The headline is dramatic but this is literally how bitcoin is designed to work. Miners leave, difficulty drops, costs go down, mining becomes profitable again. The interesting part isn’t the loss per coin, it’s how long the lag between unprofitable mining and difficulty adjustment keeps forced selling pressure on the market.
It sounds very similar to things like oil production, gold mining, and even farming. When the price is high, everyone wants in on the action. As supply explodes, the prices drop. Once prices get low enough, the costs to pump the next barrel of oil, find the next ounce of gold, or harvest the next acre of a certain crop; exceed the reward. When that happens, wells are shut down, mining operations suspended, and different crops planted. The cycle begins again.
There's a soft failure-mode for bitcoin where due to the alternating difficulty adjustment, you could end up with people only mining every other 2016-block adjustment.
Let's call this cycle A and cycle B.
If A is too hard, miners drop out, cycle B gets easier, miners flood back, cycle A gets harder.
This results in the hard cycle getting longer and the easy cycle getting shorter.
This isn't completely critical as there is I believe a small damping effect, so it isn't completely lethal to bitcoin, but a key thing about bitcoin mining is that whether other people are mining or not doesn't actually affect your own profitiability.
Other people dropping out doesn't actually mean you get more bitcoins per hour/watt, it only affects the next difficulty adjustment as a secondary effect.
The difference is that the quantity of what is being supplied is a factor with supply of oil/gold/grain/etc.
For mining it is just necessary that it happens.
The amount of work in mining is way higher than is required to prevent another party from being able to overwhelm the Blockchain. It is that high because of the subsidy of the mining reward means if Bitcoin has a high value the reward is worth a lot.
This is factored in with the halving of the reward. Either the price will increase exponentially or the mining reward will drop. Causing mining to reduce to those who can be profitable from fees. Which rewards those who can mine most efficiently, it becomes a supply and demand calculation in a market where there are relatively low barriers for competitors.
There is an interesting missing link in the feedback cycle with Bitcoin though - the same amount is produced regardless, supply does not contract with demand.
The headline is confusing the issue. Bitcoin miners are losing money because October's crash took Bitcoin from $126,000 to below $70,000, and the Iran war has pushed up oil and electricity prices. The minor difficulty drop is a result of that, as some Bitcoin miners drop out. It's not the cause.
It is how bitcoin is designed to work, but it also shows very directly how proof-of-work systems can never scale to be the global monetary replacement its boosters push. If the opposite happened, and the price for some reason sky rocketed to, say, $1 million per bitcoin, it would necessarily mean that it would induce more miners until the difficulty and consequent electricity cost (regardless of the efficiency in electricity generation) also would rise to the neighborhood of $1 million per coin. At the point you're far beyond "Argentina levels" of electricity and getting into "Europe levels" of electricity to run the network.
The electricity demand (and here I mean the overall cost of the electricity, so improvements in $ per kilowatt just mean you need to use more electricity) in proof-of-work systems fundamentally scales linearly with the overall valuation of the coins in the network, which means proof-of-work systems can never scale as large as their fanboys would have you believe.
While I don't disagree in general, there are a couple gaps in your reasoning that weaken the argument:
Adoption doesn't necessarily correlate completely with price. Price can increase without much adoption, due to speculation. In theory, adoption could also increase without much price increase.
Electricity isn't the only requirement for mining. Hardware is also required. Miners can't simply use lots of additional electricity if the hardware isn't there. Yes, new hardware can be manufactured, but it takes time.
The block reward decreases over time. If it's using Europe levels of electricity at time X, then after a block reward decrease, it'll use Europe/2 amount of electricity. This decreasing also disincentivizes manufacturing new hardware.
Miners can have different efficiencies, due to different types of hardware, and different types of electricity generation. So while the least efficient miner will be operating at near breakeven, the most efficient miner will be making much more profit. So while the least efficient miner will use $1M of electricity to mine a $1M coin, the most efficient miner will use less dollars of electricity.
If "difficulty drops, costs go down" so ought the price? Isn't that basic economics? Or are they chasing the "phase difference", lag, between supply demand?
I am not certain; but, costs do not have a causative relationship to prices. Prices only go down because as the cost of production goes down, supply increases. It is a correlative relationship.
Bitcoin's supply won't increase as costs go down, unlike other assets.
As price per coin goes up, more folks will find mining profitable and invest in mining operations. Difficulty goes up until it's no longer attractive for anyone to add to the global hash rate.
As price per coin goes down, less of those operations are profitable and fewer new people will find it to be a good investment. Difficulty stays the same or goes down. Due to capital expenses, difficulty is more sticky in the downward direction than upwards.
There is of course some marginal price action in between where there is in theory selling pressure from miners when it's less profitable to mine (to fund operational expenses and debt), but I don't think it's super material to the overall market volume these days.
This only works when the difficult drop rates are below miner leaving rates.
Which in normal times, are something taken for granted, but once it does happen, the edge case collapse the entire system.
edit: the earlier language is not exact, the scenario is an exponential drop of value that results in exponential drop in miner willing to mine until this discrepancy can be resolved. i.e. the system is not protected against extreme volatility (e.g. -99% over a block cycle)
No but if more miners leave then dofficulty with drop faster right? Its modelling supply and demand curves which are a stable equilibrium in these circumstances
> but once it does happen, the edge case collapse the entire system.
Which is when exactly, and how likely is that to happen? It hasn't happened yet in ~14 years, but I guess "never say never". There is a lot of money saying it won't happen very soon though.
I don't think you know what you're talking about. If the difficulty lowers at a lower rate than miners leaving then the difficulty rate will stop dropping.
If you mean that if it reaches a certain point, the entire system will collapse, it means you don't understand the difficulty adjustment. If it's too expensive to mine, then some miners leave, which makes blocktimes be longer, but not to worry because the consequence of that it just that difficulty will go down, which means that you need less hashrate to mine (and maybe some of those miners that leave will come back because it is profitable again for them). This means that it is essentially impossible for all miners to leave at the same time; some of them stay even if at a loss, and some of them are just hobbyists that can already feed their miners with solar power (so there's really no loss for them in leaving them connected).
But mining costs are (cost of equipment+cost of electricity)/total coins mined, so can miners not end up in a situation where they need to keep mining to pay off equipment despite the individual coins being unprofitable?
The cost of finding a block goes down because it becomes less difficult.
The goal in proof of work is to find a block hash less than a given value. That value is determined by the network difficulty. The lower the value, the more difficult it is to find a block, and thus the more expensive it will be to mine.
Difficulty is adjusted once every two weeks to target an average block time of 10 minutes. If the average block time during the preceding 2 weeks is less than 10 minutes, it means that blocks were too easy to find (i.e. the difficulty was too low relative to total hash rate of the network). Conversely, if the average block time was greater than 10 minutes, the difficulty was too great.
This is how it the network has maintained a roughly 10 minute block time as the hash rate of the network has grown over the past 16 years. The difficulty (i.e. cost) of finding a block is constantly being adjusted.
> The interesting part isn’t the loss per coin, it’s how long the lag between unprofitable mining and difficulty adjustment keeps forced selling pressure on the market.
I follow Bitcoin from a theoretical point of view and I find it fascinating.
Something that boggles my mind a lot is this: Bitcoin, which is somehow a bit "programmable", and Ethereum (which is definitely programmable) are basically the most correct computers on earth. Due to the consensus that needs to be reached by thousands+ of machines. Even if they're imperfect, ECC-less (for the most part), machines.
Now they may still run code with flaws: but they'll all run it exactly in the same way. If, say, a bit-flip occurs on a machine, that machine won't create a block or won't sign a transaction accepted by others. Not part of the consensus. That is wild.
Then the other thing which boggles my mind and which relates to your comment: the "selling pressure on the market" by Bitcoin miners is, no matter what they do, halved every four years. There were, 8 years ago, still 1800 Bitcoins mined per day. Today it's 450.
And in two years (we're midway before the next halving), it's going to be 225.
And Satoshi Nakamoto planned, from the very start.
Maybe it doesn't make sense (economically or from a security point of view: who's going to secure the network when there's not enough block reward anymore?).
But miners will mine 225 Bitcoins per day, not 450, in two years.
Its still true and shows one of many issues with bitcoin.
Based on bitcoin cryptobros, you need a certain amount of independent miners for the 'quality' of bitcoins. A bitcoin miner if its a state, can operate with a loss a lot longer if not even infinit, than the decentralized normal people (who do not exist anyway).
It also creates a lot of pressure on miners if you do not run your gpus, yuou are also at a loss, which can break the mining for everyone if too many in parallel go offline, than go olnine again because difficulty droped to much.
And if it becomes to volatile, no one wants to risk it anymore
Bitcoin hasn't been viably mineable on GPUs for over ten years. It requires specialized hardware.
As such, mining is typically restricted to those with massive capital investment in a single-purpose, so you really won't see random offloading and onloading of that capacity. As long as it's marginally profitable (with capital investment being a sunk cost, this is the price where it's more than ongoing costs), those miners will keep their machines running.
The original idea was for every single person out there to mine bitcoins on their own computers. Bitcoin screwed that up by allowing big corporations to push out the smaller players. Their big purpose built hardware increased mining difficulty to the point mere mortals need not even apply. Mining on GPUs? Nope, you need purpose built ASICs for this.
Monero is the only cryptocurrency today that's at least trying to implement the original "one CPU, one vote" vision but nobody really cares about it since number doesn't go up.
No one is producing Bitcoin at loss, because it doesn't make any sense, but it might happen temporarily. Imagine the mining cost as a distribution curve, and bitcoin miners filling the distribution from the cheapest upwards to where the cost equals the revenue, i.e. the highest cost miner is at break-even, so that total of 3.125 (+transaction fees) bitcoin worth of hashrate is produced every 10 minutes. All but the highest cost miner operate at profit.
> No one is producing Bitcoin at loss, because it doesn't make any sense
The cost of producing bitcoin is a combination of the marginal cost (running the miner you already have, i.e. mostly power) and paying for the miner that you bought.
If you buy a miner expecting a certain profitability but then the economics change, you can both end up with a loss long term (never able to recoup the cost of the miner) and still be better off continuing to mine (because the cost of the miner is a sunk cost, and as long as the revenue is larger than the marginal cost of running it, you'll at least recoup some of it).
Both of you are right. There is one more edge case: if you commit to buying electricity in advance it might cost you extra to not consume it. It would still be in your interest to use the power at a net marginal loss rather than not using it and paying a fine for failing the contract.
This is just a lie. Coindesk is the worst media in the world.
They can't calculate correct price of mining because it's more complex and enerrgy costs are different in so many regions and inside the electiric producers etc. !
Exactly: "The average production cost was sitting at $88,000 per bitcoin in mid-March". Emphasis on average. Just as in a free market, those miners with higher mining costs are priced out of the market. Or are pressured to become more efficient. Those that are below-average probably already are efficient.
If bitcoin miners are losing $19k for every bitcoin they mine, why would they sell bitcoin to continue funding their mining operations. That just makes it even less profitable because they are driving down the price of their remaining bitcoin. It makes more sense to shut their rigs off completely and wait for the price to rise.
The funny thing about bitcoin is that the rate of bitcoin discovery doesn’t change when they shut off their rigs so it won’t change supply. It would actually make more sense to sell all their bitcoin, flood the market with coins to do the price, wait for large miners to collapse and then restart mining at hopefully lower prices.
> […] why would they sell bitcoin to continue funding their mining operations […]
There are usually some fixed costs involved and you need cash flow. Without cash flow, your business can shut down pretty damn fast. With cash flow, your business can stay around longer, maybe long enough for the economics to shift.
This sort of thing happens with oil. There are oil producers which sell at a loss. There was even a brief moment when the price of an oil barrel went negative, which meant that if you gave somebody a barrel of oil, you had to pay them for the privilege of taking that oil off your hands. Oil producers did not all shut down when that happened.
I am a little doubtful of the $19k figure anyway.
> It would actually make more sense to sell all their bitcoin, flood the market with coins to do the price, wait for large miners to collapse and then restart mining at hopefully lower prices.
This kind of market manipulation is not so straightforward.
Isn't the whole point of PoW that the work done is otherwise useless? I mean: you invest money (in form of your hardware/electricity bill) to mine a block, and that ensures that whoever would like to fork the chain has to spend at least as much money to do it. If PoW can earn you extra money outside of the Bitcoin ecosystem (by making the work "useful") it lowers the cost of the 51% attack, potentially making it profitable.
Hopefully between this and looming cryptographically relevant quantum computing, this whole house of cards will come crumbling down. And those who invested vast capital to burn carbon in order to evade finance regulations will lose everything. Probably not. But it’s a nice dream.
If everyone stopped mining transactions couldn't go through anymore and the value of bitcoin would drop.
If you're heavily invested in bitcoin that's bad.
Also miners try to squeeze in their preferred transactions which they can't do when they're not mining.
Finally the costs dont drop to zero when you turn the miners off, so the loss from mining might be less than the loss when not mining.
He's not saying everyone, just the ones who are unprofitable. Not everyone mines bitcoin at the same cost. The ones who do have to stop can also profit from curtailment depending on the price of energy relative to hash profit.
If you've already bought a miner, you will mine until the price of electricity exceeds the revenue from mining. If what's left over after paying for the electricity isn't enough to pay for the cost of the miners (and other already-committed fixed costs), you might make a loss, but still be incentivized to continue to at least recoup some of the loss.
When I was mining circa 2017 - 2021 (approx. 1 BTC/month and 25-30 ETH/month) and planning it all out, I prepared myself psychologically to operate for up to 2 years without any profits or selling. It was a hard pill to swallow and a huge risk; my costs were $8500/month in electrical and then another ~$2200 on a lease for the warehouse. When it dropped to $3,000/BTC a few months after I came online and stayed there for 6-8 months, I started wondering if I was the biggest dumbass in my county.
Thankfully, it all worked out in the end very well. I don't know how anyone would put in the effort/money to get a major crypto farm going and plan to just cash out every month to pay bills. What's the point? I always thought of it as a long-term bet on the price going way up, which it did.
It's a very low effort article. There are several places where the cost of electricity is roughly zero and state actors have interest in Bitcoin (Iran/Russia) or strong actors more powerful than the state (Libya/Venezuela). It's not surprising that this is good news for them as mining rigs for Bitcoin are much lighter to transport than the ones for oil.
If you bought a bunch of hardware to mine bitcoins, then not using that hardware represents a 100% loss of value. You may lose money producing, but you would lose even more money not producing.
You're not missing anything. As you can see if you read through the thread, they rely on bitcoin miners being heavily invested into bitcoin and bitcoin equipment, so those people will operate unprofitably to prop up their holdings. It's a moron's economy. A system that relies on externalities and corruption, and produces nothing of value. It's the art market with no art.
If bitcoin miners are smart enough to have anticipated this, and decided not to hold onto bitcoin and just let it drop; and also to have repurposed their equipment, sold it to bigger fools, or have just run it into the ground, none of these ideas make any sense.
Why would they, though? The real answer is that governments and monopolists are propping up bitcoin through simply handing tax money to bitcoin holders, and in the case of the latter (also government tit-suckers) leveraging themselves to pump up bitcoin markets when they are down. I'm sick of humoring this because it was once mildly interesting technically. It's a criminal scheme and everyone involved needs to go to prison. When I hear a politician say the word bitcoin, I'm going to do everything in my power to damage that politician.
I need to buy a service. The service is provided in the US, where it is a grey area service. The service provider is not trustworthy enough to give it my credit card, and it doesn't accept neither paypal nor stripe. Unsurprisingly, it accepts bitcoins.
The way bitcoin exists, the provider accepts bitcoin; it doesn't accept other crypto. I would rather bitcoin, or something equivalent to exist than not.
There is also the case of people who hold value in bitcoin because it is more stable than their banks; go figure. This was the case in Argentina and Venezuela. That was also a gray area, but I think it would morally acceptable to do that even if it was prohibited
This title is incorrect. When mining difficulty drops, Bitcoin becomes easier and cheaper to mine, so miners usually make more money per coin, as long as the Bitcoin price stays the same.
Isn't AI the new hot thing, why are the miners still going after Bitcoin, when they can probably just use the same infra for AI and make more money, stay profitable.
"don't work well for AI" is a hell of an understatement, the Application they are Specific to is literally just sha256(sha256(x)), what AI are you going to do with that?
GP probably didn't mean that hardware though, but rather the facility, electricity supply, cooling, etc.
> The publicly traded miners have been adapting by diversifying into AI and high-performance computing, which offer more predictable revenue than mining bitcoin at a loss. Marathon Digital, Cipher Mining, and others have been building out data center capacity alongside their mining operations.
Yes, it does but lacks depth, the problem here is they are diversifying not pivoting and by virtue of game theory for each miner they stand to win on others exit, as the mining difficulty goes down, but this is creating a loss-loss situation.
Depends on if you see the use case of censorship resitant payment as something we should allow or not (such as paying the Ayatollah to go through the strait).
The compute supply/demand for mining is designed in the bitcoin algorithm to oscillate, and the mining game is about being able to forecast a complex combo of BTCUSD price, power price, hardware price and depreciation.
Remarks like the title of this clickbait article are strictly meaningless, they assume the instantaneous price of bitcoin / power / hardware is what's used to compute profitability, when in practice mining is basically a futures market.
Large amounts of btc
mining are done via things like typo squatted images in compute clusters, or other compromised machines, the compute is stolen so the cost is effectively zero to the miner
SMST (Defiance Daily Target 2x Short MSTR ETF) could be a rough equivalent.
As the other poster mentioned though, many miners won't be using oil-based energy sources, so it does make one wonder about cause and effect. Maybe a dip in BTC would've done it regardless of oil?
If I had a dollar for every time, at some time in the past ten years, when the true believer bitcoin pumpers were saying things like "Bitcoin will be above a million per coin in the next five years!"... Yeah, about that....
They generally use whatever is available and cheapest. However, due to the constant power demand and the capital cost involved (you don't want your miners sitting idle), if that isn't grid power, its often either "reliable" renewables (e.g. hydro), "stranded" fossil energy (e.g. gas that would otherwise be flared off), or in the worst case, literally buying a coal power plant that was about to shut down just to power a Bitcoin mine.
Shouldn't the price therefore go down? (Bitcoin should be an instrument the price of which correlates with the cost of the energy required to make new ones).
My big picture take here; this is precisely why bitcoin itself could perhaps go to zero, and yet other cryptocurrencies could survive, aka the so-called "flippening."
It may come to pass that "proof-of-work" was merely a good proof of concept to launch the idea; but proof-of-stake is (of course) better.
The headline is dramatic but this is literally how bitcoin is designed to work. Miners leave, difficulty drops, costs go down, mining becomes profitable again. The interesting part isn’t the loss per coin, it’s how long the lag between unprofitable mining and difficulty adjustment keeps forced selling pressure on the market.
It sounds very similar to things like oil production, gold mining, and even farming. When the price is high, everyone wants in on the action. As supply explodes, the prices drop. Once prices get low enough, the costs to pump the next barrel of oil, find the next ounce of gold, or harvest the next acre of a certain crop; exceed the reward. When that happens, wells are shut down, mining operations suspended, and different crops planted. The cycle begins again.
There's a soft failure-mode for bitcoin where due to the alternating difficulty adjustment, you could end up with people only mining every other 2016-block adjustment.
Let's call this cycle A and cycle B.
If A is too hard, miners drop out, cycle B gets easier, miners flood back, cycle A gets harder.
This results in the hard cycle getting longer and the easy cycle getting shorter.
This isn't completely critical as there is I believe a small damping effect, so it isn't completely lethal to bitcoin, but a key thing about bitcoin mining is that whether other people are mining or not doesn't actually affect your own profitiability.
Other people dropping out doesn't actually mean you get more bitcoins per hour/watt, it only affects the next difficulty adjustment as a secondary effect.
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Satoshi thought of everything, man.
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The difference is that the quantity of what is being supplied is a factor with supply of oil/gold/grain/etc.
For mining it is just necessary that it happens.
The amount of work in mining is way higher than is required to prevent another party from being able to overwhelm the Blockchain. It is that high because of the subsidy of the mining reward means if Bitcoin has a high value the reward is worth a lot.
This is factored in with the halving of the reward. Either the price will increase exponentially or the mining reward will drop. Causing mining to reduce to those who can be profitable from fees. Which rewards those who can mine most efficiently, it becomes a supply and demand calculation in a market where there are relatively low barriers for competitors.
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There is an interesting missing link in the feedback cycle with Bitcoin though - the same amount is produced regardless, supply does not contract with demand.
Yep economics rules everything around me
The headline is confusing the issue. Bitcoin miners are losing money because October's crash took Bitcoin from $126,000 to below $70,000, and the Iran war has pushed up oil and electricity prices. The minor difficulty drop is a result of that, as some Bitcoin miners drop out. It's not the cause.
It is how bitcoin is designed to work, but it also shows very directly how proof-of-work systems can never scale to be the global monetary replacement its boosters push. If the opposite happened, and the price for some reason sky rocketed to, say, $1 million per bitcoin, it would necessarily mean that it would induce more miners until the difficulty and consequent electricity cost (regardless of the efficiency in electricity generation) also would rise to the neighborhood of $1 million per coin. At the point you're far beyond "Argentina levels" of electricity and getting into "Europe levels" of electricity to run the network.
The electricity demand (and here I mean the overall cost of the electricity, so improvements in $ per kilowatt just mean you need to use more electricity) in proof-of-work systems fundamentally scales linearly with the overall valuation of the coins in the network, which means proof-of-work systems can never scale as large as their fanboys would have you believe.
While I don't disagree in general, there are a couple gaps in your reasoning that weaken the argument:
Adoption doesn't necessarily correlate completely with price. Price can increase without much adoption, due to speculation. In theory, adoption could also increase without much price increase.
Electricity isn't the only requirement for mining. Hardware is also required. Miners can't simply use lots of additional electricity if the hardware isn't there. Yes, new hardware can be manufactured, but it takes time.
The block reward decreases over time. If it's using Europe levels of electricity at time X, then after a block reward decrease, it'll use Europe/2 amount of electricity. This decreasing also disincentivizes manufacturing new hardware.
Miners can have different efficiencies, due to different types of hardware, and different types of electricity generation. So while the least efficient miner will be operating at near breakeven, the most efficient miner will be making much more profit. So while the least efficient miner will use $1M of electricity to mine a $1M coin, the most efficient miner will use less dollars of electricity.
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If "difficulty drops, costs go down" so ought the price? Isn't that basic economics? Or are they chasing the "phase difference", lag, between supply demand?
I am not certain; but, costs do not have a causative relationship to prices. Prices only go down because as the cost of production goes down, supply increases. It is a correlative relationship.
Bitcoin's supply won't increase as costs go down, unlike other assets.
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The mining reward isn't a direct transaction that has a price.
Competing for it is more of a game that has a cost to participate in.
It's the reverse.
As price per coin goes up, more folks will find mining profitable and invest in mining operations. Difficulty goes up until it's no longer attractive for anyone to add to the global hash rate.
As price per coin goes down, less of those operations are profitable and fewer new people will find it to be a good investment. Difficulty stays the same or goes down. Due to capital expenses, difficulty is more sticky in the downward direction than upwards.
There is of course some marginal price action in between where there is in theory selling pressure from miners when it's less profitable to mine (to fund operational expenses and debt), but I don't think it's super material to the overall market volume these days.
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Price isn't affected by mining difficulty, only the other direction.
This only works when the difficult drop rates are below miner leaving rates.
Which in normal times, are something taken for granted, but once it does happen, the edge case collapse the entire system.
edit: the earlier language is not exact, the scenario is an exponential drop of value that results in exponential drop in miner willing to mine until this discrepancy can be resolved. i.e. the system is not protected against extreme volatility (e.g. -99% over a block cycle)
No but if more miners leave then dofficulty with drop faster right? Its modelling supply and demand curves which are a stable equilibrium in these circumstances
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> but once it does happen, the edge case collapse the entire system.
Which is when exactly, and how likely is that to happen? It hasn't happened yet in ~14 years, but I guess "never say never". There is a lot of money saying it won't happen very soon though.
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I don't think you know what you're talking about. If the difficulty lowers at a lower rate than miners leaving then the difficulty rate will stop dropping.
> below miner leaving rates.
What does this mean, sorry?
> the edge case collapse the entire system.
If you mean that if it reaches a certain point, the entire system will collapse, it means you don't understand the difficulty adjustment. If it's too expensive to mine, then some miners leave, which makes blocktimes be longer, but not to worry because the consequence of that it just that difficulty will go down, which means that you need less hashrate to mine (and maybe some of those miners that leave will come back because it is profitable again for them). This means that it is essentially impossible for all miners to leave at the same time; some of them stay even if at a loss, and some of them are just hobbyists that can already feed their miners with solar power (so there's really no loss for them in leaving them connected).
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Yup
The problem with BTC going down is that it's a double whammy of not only BTC going down but also the cost of its shovels going up
Before: BTC pays $100k but a shovel costs $300
Now: BTC pays $70k but a shovel costs $$??
Bitcoin asked the right questions but came back with the wrong answers
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But mining costs are (cost of equipment+cost of electricity)/total coins mined, so can miners not end up in a situation where they need to keep mining to pay off equipment despite the individual coins being unprofitable?
It's no different to a mortgage being in negative equity as the home owner would still be in debt after selling the property.
I'm far from a crypto expert but aren't costs largely GPUs and electricity here?
Those are now being driven by massive AI demand and are likely to remain so for the forseeable future. So how would costs go down?
The cost of finding a block goes down because it becomes less difficult.
The goal in proof of work is to find a block hash less than a given value. That value is determined by the network difficulty. The lower the value, the more difficult it is to find a block, and thus the more expensive it will be to mine.
Difficulty is adjusted once every two weeks to target an average block time of 10 minutes. If the average block time during the preceding 2 weeks is less than 10 minutes, it means that blocks were too easy to find (i.e. the difficulty was too low relative to total hash rate of the network). Conversely, if the average block time was greater than 10 minutes, the difficulty was too great.
This is how it the network has maintained a roughly 10 minute block time as the hash rate of the network has grown over the past 16 years. The difficulty (i.e. cost) of finding a block is constantly being adjusted.
I don't think GPUs are competitive at all. You need specialized mining rigs with bitcoin mining specialized chips.
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Bitcoin is no longer mined by GPUs but by ASICs
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If costs stay high, then people will drop out of bitcoin mining, which will cause supply to go down and bitcoin prices to go up.
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In the gap between cost going down and profitability, is there not an increased risk of sybel attacks?
You'd still need to have 51% of the network to perform any successful attack, which despite the price drop is a a MASSIVE capital investment.
What does “leave” in this context mean?
Turn off their mining rigs.
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Stop mining.
...and sitting on a lot of ASICs which are soon worthless....
"stop"
(Obviously the equipment doesn't go away. You can start it again. But if you can't make a buck doing something, you won't do it.)
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A perpetual boom bust cycle? Sounds healthy.
Counterintuitively that’s the definition of healthy in economics.
If you don’t have busts, at some point your system will abruptly/violently cease to exist.
It is a negative feedback loop, so yes, it makes systems stable.
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This is exactly how real world economy is (ideally) meant to work.
Regression to the mean. The alternative is no adjustment at all.
> The interesting part isn’t the loss per coin, it’s how long the lag between unprofitable mining and difficulty adjustment keeps forced selling pressure on the market.
I follow Bitcoin from a theoretical point of view and I find it fascinating.
Something that boggles my mind a lot is this: Bitcoin, which is somehow a bit "programmable", and Ethereum (which is definitely programmable) are basically the most correct computers on earth. Due to the consensus that needs to be reached by thousands+ of machines. Even if they're imperfect, ECC-less (for the most part), machines.
Now they may still run code with flaws: but they'll all run it exactly in the same way. If, say, a bit-flip occurs on a machine, that machine won't create a block or won't sign a transaction accepted by others. Not part of the consensus. That is wild.
Then the other thing which boggles my mind and which relates to your comment: the "selling pressure on the market" by Bitcoin miners is, no matter what they do, halved every four years. There were, 8 years ago, still 1800 Bitcoins mined per day. Today it's 450.
And in two years (we're midway before the next halving), it's going to be 225.
And Satoshi Nakamoto planned, from the very start.
Maybe it doesn't make sense (economically or from a security point of view: who's going to secure the network when there's not enough block reward anymore?).
But miners will mine 225 Bitcoins per day, not 450, in two years.
And that is totally fascinating.
> I follow Bitcoin from a theoretical point of view and I find it fascinating.
I find it horrible: The damage done to the planet doesn't correlate with the number of transactions. It's maximizing uselessness.
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Its still true and shows one of many issues with bitcoin.
Based on bitcoin cryptobros, you need a certain amount of independent miners for the 'quality' of bitcoins. A bitcoin miner if its a state, can operate with a loss a lot longer if not even infinit, than the decentralized normal people (who do not exist anyway).
It also creates a lot of pressure on miners if you do not run your gpus, yuou are also at a loss, which can break the mining for everyone if too many in parallel go offline, than go olnine again because difficulty droped to much.
And if it becomes to volatile, no one wants to risk it anymore
> if you do not run your gpus
Bitcoin hasn't been viably mineable on GPUs for over ten years. It requires specialized hardware.
As such, mining is typically restricted to those with massive capital investment in a single-purpose, so you really won't see random offloading and onloading of that capacity. As long as it's marginally profitable (with capital investment being a sunk cost, this is the price where it's more than ongoing costs), those miners will keep their machines running.
The original idea was for every single person out there to mine bitcoins on their own computers. Bitcoin screwed that up by allowing big corporations to push out the smaller players. Their big purpose built hardware increased mining difficulty to the point mere mortals need not even apply. Mining on GPUs? Nope, you need purpose built ASICs for this.
Monero is the only cryptocurrency today that's at least trying to implement the original "one CPU, one vote" vision but nobody really cares about it since number doesn't go up.
No one is producing Bitcoin at loss, because it doesn't make any sense, but it might happen temporarily. Imagine the mining cost as a distribution curve, and bitcoin miners filling the distribution from the cheapest upwards to where the cost equals the revenue, i.e. the highest cost miner is at break-even, so that total of 3.125 (+transaction fees) bitcoin worth of hashrate is produced every 10 minutes. All but the highest cost miner operate at profit.
> No one is producing Bitcoin at loss, because it doesn't make any sense
The cost of producing bitcoin is a combination of the marginal cost (running the miner you already have, i.e. mostly power) and paying for the miner that you bought.
If you buy a miner expecting a certain profitability but then the economics change, you can both end up with a loss long term (never able to recoup the cost of the miner) and still be better off continuing to mine (because the cost of the miner is a sunk cost, and as long as the revenue is larger than the marginal cost of running it, you'll at least recoup some of it).
Both of you are right. There is one more edge case: if you commit to buying electricity in advance it might cost you extra to not consume it. It would still be in your interest to use the power at a net marginal loss rather than not using it and paying a fine for failing the contract.
This is just a lie. Coindesk is the worst media in the world.
They can't calculate correct price of mining because it's more complex and enerrgy costs are different in so many regions and inside the electiric producers etc. !
It’s not a lie, nor a damn lie. It’s statistics!
Exactly: "The average production cost was sitting at $88,000 per bitcoin in mid-March". Emphasis on average. Just as in a free market, those miners with higher mining costs are priced out of the market. Or are pressured to become more efficient. Those that are below-average probably already are efficient.
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If bitcoin miners are losing $19k for every bitcoin they mine, why would they sell bitcoin to continue funding their mining operations. That just makes it even less profitable because they are driving down the price of their remaining bitcoin. It makes more sense to shut their rigs off completely and wait for the price to rise.
The funny thing about bitcoin is that the rate of bitcoin discovery doesn’t change when they shut off their rigs so it won’t change supply. It would actually make more sense to sell all their bitcoin, flood the market with coins to do the price, wait for large miners to collapse and then restart mining at hopefully lower prices.
> […] why would they sell bitcoin to continue funding their mining operations […]
There are usually some fixed costs involved and you need cash flow. Without cash flow, your business can shut down pretty damn fast. With cash flow, your business can stay around longer, maybe long enough for the economics to shift.
This sort of thing happens with oil. There are oil producers which sell at a loss. There was even a brief moment when the price of an oil barrel went negative, which meant that if you gave somebody a barrel of oil, you had to pay them for the privilege of taking that oil off your hands. Oil producers did not all shut down when that happened.
I am a little doubtful of the $19k figure anyway.
> It would actually make more sense to sell all their bitcoin, flood the market with coins to do the price, wait for large miners to collapse and then restart mining at hopefully lower prices.
This kind of market manipulation is not so straightforward.
> There was even a brief moment when the price of an oil barrel went negative
More accurate: The price for an _option_ to buy/sell oil was negative, not the price of the barrell itself.
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It's 2026 and there's still people that believe that proof-of-work makes sense as a consensus mechanism
Sure, why should my opinion have changed?
There is a breakthrough on a more productive Po(useful)W: https://news.ycombinator.com/item?id=47430951
Isn't the whole point of PoW that the work done is otherwise useless? I mean: you invest money (in form of your hardware/electricity bill) to mine a block, and that ensures that whoever would like to fork the chain has to spend at least as much money to do it. If PoW can earn you extra money outside of the Bitcoin ecosystem (by making the work "useful") it lowers the cost of the 51% attack, potentially making it profitable.
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Hopefully between this and looming cryptographically relevant quantum computing, this whole house of cards will come crumbling down. And those who invested vast capital to burn carbon in order to evade finance regulations will lose everything. Probably not. But it’s a nice dream.
> When miners can't cover costs, they sell bitcoin to fund operations
Surely they should stop producing until its profitable again, or am I missing something?
If everyone stopped mining transactions couldn't go through anymore and the value of bitcoin would drop. If you're heavily invested in bitcoin that's bad. Also miners try to squeeze in their preferred transactions which they can't do when they're not mining. Finally the costs dont drop to zero when you turn the miners off, so the loss from mining might be less than the loss when not mining.
He's not saying everyone, just the ones who are unprofitable. Not everyone mines bitcoin at the same cost. The ones who do have to stop can also profit from curtailment depending on the price of energy relative to hash profit.
Isn’t mining and transactions separate? Sure you need to have online participants, but they don’t have to actively mine, right?
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What? That's not true. You don't need more than one CPU miner online for tx to go through. That's why there are difficulty adjustments.
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If you've already bought a miner, you will mine until the price of electricity exceeds the revenue from mining. If what's left over after paying for the electricity isn't enough to pay for the cost of the miners (and other already-committed fixed costs), you might make a loss, but still be incentivized to continue to at least recoup some of the loss.
When I was mining circa 2017 - 2021 (approx. 1 BTC/month and 25-30 ETH/month) and planning it all out, I prepared myself psychologically to operate for up to 2 years without any profits or selling. It was a hard pill to swallow and a huge risk; my costs were $8500/month in electrical and then another ~$2200 on a lease for the warehouse. When it dropped to $3,000/BTC a few months after I came online and stayed there for 6-8 months, I started wondering if I was the biggest dumbass in my county.
Thankfully, it all worked out in the end very well. I don't know how anyone would put in the effort/money to get a major crypto farm going and plan to just cash out every month to pay bills. What's the point? I always thought of it as a long-term bet on the price going way up, which it did.
Seems like you could have made that same bet by just buying BTC with that money and doing twice as good.
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It's a very low effort article. There are several places where the cost of electricity is roughly zero and state actors have interest in Bitcoin (Iran/Russia) or strong actors more powerful than the state (Libya/Venezuela). It's not surprising that this is good news for them as mining rigs for Bitcoin are much lighter to transport than the ones for oil.
If you bought a bunch of hardware to mine bitcoins, then not using that hardware represents a 100% loss of value. You may lose money producing, but you would lose even more money not producing.
You're missing that humans are often irrational.
They may be hoping it goes back up.
You're not missing anything. As you can see if you read through the thread, they rely on bitcoin miners being heavily invested into bitcoin and bitcoin equipment, so those people will operate unprofitably to prop up their holdings. It's a moron's economy. A system that relies on externalities and corruption, and produces nothing of value. It's the art market with no art.
If bitcoin miners are smart enough to have anticipated this, and decided not to hold onto bitcoin and just let it drop; and also to have repurposed their equipment, sold it to bigger fools, or have just run it into the ground, none of these ideas make any sense.
Why would they, though? The real answer is that governments and monopolists are propping up bitcoin through simply handing tax money to bitcoin holders, and in the case of the latter (also government tit-suckers) leveraging themselves to pump up bitcoin markets when they are down. I'm sick of humoring this because it was once mildly interesting technically. It's a criminal scheme and everyone involved needs to go to prison. When I hear a politician say the word bitcoin, I'm going to do everything in my power to damage that politician.
I need to buy a service. The service is provided in the US, where it is a grey area service. The service provider is not trustworthy enough to give it my credit card, and it doesn't accept neither paypal nor stripe. Unsurprisingly, it accepts bitcoins.
The way bitcoin exists, the provider accepts bitcoin; it doesn't accept other crypto. I would rather bitcoin, or something equivalent to exist than not.
There is also the case of people who hold value in bitcoin because it is more stable than their banks; go figure. This was the case in Argentina and Venezuela. That was also a gray area, but I think it would morally acceptable to do that even if it was prohibited
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This title is incorrect. When mining difficulty drops, Bitcoin becomes easier and cheaper to mine, so miners usually make more money per coin, as long as the Bitcoin price stays the same.
Isn't AI the new hot thing, why are the miners still going after Bitcoin, when they can probably just use the same infra for AI and make more money, stay profitable.
Totally different infra: bitcoin these days is all dedicated ASICs that have basically no other use, unlike GPUs.
Hash mining asics don’t work well for AI
This is true, but large miners also have beneficial electricity contracts and data center capacity, both suitable for AI workloads.
"don't work well for AI" is a hell of an understatement, the Application they are Specific to is literally just sha256(sha256(x)), what AI are you going to do with that?
GP probably didn't mean that hardware though, but rather the facility, electricity supply, cooling, etc.
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the market is made up of many goods and services. Different people want different things at different times.
Article covers that briefly.
> The publicly traded miners have been adapting by diversifying into AI and high-performance computing, which offer more predictable revenue than mining bitcoin at a loss. Marathon Digital, Cipher Mining, and others have been building out data center capacity alongside their mining operations.
Yes, it does but lacks depth, the problem here is they are diversifying not pivoting and by virtue of game theory for each miner they stand to win on others exit, as the mining difficulty goes down, but this is creating a loss-loss situation.
Just waiting what quantum computing would do to crypto.
Can someone convince me bitcoin mining isn't anything other than a huge waste of energy?
Sounds like you've already made up your mind?
I can't because I think it is. It's also doing its part in destroying the planet as a consequence.
Depends on if you see the use case of censorship resitant payment as something we should allow or not (such as paying the Ayatollah to go through the strait).
I for one don't.
But even of you do see the use, why not proof of stake rather than proof of work?
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Sensationalistic headline.
The compute supply/demand for mining is designed in the bitcoin algorithm to oscillate, and the mining game is about being able to forecast a complex combo of BTCUSD price, power price, hardware price and depreciation.
Remarks like the title of this clickbait article are strictly meaningless, they assume the instantaneous price of bitcoin / power / hardware is what's used to compute profitability, when in practice mining is basically a futures market.
Large amounts of btc mining are done via things like typo squatted images in compute clusters, or other compromised machines, the compute is stolen so the cost is effectively zero to the miner
My understanding is lots of bitcoin farms use stolen electricity.
Ie. Hidden away in a storage closet in a school or office, or in someone's house with an electric meter bypassed.
If a decent chunk of mining does that, then it could become uneconomical for those who do pay for their power.
Your assumption is certainly not true. The large miners are just in close proximity to electricity generation sources where power is much cheaper.
Is there a SQQQ for BTC?
SMST (Defiance Daily Target 2x Short MSTR ETF) could be a rough equivalent.
As the other poster mentioned though, many miners won't be using oil-based energy sources, so it does make one wonder about cause and effect. Maybe a dip in BTC would've done it regardless of oil?
You can take stable-coins, borrow bitcoin against them and sell them. (Fully or over-collateralized). Then buy back bitcoin if/when it drops.
If you’re wrong, you lose your stable-coins.
Let us know how it goes :)
The CME offers Bitcoin futures which can be shorted if you have a futures trading account with a broker.
If you're being sincere, there are many easily accessible ways to short Bitcoin with leverage.
There is BITI which is the inverse of IBIT, the largest Bitcoin ETF afaik
If I had a dollar for every time, at some time in the past ten years, when the true believer bitcoin pumpers were saying things like "Bitcoin will be above a million per coin in the next five years!"... Yeah, about that....
Maybe a basic question - do miners use solar?
Prices are dropping so fast it seems like the cheapest way to power mining rigs.
Also free grid electricity for three hours a day in Australia will be interesting.
They generally use whatever is available and cheapest. However, due to the constant power demand and the capital cost involved (you don't want your miners sitting idle), if that isn't grid power, its often either "reliable" renewables (e.g. hydro), "stranded" fossil energy (e.g. gas that would otherwise be flared off), or in the worst case, literally buying a coal power plant that was about to shut down just to power a Bitcoin mine.
Shouldn't the price therefore go down? (Bitcoin should be an instrument the price of which correlates with the cost of the energy required to make new ones).
My big picture take here; this is precisely why bitcoin itself could perhaps go to zero, and yet other cryptocurrencies could survive, aka the so-called "flippening."
It may come to pass that "proof-of-work" was merely a good proof of concept to launch the idea; but proof-of-stake is (of course) better.
There's a reason why countries invented a central bank who decides how much currency gets printed.
which is?