don't have to worry about critical infrastructure operators going bust.
