Crypto mining just became a little bit more centralized. Billion dollar fund management company Fidelity International is doubling its stake in the crypto mining company Hut 8 after the mining firm accepted an offer in the middle of the night on June 23, 2020 to increase the investment firm’s stake in the mining operation to more than 10%.
The move further consolidates crypto mining in general, as most of the process is now handled by very few companies.
What Does This Mean for Bitcoin Mining?
Anybody can connect to the Bitcoin network and start mining cryptocurrency. At least that was the case in 2009 when the blockchain launched and it took very little computing power to solve cryptographic puzzles and get credit for doing so in Bitcoin payments.
Fast forward to today. It takes a lot more power to mine Bitcoin, so the majority of Bitcoin transactions that are validated on the blockchain are validated by larger mining companies that can provide the hashing power required to solve more complex puzzles and get those Bitcoin payments. Still, regardless of the scale of crypto mining, individual users can still buy in. So why it is a bad thing for mining to consolidate the way Fidelity International is slowly doing?
It’s bad because decentralized networks like Bitcoin need to reach consensus on validating transactions together as a way of keeping everyone honest and keeping malicious actors off of the blockchain. If fewer and fewer companies are responsible for owning these crypto mining rigs, that decision-making power no longer rests in the hands of the many. It rests in the hands of the few. That’s dangerous because it effectively creates an atmosphere of centralization within a network that supposed to be decentralized and democratic. It’s supposed to be accessible to everyone.
How Can This Consolidation Be A Good Thing?
There are currently 17 different mining pools responsible for the majority of the hashing power used for solving transactions on the Bitcoin network. The fact that Fidelity International is buying a bigger stake in Hut8 doesn’t fundamentally change the number of mining pools that are controlling the network. Furthermore, it’s an indication of larger institutional investing occurring in the cryptocurrency world, which actually means investing in the price appreciation of Bitcoin a battery gamble in the long term.
That’s why this consolidation could be a good thing. Regardless of how Bitcoin’s supply get swallowed up over time, the reality is scarcity will always create more value in a given market. So gamblers and investors alike can feel free to invest and expect to gain in the long run. This is especially the case with Bitcoin’s price currently moving sideways over the last month or two. Major moves that affect the blockchain in a positive way are still happening but the market is in seesaw mode right now.
Gambling on Bitcoin Mining Pools
Betting on the long term success of Bitcoin mining pools might well be worth the risk. There are many companies that will offer up shares of mining pools to individual users. No need to run a billion-dollar investment fund or folk over millions of dollars as a private investor to get involved.
In comparison to actually going onto a gambling website and trying to double your money, betting on a mining pool to give you profits over time is a much safer gamble. That being said, it’s probably not as thrilling as placing a bet and you’re not going to double your money in 24 hours.
More Details on Fidelity International Deal
Here are some of the highlights of the deal between Fidelity International and Hut 8:
- Fidelity International is a subsidiary owned by Fidelity investments.
- Hut 8 operates as a Canadian owned company.
- The deal is part of an $8.3 million funding round initiated by Hut 8. Fidelity International is responsible for approximately 75% of that investment.
- Hut 8’s stock price opened at $3.35 in April 2018 on the Toronto Stock Exchange and was worth just $.50 per share at the start of the coronavirus pandemic market crash in 2020.
- Fidelity has the option to purchase common shares for $1.80 each, indicating the company is bullish on crypto mining because shares of Hut 8 are currently listed at around $.80 each at the time of this writing.