This is an opinion editorial by Bob Burnett, Founder and CEO of Barefoot Mining.
It would be fair to say that I entered the world of bitcoin mining through the back door. Prior to 2017, I had limited exposure to Bitcoin. That changed when I was contacted by an acquaintance who needed access to a large volume of Ethereum mining equipment. Since I had spent most of my 30-year career in the personal computer industry, he hoped that I would be able to leverage my network to access the scarce GPUs needed and to design an enterprise-class server for to house them. My team and I were able to do this, which was the catalyst for the creation of Barefoot Mining, the company I now run. (Note to all Bitcoiners: We soon shifted our focus to just Bitcoin and became the US distributor for Bitfury.)
In 2017, “crypto” was hot. Therefore, it was not very difficult to find investors to put capital into mining enterprises, and the competition for energy sources to support the mining sites of the time was relatively low. So access to mining equipment was key to entering the market. For Barefoot Mining, we had solved this difficult part of the equation, and because capital and energy were fairly easy to find, we were able to evolve to also run hosting and mining centers.
In early 2018, the industry entered a “crypto winter” and the dynamic changed rapidly. Investor interest cooled while energy facilities remained plentiful and access to mining equipment became easier. The mining industry remained in this state until the latter part of 2020 when the price of bitcoin rose and market dynamics fluctuated rapidly. Based on this catalyst, new capital poured into the market and supply lines for mining equipment tightened almost immediately. For the first time, miners began to see scarcity in energy markets.
Seeing and living through these changes revealed a pattern to me that I now call “the miner’s trilemma.” The first axiom of the Miner’s Trilemma states: “In the Bitcoin mining business, three variables – capital, energy and mining equipment – will always be in play, and at least one of them will always be hard to come by.” A visual representation of the market and the Miner’s Trilemma during the recent bull run is shown in the graphic below:
This contrasts with current market conditions (graphic below) where capital availability has dried up, while mining equipment and pricing have loosened tremendously. Access to the energy site remains in roughly the same, somewhat difficult condition. This illustrates the second axiom which states “when one of the three variables moves from a hard state to an easy state, at least one of the variables in an easy state will move to a hard state.”
The importance of the Miner’s Trilemma is that it provides an excellent set of rules for determining the probability of success for a mining operation. Most mining companies, including mine, started with an advantage in one of the three key variables, but long-term success and growth requires the ability to pivot and continuously solve difficult variables. So if you’re thinking about starting a mining business, investing in a private mining venture, or buying stock in a public mining company, make sure you research that entity’s ability to solve the Mining Trilemma regardless of how the difficulty changes. If they have a solution for each of these, then there is a business foundation that competent and experienced management can execute. Miss any of these three, and the company will eventually face a massive survival test.
This is a guest post by Bob Burnett. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.