In response to the increasing costs and dwindling block rewards, Andy Fajar Handika, the CEO and co-founder of Loka Mining, a decentralized mining pool operator, suggests a novel approach. He proposes the implementation of future hashrate contracts, enabling miners to sell their projected hashrate to secure immediate funding and facilitate growth.

During a recent discussion, Handika elaborated on the concept of forward hashrate contracts, which offer miners the ability to receive fiat loans by selling their future hashrate. This could provide a much-needed lifeline for sustaining operations in this capital-intensive sector.

These innovative contracts allow smaller mining entities to manage current expenses and drive growth without depleting their resources:

“By accessing debt financing, miners can invest in additional mining machinery while mitigating price volatility risk, as the investors bearing the risk purchase the mining contract.”

According to Handika, this partnership model is advantageous for creditors as well. The hashrate forward contracts can serve as collateral for additional loans, resembling asset restaking practices.

This approach presents an alternative to conventional means of financing that larger mining operations typically pursue, such as initial public offerings or corporate debt issuance.

In contrast, smaller mining firms or individual miners often find themselves limited to financing through Bitcoin sales or using their holdings as collateral within decentralized finance (DeFi) frameworks.

Handika cautions that these DeFi strategies come with considerable risks, citing the significant market downturn that occurred when Bitcoin’s price plummeted from approximately $59,000 to around $49,500 on August 5, 2024.