Bitcoin halving causes old US mining machines to flow to Africa

• Outdated machinery may be profitable in the low-cost energy sector;

• Countries such as Ethiopia and Paraguay have become "participants" in the mining industry.

About 6,000 old bitcoin mining machines in the United States will soon be idled and sent to a warehouse in Colorado Springs, where they will be refurbished and resold to overseas buyers looking to profit from mining in a low-cost environment.

Wholesaler SunnySide Digital operates the 35,000-square-foot facility, which receives equipment from mining customers. The outdated machines are among the hundreds of thousands it expects to receive and refurbish during a major update to the bitcoin blockchain every four years.

The halving event in late April will slash rewards, a major source of revenue for miners, who will try to mitigate the impact by upgrading to the latest, most efficient technology. With electricity being their biggest expense, mining companies including publicly traded giants Marathon Digital Holdings Inc. and Riot Platforms Inc. need to reduce their usage costs to maintain positive profits. Their older computers may still be profitable, just not as likely in the U.S.

“It’s a natural migration” of buyers of older machines to run in parts of the world where electricity is cheapest, said Taras Kulyk, CEO of SunnySide Digital, which has resold U.S. computers to miners in countries including Ethiopia, Tanzania, Paraguay and Mexico. “The halving will accelerate that.”

Bitcoin Mining Growth Market 2023

Ethiopia is one of the top destinations for mining equipment

Ethan Vera, chief operating officer of Luxor Technology, a Seattle-based cryptocurrency mining services and logistics provider, estimates that about 600,000 S19-series computers are currently being moved from the U.S. to Africa and South America , accounting for the majority of those currently in use.

In bitcoin mining, specialized machines are used to verify transactions on the blockchain and earn fixed token rewards for the operators. Anonymous bitcoin creator Satoshi Nakamoto proposed halvings every four years to maintain a hard cap of 21 million coins. Next month's halving event, the fourth since 2012, will reduce the reward from 6.25 bitcoins now to 3.125 bitcoins.

Bitcoin has surged about 50% this year to around $63,500, but remains below its all-time high of $73,798 reached on March 14. With the halving just weeks away, bringing more efficient machines online has become more urgent, as continuing to use older equipment could mean electricity costs will approach or exceed mining revenue.

Jaran Mellerud, CEO of Dubai-based Hashlabs Mining , which leases data center space in Ethiopia and provides hosting services to bitcoin miners, said that while the S19 series and similar models may not be profitable to operate in the United States after the halving, they "can still generate significant profits and extend their lifespan" if hosted in parts of Africa.

Price reduction

Lauren Lin, director of business development at Luxor, said some buyers waited until after the event to buy old computers, thinking their prices would drop more. A used S19 model sold for about $7,030 in March 2022, according to Luxor, which runs a trading desk for used machines. A year later, as the price of bitcoin fell, it fell to around $900, fell to around $427 this month, and is expected to sell for around $356 in May this year after the halving.

Some miners in the U.S. have chosen not to sell their hardware, but to move equipment to regions with lower electricity costs and to third-party data centers. Nuo Xu, who has two sites in Texas, will travel to Ethiopia, Nigeria and several other countries this month to find the location of about 6,000 old computers.

“My machines are at more risk in Africa, but I have to move them there,” he said. “Cheaper electricity outside the U.S. means it takes much less time to recoup overhead costs,” and labor and construction materials are also much cheaper.

Hosting Fees

Miners around the world who don’t have their own facilities need to pay hosting fees, which typically cover electricity, labor and third-party operators. In Xu’s experience, electricity costs about 7 cents per kilowatt-hour in the United States. In Ethiopia, which has relaxed regulations on cryptocurrency mining and increased power generation, the rate is about 5 cents, according to Hashlab’s Mellerud. The difference of two cents is huge for miners.

Electricity prices in Ethiopia are about 3 cents per kilowatt-hour, said Hiwot Eshetu, director of marketing and business development at Ethiopian Electric Power Company. In the U.S., prices range from about 3 cents to 6 cents, according to Luxor estimates.

“ Ethiopia is really emerging as a big player in the digital mining ecosystem ,” SunnySide’s Kulyk said, adding that his company is negotiating a deal to help move 20,000 to 40,000 machines to the East African country.

Not all U.S. equipment leaves the country. The process can be more difficult for public companies, which have to consider risk-averse shareholders. There is also some hesitation to move machinery abroad because of shipping costs, breakage and safety concerns.

Publicly traded Bit Digital Inc., one of the largest bitcoin miners, has older-generation computers lying dormant in a Houston warehouse.

“These machines basically gather dust from time to time,” said Chief Executive Officer Sam Tabar. But he said the New York-based company holds on to the computers because they can be brought out of retirement and still operate profitably when bitcoin prices are high.

Large Orders

Miners have been preparing for the halving for years and have spent a lot of money to replace old hardware. According to cryptocurrency mining research agency TheMinerMag, 13 major public Bitcoin mining companies, including Riot Platforms and CleanSpark Inc., have placed orders for machines worth more than $1 billion since February 2023.

Consumption boom

Five major Bitcoin miners have been raising funds to buy new computers

The five largest miners raised more than $2.7 billion from stock sales in the two years to December. Since the beginning of the year, the miners have made an additional $840 million, according to researchers.