INTRODUCTION
Ethiopian Government's investment arm, Ethiopian Investment Holdings (EIH), signed a memorandum of understanding with Honk-Kong-based West Data Group's Center Service PLC to commence mining bitcoin.
The partnership is under a general agreement for a groundbreaking $250 million data mining project "that is dedicated to establishing cutting-edge infrastructure for data mining and artificial intelligence training operations in Ethiopia," according to the EIH. Ethiopia is positioning itself as a leader in the data centre space in Africa, which is estimated to grow to $5.4 billion by 2027, according to Aritzon Advisory and Intelligence.
As noted by Kal Kassa, CEO for Ethiopia at Hashlabs Mining, “the development is part of the Ethiopian Government's aim to drive economic growth by leveraging technology and energy sources to attract foreign investments.”
The EIH has yet to confirm the details of its bitcoin mining operations or respond to requests for comment by other publications. Nevertheless, as the project matures, we can expect to get more clarity from them on the particulars of the arrangement.

Bitcoin Mining In Ethiopia

BENISHANGUL-GUMUZ, ETHIOPIA

Despite the ban on crypto trading in the country, 2022 saw the ratification of favorable data mining laws that permit "high-performance computing" and "data mining," which is where bitcoin mining falls under. In the last two years, this has opened the floodgates to miners seeking its comparatively positive reception to bitcoin mining, coupled with its abundance of energy sources—chiefly hydro—to its optimal weather.


Hashlabs Mining Global Bitcoin Mining hash rate 
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HASHLABS MINING
In a few years, according to a forecast by a senior executive at Bitmain and reported by Bloomberg, Ethiopia's energy potential could rival Texas's generation capacity, which currently accounts for an astounding 28.5% of the US's 40% global hash rate.
Nevertheless, bitcoin miners are cautious about the future of regulation in the country. As other regions have shown, bitcoin mining has no permanent regulatory cushion. It is also too early to predict whether Ethiopia will switch its stance on bitcoin mining as Iran and Kazakhstan did when it started competing with domestic energy demand.
Regardless, the government is keen on expanding its inflow of foreign currency to mitigate its economic challenges and views mining as a compelling investment opportunity to realise that goal.

The Future Of Nation State Mining In Africa

With the energy infrastructure yet to match demand on the ground for electricity in several African countries, using bitcoin mining has continued to become an attractive avenue to bring electricity to millions.
In Ethiopia, for example, over 40% of its population, roughly 120 million people, are without electricity. Yet, the country has an installed capacity generation of over 5,000 MW and anticipates a projected additional install capacity generation of ~5,150 MW following the completion of the Grand Ethiopia Renaissance Dam (GERD), the largest hydroelectric project in Africa.
Following the examples of mining projects elsewhere in Africa, such as Gridless and Trojan Mining, Ethiopia too can leverage its abundant excess green energy to provide electricity to its citizens via bitcoin mining. It can serve as a blueprint for other African countries with comparable energy sources to follow and navigate similar economic problems.
Further, the inclusion of bitcoin mining into the Ethiopian economy could contribute $2 - $4 billion to its GDP, according to data from Project Mano, an open collective seeking to educate the government on the potential benefits of bitcoin to the country’s economy.
The economic benefits of Ethiopia strategically leveraging its abundant energy resources for Bitcoin mining are vast and far-reaching. It is only a matter of time before other African nations join the bandwagon.

Bitcoin Ordinals May Push Fees Above Mining Rewards In 2024

Bitcoin miners have experienced unusual volatility in rewards due to the expanding footprint of bitcoin inscriptions over the past 12 months, with bitcoin NFTs having a growing impact on the DeFi sector. While block rewards are fixed at 6.25 BTC per block for this cycle, the additional transaction fees paid to miners have varied significantly.
Throughout 2023, fees ranged from 3.9 BTC to 0.08 BTC per block, peaking in May, falling off through summer, and then making a winter comeback to reach a height of 3.3 BTC by December 16. In dollar terms, miners made as much as $139,117 per block and as low as $2,582. This fee variation aligned with the spikes in bitcoin Inscription activity throughout the year.

Bitcoin transaction fees for 2023MEMPOOL.SPACE
Inscriptions are similar to NFTs on other blockchains and are created by inscribing individual bitcoin satoshis with data. This process turns the smallest denomination of fungible bitcoin into non-fungible assets most commonly known as Ordinals. It is similar to turning pennies into unique pieces of art or engraving new text onto the coins.
Launched in early 2023, the Ordinals protocol saw huge initial interest as collectors embraced the concept of adding unique data to individual satoshis, creating a sense of scarcity and potential collectability within the bitcoin network. This surge in activity quickly drove up demand for block space, a limited resource that records all bitcoin transactions.
When a bitcoin transaction is submitted, it goes into a queue called the mempool. During the 2023 transaction fee peaks, the mempool became increasingly filled with Ordinals inscriptions, causing transaction sizes to bloat as bitcoin blocks accommodated the additional data. This increased size directly contributed to higher transaction fees on the network as miners naturally prioritize transactions with higher fees attached to increase their revenue.
Side Of Venice
The increased competition for this coveted block space made regular bitcoin transactions significantly more expensive during heightened inscription activity. Smaller transactions had to bid higher to compete with large transactions in terms of cost per virtual byte. Consequently, larger-sized transactions within the mempool put upward pressure on fees as users competed to have their transactions confirmed.
Ordinals drove bitcoin transaction fees to record levels for a non-bull market period, but this momentum has recently subsided. As the chart below illustrates, before the Ordinals craze, fees had not surpassed 2,000 satoshis per vByte since the 2021 bull run.

Bitcoin block fee rates for 2023MEMPOOL.SPACE
Historically, miner revenue has been primarily derived from block rewards. The upcoming halving event will cut these rewards to just 3.125 BTC. With a bitcoin price of around $50,000, any miners who spend more than $25,000 in energy to mine 1 BTC will no longer be profitable. Therefore, transaction fees could soon start to rival block rewards in importance. Presently, miners receive around $14,000 in transaction fees per block and $323,750 in mining rewards.
After the halving, mining rewards will drop to $161,875, meaning if another surge in inscriptions occurs, some blocks may generate more in transaction fees than block rewards in 2024. For instance, on the afternoon of February 3, miners received an average of $180,486 in transaction fees.

DeFi On Bitcoin Could Be A Lifeline For Miners.

While Ordinals are currently well below their 2023 peak, the sector is far from dead. Investment into bitcoin Layer-2s, DeFi, alternative inscription methods and Ordinals marketplaces is increasing, and even MicroStrategyMSTR -3.6% has pivoted into bitcoin development to take advantage of the opportunity.
For context, over the past 30 days, $213 million worth of Ordinals traded across bitcoin marketplaces, and bitcoin DeFi has surpassed $1 billion in total value locked.
Bitcoin DeFi TVL exploded from $300 million on February 8 to $1.65 billion in just 11 days. Most new investments have flowed through bitcoin Layer 2 startup Merlin Chain. Backed by venture firms including OKX Ventures, ABCDE, Foresight Ventures and Arkstream Capital, its Merlin Seal event saw over $700 billion in bitcoin and $300 million BRC-20 tokens staked by users hoping to acquire governance tokens in the new chain.
As Bitcoin-based DeFi platforms mature, they may bring increased traffic and associated fees to the blockchain, further aiding miners. While transaction fees have yet to offset declining block rewards fully, they show growing potential.

Challenges And Controversy Of Bitcoin Transactions

The shift towards a fee-driven model is not without controversy. Higher fees could potentially make everyday bitcoin transactions less affordable, pushing users away from the core blockchain, which some believe contradicts the original vision of bitcoin as accessible 'electronic cash.'
Proponents of this argument worry that rising fees could relegate Bitcoin to a specialized settlement and store of value layer for luxury digital assets, undermining its role as a more general transactional currency. However, advocates of decentralized Layer-2 solutions, like the Lightning Network, may argue that they provide ample channels for daily payments using bitcoin while minimizing on-chain fee overhead.

CONCLUSION
The potential for bitcoin to act as a global event sequencer for financial transactions, utilizing the Lightning Network for small transactions and the mainnet for preserving critical international settlements, makes increasing fees less of an issue. When the cost of a bitcoin transaction becomes untenable for daily transactions, it does so because the worth of its blockspace is valued that highly.
Thus, despite concerns, the evolving structure of bitcoin's transaction fee market reflects a maturation of the world's largest blockchain. It highlights the growing recognition of bitcoin as a foundational layer for various digital assets and decentralized applications. This may necessitate a recalibration of expectations for bitcoin transactions.
Going forward, analysts will monitor whether rising fee revenue can indeed bolster network security and sustain Bitcoin's long-term growth without block rewards. Transaction fees remain a complex topic, impacting miners, developers, and the broader Bitcoin community as the leading digital assets enter an exciting new phase of its existence.
In addition, the longer-term effects of inscriptions on the bitcoin network will remain subject to debate. It's uncertain if this will remain a niche practice or expand into a significant new use case for bitcoin. Further developments may be necessary to balance the needs of Inscription advocates and those interested in simpler bitcoin transactions.