Thanks to Ledn.io for sponsoring this newsletter release.

We are excited to announce a complete revamp of the HASHR8 website. Content will now primarily be listed on the website. We will be changing to a new format for this newsletter which will mainly be summarizing developments and research in the mining world.

Longer-form analysis pieces will be kept for the website and we will include a synopsis here when new pieces are published. We will also be building educational mining content, research reports, news commentary, and more.

For this week’s long-form analysis, we highlight how Ethereum miners are enjoying an unprecedented spell of lucrative mining rewards. Daily fees earned have broken through record levels while growth in Ethereum miner revenue has been vastly outpacing increases in both Ether price and the network difficulty.

We had a return guest on the HASHR8 podcast this week. Bitcoin OG Marshall Long shares his perspective on the recent developments in the mining world including the Bitmain hardware bottleneck and the Layer1 versus Lancium lawsuit.

The State of Ethereum Mining

Ethereum miner revenue
Source: Glassnode.com

Ethereum miners have been enjoying a spell of extremely lucrative mining rewards. Daily USD revenue earned by Ether miners recently breached $22 million, the highest level observed since January 2018.

Profitability calculators are showing that miners are currently operating at extremely wide margins. At an electricity rate of $0.05 per KWh, some 8-card GPU mining rigs are operating with profit margins of 96% according to F2Pool. The most profitable ASIC for mining Ethash – the Innosilicon A10 Pro – is currently estimated to be mining at 98% margins.

A hype surrounding Decentralized Finance (DeFi) has been the dominant tailwind behind the rise in Ethereum miner revenue. The DeFi hype has played a key role in pushing up the fees Ethereum users are paying while also playing an undeniable role in the ~110% price increase in Ethereum since July 1st.

Given the wide margins and bullish sentiment surrounding Ethereum, more miners have been incentivized to deploy hashrate. Hashrate has risen by 20% since July 1st – failing to keep pace with increases in price and miner revenue.

The Ethereum difficulty adjustment algorithm functions differently than the Bitcoin algorithm. Bitcoin difficulty adjusts based on the block times of the previous 2016 blocks but Ethereum dynamically updates based on a variety of parameters. The difficulty of mining Ethereum has increased by roughly 23.6% since July 1st. Over the same timeframe, miner revenue has jumped by 570%.

One driver of the revenue growth has been the unprecedented rise in fees paid by Ethereum users. Ethereum fees have represented over 30% of the total block reward since the 9th of August and rose as high as 72% on September 1st.

Ethereum miner block reward attributable to fees
Source: Glassnode.com

One byproduct of the higher fees is that many transaction types are being outbid. Users wishing to mint NFTs or participate in decentralized gaming will rarely pay the current fees that are being paid by those sending Tether or allocating liquidity to the latest DeFi protocol.

Uniswap v2 and USD Tether (USDT) transactions have been the biggest consumers of fees. The rise in both gas price and gas used have pushed the USD value of fees on the Ethereum network to record levels. Total transaction fees reached roughly $16.5 million on September 1st.

Ethereum fees
Source: Glassnode.com

In the short-term, the increasing interest in DeFi suggests that this bout of extremely high Ethereum mining revenue is likely to continue. Furthermore, there has been social media comments that investor interest in DeFi is building in the Chinese market. For an indication of what Chinese interest can do in the crypto market, you only have to consider the 42% Bitcoin price rise following the pro-blockchain speech of Xi Jinping in October 2019.

In the longer-term, Ethereum developers are working on EIP1559 and also on deploying Ethereum 2.0. Both of these will have a significant impact on fees in the Ethereum network but it is uncertain when and if they will be fully implemented. In the meantime, Ethereum stakeholders may get accustomed to a large fee market.


Industry Developments

Inner Mongolia takes an aggressive stance against Bitcoin mining firms. Dry season in China is shaping up to look a lot different after the autonomous region of Inner Mongolia disqualified 21 Bitcoin mining firms from electricity perks. Subsidiaries of Bitmain and Ebang were among the firms. Poolin CEO Kevin Pan estimates that the electricity rate these firms incur will rise by $0.01 to $0.014 per kWh as a result. Current electricity cost in the region is estimated to be $0.037 to $0.04. In April of this year, before the rainy season took place, it was estimated that Inner Mongolia represented 8% of the Bitcoin network’s total hashrate.

FTX acquires Blockfolio for $150 million. FTX – the derivatives exchange that launched hashrate futures – has acquired Blockfolio for $150 million. Blockfolio is the most popular news and portfolio tracking mobile app in crypto with 6 million downloads. FTX CEO Sam Bankman-Fried described the acquisition as a “synergy and scale up” sort of deal. Bankman-Fried also co-owns proprietary trading firm Alameda.

Fidelity files with the SEC to start a Bitcoin fund. The fund “Wise Origin Bitcoin Index Fund” will have a minimum buy-in of $100,000. Extremely high demand for Bitcoin fund products has recently been demonstrated by the record inflows into the Grayscale GBTC product.


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About HASHR8

Mining is the misunderstood heartbeat of blockchain technology. It fuels multi-million dollar IPO’s and drives institutional investors to big datacenters; it’s infrastructure is the subject of speculation and skepticism. Our global reach helps us demystify and broadcast the thoughts of industry leaders, and keep research firms, investors, and consumers up-to-date on trends and insights.