Bitcoin mining becomes unprofitable as BTC price falls to average cost of mining

https://finbold.com/bitcoin-mining-becomes-unprofitable-as-btc-price-falls-to-the-average-cost-of-mining/

by lakis • 4 years ago

351 444 4 years ago

finbold.com

dotcoma• 4 years ago

So, will all this wasted effort be redirected towards something useful at last?

wmf• 4 years ago

Nah, it'll be used for "Uber for X in the metaverse".

kristopolous• 4 years ago

Hopefully with interest rates rising less stupid money will be available and we can reorient efforts towards things of values and needs.

You know if we collectively insist on it. We gotta all say no to bullshit somehow.

viraptor6• 4 years ago

Don't expect it. There's always some get-rich-quick scheme, or another research-this-investment idea. Something always fills the void. Bitcoin is just one of the biggest we've seen since everyone and their dog were buying shares / penny stocks.

thomasz• 4 years ago

Most pyramid schemes do not require massive amounts of energy.

stephen_g• 4 years ago

Apart from the energy that has been wasted, it really pains me to think how much fab time, chemicals, wafers, etc. have gone into producing ASICS that just perform pointless busy-work… I wish at least mining rigs were useful for anything else…

md20204• 4 years ago

This comment is smug and offers nothing to the discussion.

RantyDave• 4 years ago

Environment breathes a sigh of relief.

rs_rs_rs_rs_rs5• 4 years ago

Certainly not a fan of crypto currencies since I don't see any good use in them but how come you only see comments like these in a crypto currency thread and not in a, lets say, computer games one? Games certainly are more wasteful and as useless as crypto currencies are.

croes5• 4 years ago

Games have an positive impact on the gamer relaxation. I wouldn't call that useless.

hailwren5• 4 years ago

The environment claim is total bs. Crypto uses 0.5% of global energy supply. It's beaten by things such as residential television use, and only the wasted light from outdoor lighting (0.85%). It's also the only time that people try to blame an energy consumer for the sins of energy producers.

The environmental damage of energy is caused by coal plants, not how many people are watching the simpsons at the same time.

aaronbrethorst• 4 years ago

Video games don’t consume as much electricity as modern western countries.

wiseowise8• 4 years ago

You can make the same argument about any type of entertainment. It won't make it less invalid, though.

Games are entertainment, and average gamer certainly doesn't consume electricity on a scale of Bitcoin farm 24/7.

pkulak• 4 years ago

I’m not going to do the math, but mining probably uses several orders of magnitude more electricity than gaming. And one is art and entertainment. I don’t even know how to respond here…

beAbU• 4 years ago

Video games are entertainment. Are you suggesting we shut down tv, radio, theatre, movies, theme parks, tourism because they are all wasteful and useless?

TheDong2• 4 years ago

Plenty of things with "no value" use electricity, but these other things don't use electricity in an adversarial way related to it's monetary cost.

Let's take the example of video games: bitcoin uses about 150TWh of electricity. From EIA.gov's stats, it looks like residential computer usage is estimated at 36 TWh across the usa (2.4% of residential usage, 1.5T kWh residential [0]). Let's assume all residential computer usage is video games, so it's using a nice 1/4th bitcoin.

So, what's different about these uses? Well, let's say that we manage to make electricity 5 times cheaper by, say, building a fusion reactor or a ton of solar panels. In that scenario, those computers playing video games still use the same amount of electricity, and their power bill goes down. Not a problem for computers/games.

However, if the price of electricity goes down, that's actually a problem for bitcoin. Bitcoin is using 150TWh of electricity, which sorta means to perform a 51% attack, you need 75TWh of electricity (I know, it's more complicated than that). Now that electricity is 5 times cheaper, cool, someone can attack bitcoin for 5 times cheaper right? Well, we can't have that, so bitcoin now has to use 750TWh to have the same security it had before.

The same thing happens for improvements to ASICs or any other improvements pretty much. If bitcoin is cheaper to mine, that just means more mining happens and the cost of mining stabilizes back out.

On the other hand, if a game can be optimized to take less electricity, or use fewer servers, of course that'll happen. Like in almost any venture, accomplishing the same work for cheaper is good when it comes to video games.

That is the difference I see. Crypto isn't just wasteful, it's adversarial to the point where it resists improvement.

If we reached some energy utopia where electricity could fulfill 100% of all non-crypto uses on the planet at no meaningful cost, bitcoin would have to use so much energy that electricity still couldn't be free, or else it could be attacked with the free electricity. I cannot think of any other use of electricity that has this adversarial property.

[0] https://www.eia.gov/energyexplained/electricity/use-of-elect...

baby6• 4 years ago

Because it's not a cryptocurrency issue, it's a bitcoin issue. Most cryptocurrencies are green.

jayd16• 4 years ago

Maybe you don't like games but in what sense are they "more wasteful"? By what measure?

Crypto is considered wasteful because you can compare it to cheaper, more traditional means of exchange. Games are entertainment or art that you can't really quantify in the same way. People enjoy the games themselves, not for any utilitarian purpose.

teapowered• 4 years ago

crypto is the only game where the person who burns the most coal wins

TomSwirly5• 4 years ago

Because computer games do not consume 1% of the world's electric power.

Because computer games give entertainment to three billion people.

Because no one pretends that their computer games are going to overthrow the world's economic systems, and then try to sell them to some greater fool for much more money.

irusensei3• 4 years ago

Not yet. I expect gaming and high end personal computing to be targeted sooner or later by the ever moving goalpost of environmental activism.

Maybe in a dark timeline triple A gaming might be only available from cloud desktops as a service from licensed ESG and DRM friendly cloud providers. Crunching numbers and cryptographic calculations being a ToS violation.

So I’m not a big fan of having people often with obvious hysterical political bias dictating what I do with the equipment and energy I paid for. This goes the same for mining or gaming. The idea that rendering realistic grass is okay but not SHA256 hashes is preposterous and borderline medieval.

I’d say if there is a concern about energy usage please price it accordingly.

pnt12• 4 years ago

One is not like the other.

Art and entertainment are not useless to society, just because they don't have a utilitarian aspect. You can see that millions of people enjoy art/entertainment in some form and pay for it. There are also big scams like predatory IP enforcement and micro transactions, which we should fight against.

Cryptocurrencies were a revolutionary idea which has mostly resulted in crap results. Scams and random ware are rampant. Transactions are slow and expensive, unless you centralize them and lose all advantages of a decentralized platform. The environment pays huge costs with PoW, and PoS is always mentioned but never implemented by any of the big players. Also contributed to a shortage of chips and GPUs which affected the rest of the world.

So no, one is not like the other.

baby6• 4 years ago

Can't wait for Bitcoin to move to PoS

01100011• 4 years ago

As a miner, do you get to chose which transactions you mine? i.e. as the mining pool dries up(why run a rig if you're losing money), can whales sponsor miners to give their transactions priority, giving them superior liquidity to smaller bagholders?

3np• 4 years ago

Yes.

pavitheran• 4 years ago

Yes anyone sending a transaction can choose to set a higher fee rate to get their transaction prioritized to be included in the chain. The miners will try to include transactions that will pay them the highest fees in the next block.

Volker_W• 4 years ago

As a miner, do you get to chose which transactions you mine?

Yes, the mining pool can chose.

hackernudes• 4 years ago

Miners do choose. Giving transactions priority is called the "transaction fee" (am I missing something here?). In addition to that, there are out-of-band services called "transaction accelerators" that work directly with miners, but that is really only useful to bump up the priority of an existing slow/stuck transaction.

ec109685• 4 years ago

This seems like a temporary problem given the difficulty adjusts? https://news.bitcoin.com/bitcoins-sinking-price-pushes-hashr...

mlyle• 4 years ago

It's a market. As bitcoin goes down, amount supplied of mining/hashing goes down. Difficulty adjusts downward which shifts the supply curve a little, but nowhere near enough to make it worth it to all the miners who mined before.

A few percent change in difficulty doesn't make a 50% drop in bitcoin all better.

DeathArrow3• 4 years ago

The used market is flooded with ASICS and GPUs so it seems the adjustment isn't working well.

Also, many large miners didn't sell their coins and instead they borrowed real money to expand and fund their new mining operations. As the interest rates are climbing and crypto prices are going down, that's not possible any more.

RL_Quine8• 4 years ago

Nobody has used a GPU to mine Bitcoin in a decade now.

viraptor6• 4 years ago

The selling also has its own "difficulty adjustment". The miners who managed to sell their extra hardware early at the inflated prices made a good decision. Now that you can buy GPUs at below msrp again, there won't be a many exits.

jimmydorry• 4 years ago

The difficulty adjustment is deliberately slow (once every 2016 blocks) to prevent volatility in block hardness. That the hash rate is not dropping off a cliff over the last 6 months is testament to that.

https://www.blockchain.com/charts/difficulty

foepys2• 4 years ago

Many miners are currently finding themselves in an interesting situation.

Money was cheap. So if a miner thought that their cryptocurrency was going "to the moon", it was better to borrow money at low interest rates and stash the CC away for later.

Now that interest rates are increasing and the CC market is crashing, they cannot offload their CC quickly to cover their (future) costs and payments on their loans.

wruza• 4 years ago

Is that true? Mining business has mostly fiat-based balance, and one doesn’t simply mix currencies in a business without hedging. I mean it is plausible that people could leave profits in crypto, but that’s just an intersection of a businessman and a crazy tothemooner.

baskethead• 4 years ago

I think it's only unprofitable in the US. Since China has banned mining, the US has become the country with the largest share of miners, and now as the price drops, mining will simply move to countries with lower costs of electricity.

agrover• 4 years ago

Why wasn't it there already?

kayamon3• 4 years ago

Due to the ongoing events in the eastern Europe area, there's quite a lot of people who might have energy they'd like to sell/use for something, but can't necessarily sell it to whom they might like to.

If there's a way they can sell it to the Bitcoiners, even at a price they might not like to, they might do that.

bushbaba• 4 years ago

Which would be? I’m not sure there’s much cheaper electric costs.

fosk• 4 years ago

Probably a country with cold weather (free air conditioning) and cheap access to natural oil and gas reserves.

thematrixturtle3• 4 years ago

It's a self-correcting equilibrium though, since the block difficulty is tied to the hashrate, which will fall as miners pull out.

That said, the hashrate is not showing major drops yet:

https://www.blockchain.com/charts/hash-rate

MengerSponge• 4 years ago

If they're either using subsidized or pirated electricity, and their hardware is paid for, why would miners pull out?

DeathArrow3• 4 years ago

Basically you assume miners mine for free.

RL_Quine8• 4 years ago

You don't have to do anything dodgy to get power at an unbelievably low cost, even in north america bulk rates are a couple of cents per kilowatt hour if you know where to look, and in some cases you can even be paid to use power due to politics. You can also be mining at a loss and have it be completely rational, because it is less of a loss than turning it off and writing off the equipment. The economics are very non intuitive for people who aren't exposed to the industry.

sumy232• 4 years ago

They could still sell their hardware to recoup some costs. And I doubt most miners are using free electricity.

Jasper_3• 4 years ago

They haven't been making money for a year or two now -- they can't sell their coins without crashing the market, so they're getting loans with their coins and mining equipment as collateral [0] [1] [2]. Those loans are failing now.

[0] https://www.coindesk.com/business/2022/04/26/bitcoin-miner-c...

[1] https://www.coindesk.com/business/2021/12/31/miner-bitfarms-...

[2] https://www.coindesk.com/business/2022/04/28/battered-bitcoi...

jiggawatts• 4 years ago

It self-corrects slowly.

The protocol adjusts the hash rate every 2160 blocks, or about once every two weeks, and the maximum negative slew rate is -75%. If sufficient miners pull out of the network within a fortnight or two, it's conceivable that Bitcoin will enter into a death spiral.

It goes something like this:

1. Miners realise that their operations are unprofitable, and do some mix of raising tx costs and/or turning off their kit.

2. The tx rate drops, so instead of one hash found per 10 minutes, it might be one every 20-30 minutes or even slower. The competition to get into these blocks heats up, further pushing up tx costs.

3. Bitcoin is no longer usable for small transactions, because the tx cost makes it a total loss. Small-to-medium users panic, as they realise that Bitcoin is not only plummeting, but that they can't get their money out without spending a significant fraction of it.

4. There's a rush to withdraw lump sums, creating a "run on the bank". This nearly instantly skyrockets tx costs.

5. Bitcoin value keeps plummeting, because nobody in their right mind would put USD into the system, and everyone wants to get out. Miners won't shut down their equipment at this point, because with high tx costs they're still profitable or nearly so. But they're paid in Bitcoin, so the real value of those tx fees is plummeting also.

If the above happens fast enough and with the right timing, with the most precipitous downturn happening right before a difficulty epoch, then the difficulty might not adjust enough downwards at the right time.

Then there's a chance that Bitcoin will go to 0 in the subsequent 14 days as miners walk away from their operations and users loose all faith that there's any value left in their coins.. and even if they do believe in that value, there's nothing they can do with their coins because hashes are found only every few hours and it costs the price of a new car to get into those blocks.

"It'll just adjust", you say. Sure... -75% after that fortnight[1], and if that's not enough, it'll be nearly a full month of an absolute crypto bloodbath. How long did it take Terra/Luna to crater? Days?

Caveat: Having said that, I suspect there's enough momentum in the system because of all the HODL-ers and self-interest in the miners. The miners have much of their earnings tied up in Bitcoin. If they let the system crash, they lose their profits. But there is a point where they'll realise they're throwing good (fiat) money after bad (crypto) and literally pull the plug and turn off the kit.

[1] Or longer! Remember, it's every 2160 blocks. If too many miners give up mining all at once, this could be over a month.. or longer.

latchkey25• 4 years ago

ETH adjusts difficulty every block. They also partially reward miners for 'uncle' blocks. IMHO, it was a good modification to the protocol.

Theoretically, BTC could make a similar adjustment and avoid the doomsday scenario that you outline.

DSingularity5• 4 years ago

The chances of bitcoin going to zero are zero. You really think there isn't a single person on this planet willing to put in 1-10 million to buy up all the bitcoin?

It will crash. It might even crash all the way back down to pre-pandemic levels. But it wont bankrupt. If you cant see this you are really missing the forest for the trees.

somenameforme2• 4 years ago

One of the many nice things about decentralized system is that miners don't determine transaction costs, users do. You're free to attach however high of a transaction fee you want to your transaction, or even none at all. Transactions will tend to be prioritized (by miners) by fee, but they have no direct control beyond that. The market collectively decides what it's willing, or not, to pay.

londons_explore2• 4 years ago

It would require a sudden 90%+ reduction in hashrate for many months to kill the network.

Totally possible, but I don't think it will happen simply because there will always be some percentage of miners who aren't making ideal financial decisions, or who are using free electricity. Those miners will eventually bring the network back into operation, although you're right, it might take months.

Having said that, the bitcoin core developers really ought to be considering ways to fix this risk without making bitcoin too vulnerable to network splits (which is the flip side of the same issue - if there was suddenly a world war and the internet gets split into many country-nets, how do we want the network to behave?)

hiq• 4 years ago

As long as the hash rate is more than 0 and BTC/USD as well (which I think will always be the case), the Bitcoin network will reach another sort of equilibrium eventually. I'm not saying it'd go back up to current valuations or that it'd keep the same reputation among its followers, but I don't think the network will ever die (as in, the chain stops at a certain block for one year).

If the hash rate and BTC/USD became very low (on their way to the 0 you're mentioning), there'd quickly be an incentive for deep pockets (it's HN, so read "VCs") to start mining operations and create a new speculation wave they'd be well-positioned to benefit from.

datadata2• 4 years ago

The notion of a fee amount of a new car is wildly implausible. The current block subsidy is 6.25 BTC, about 200k at recent prices where mining was clearly functional. A block can fit around 2000 transactions. Your scenario of a run where blocks are full and fees are the value of a new car (call that $10000) would imply a total miner reward of 20 million, about 100x the block reward that is currently enough to attract minors. In such a scenario if 100x the reward for minors, mining would be wildly profitable.

More-nitors• 4 years ago

"self-correcting equilibrium" sounds like the whole thing is doing OK...

but after Luna-fiasco and self-proclaimed "stable" coins being unstable, how does anyone keep trust in crypto-coins?

kybernetyk4• 4 years ago

I still trust in crypto coins. In those that I hold in a wallet only I have the private keys to. Don't really care about all that fancy defi/nft/whatever stuff. Let idiots burn their money. But I still have trust in the concept of crypto currency.

bragr2• 4 years ago

That is kind of apples and oranges. In the case of Bitcoin, the algorithm is only trying to maintain a consistent block creation rate of 1 per 10 minutes, not attempt to compensate for the price. If the price drops faster than the hash rate because all the minors are playing chicken with each other, well that will be interesting to watch.

yieldcrv5• 4 years ago

By being able to look at how each individual one is designed and its mechanics, which allowed us to avoid Luna the entire time as well.

kayamon3• 4 years ago

Believing a stablecoin to be stable because it has the word 'stable' in is like believing a country to be democratic because it has 'Democratic' in the name.

everfree4• 4 years ago

after Luna-fiasco and self-proclaimed "stable" coins being unstable, how does anyone keep trust in crypto-coins?

After Chernobyl and self-proclaimed "stable" nuclear reactors being unstable, how does anyone keep trust in nuclear power?

The answer is that we analyze each design for soundness, rather than making blanket statements about an entire class of technology.

tinco• 4 years ago

Dai hasn't moved an inch, what you're seeing is the collapse of investment vehicles that were stable in name only.

bragr2• 4 years ago

If you look at the raw data and not the 7 day average, there's been a precipitous drop (20% or more) just recently, assuming the graph is accurate.

jedberg2• 4 years ago

It's a self-correcting equilibrium though

There's nothing that says equilibrium has to be reached above zero though...

JasonBorne• 4 years ago

Exactly. This article is kind of a joke/click-bait to anyone who knows how bitcoin works.

kristianc• 4 years ago

Ah, a self correcting crypto algorithm. Now where have I heard that before…

everfree4• 4 years ago

I'm actually very curious to know where you've heard of something like that that predates the Bitcoin protocol's mining difficulty adjustment algo.

eterm4• 4 years ago

It corrects every N blocks (1180?), iirc around once a week.

But, and correct me if I'm wrong, there is't much damping in the correction.

This means that if 50% of miners pull out, then it'll be longer before the correction.

The correction will then "over-correct" in a sense and the difficulty will be easier, and then there'll be a short half-week if that causes all the dormant miners to come back online.

If miners are serious about turning off miners when the difficulty is high we could see a ping-pong effect where we end up with "easy weeks" lasting 2-3 days when the difficulty makes it super profitable and then hard-weeks lasting 2-3 weeks where the difficulty makes it unprofitable.

That will get worse and worse as people are less inclined to mine the hard weeks.

That said, that assumes that the depreciation of miners and overhead of switching based on difficulty makes it worth turning them off rather than just running them full time anyway because there's a time window before they're out-scaled.

( Is mining tech still getting out-scaled or has it plateau'd per device now? Originally when I supposed this theory, mining devices only had a 3-6month window before more efficient devices would replace them) .

nonrandomstring• 4 years ago

The correction will then "over-correct"

What matters is whether the system is convergent. The best thing that could happen (for POW digital currencies in general) is that it stabilises, around the current value long term. Then we know an upper bound on the energy cost and speculation will evaporate leaving BTC as a utility. The worst thing that can happen is it stays oscillatory with increasing amplitude as various interests try to push it one way then the other. After that most systems go chronically and irreversibly chaotic, and that will be the end of that experiment.

robocat3• 4 years ago

assumes that the depreciation of miners [snip] makes it worth turning them off

Mining rig costs are usually sunk costs: turning off never saves depreciation (which is just an accounting entry). Unless the miner can do something else with the mining rig (repurposed, sold, withhold purchasing new rigs), then t variable costs dominate their decision.

A miner should keep mining if marginal revenue (expected from minting new blocks and receiving block tx fees) exceeds marginal costs (mostly electricity if miner doesn’t get free electricity). https://www.investopedia.com/ask/answers/041315/how-marginal...

Not to say that the system is not unstable (which is an interesting idea). Maybe a control engineer could inform us of the parameters for instability.

Disclaimer: crypto novice.

stkdump• 4 years ago

The question is if miners pull out at all. In theory there are two important price points: the one where building up a new facility with initial investments is profitable and another price point where keeping an existing facility running is profitable.

thematrixturtle3• 4 years ago

We're long past the first point already, it's the second tipping point we're expecting now.

Salgat• 4 years ago

That's the entire point though, miners are quitting mining.

rubatuga3• 4 years ago

This has happened so many times, that it's not really news.

arinlen2• 4 years ago

This has happened so many times, that it's not really news.

Did it, though?

Coindesk shows BTC right now trading at 18100$, way down from it's 2-month peak of 32k and year-peak of 66k.

This means that in less than a year BTC tanked to 27% of its peak year value, and it's tanking even further.

When was the last time you saw BTC lose 48k in value?

rubatuga3• 4 years ago

When I saw bitcoin tank from 1000 to 500, it's all a matter of scale.

mattwilsonn8884• 4 years ago

When was the last time you saw BTC lose 48k in value?

Not using proportions is pure sensationalist nonsense. >50% drawdowns have happened several times in Bitcoin. So tell us again how this time is different.

dosenbrot• 4 years ago

dec 2017 $19100 -> feb 2018 $6800 -> dec 2018 $3300 -> thats 35% of it's peak value after 2 months and 18% after 1 year. nov 2013 $1130 -> apr 2014 $400 -> jan 2015 $200 -> thats 35% of it's peak value after 5 months and 18% after 1 year. So yes, this happend before ... .

olalonde• 4 years ago

This means that in less than a year BTC tanked to 27% of its peak year value, and it's tanking even further.

Yes, multiple times: https://www.youtube.com/watch?v=XbZ8zDpX2Mg

addicted2• 4 years ago

So Bitcoin is a shit currency because it constantly loses 75% of value?

I don’t understand Bitcoin proponents. They’re the biggest cheerleaders of the idea that Bitcoin is the worst possible Currency one could ever have.

Alternatively, if it’s constantly losing 75% of value, it’s also the worst possible store of value it can have.

So it’s neither a good digital dollar nor a good digital gold. According to Bitcoin proponents. So what is it actually good for? According to your own defensive statements?

rubatuga3• 4 years ago

I believe that it is good at advancing asic technology? not really sure of much else.

paulpauper• 4 years ago

Bitcoin is good for immutiabity and irrocovibility. is this worth trillion? likely not but it's something. . this is why scammers like it so much even if it can be traced, because you cannot reverse it or seize it easily (if you don't make mistakes like exposing your seed/key).

HashBasher2• 4 years ago

Given a long enough time horizon, bitcoin is a great store of value. The returns are unbeaten in 5 year, 10 year and 13 year (that's how young bitcoin is) time horizons.

As for what it is good for - what else is a permission-less medium of exchange? Regardless of price, the fundamentals of bitcoin stands true.

glerk2• 4 years ago

So what is it actually good for?

Among other useful properties, digital currency allows individuals to move their money across borders without anyone asking them where it came from, where it is going and taking a cut. Seems like a very useful thing to have in today's world, no? Seems like something that will become increasingly useful in the near future regardless of your particular jurisdiction...

Is it worth $60k USD or even $20k USD? I don't know. There has been a lot of speculation and hype in this space and with the relatively low liquidity it is not that surprising to see crazy spikes. But there is a fundamental value greater than 0 for Bitcoin, and you cannot dismiss that in good faith.

kybernetyk4• 4 years ago

One could argue that fiat is fluctuating by 75% constantly :)

tibanne• 4 years ago

I agree, it needs to work as a currency. This is why Bitcoin Cash is the real Bitcoin. BTC was co-opted at the repo level and the block size was stifled. This is how Bitcoin should work: https://www.reddit.com/user/chaintip/

int_19h• 4 years ago

It's useful to dodge regulations.

Whether that's a good thing or a bad thing depends on the regulations and who passes them. Americans and Europeans are likely to have a very different perspective on this from, say, Russians.

sloan• 4 years ago

Good. The world definitely does not need more wasteful bitcoin mining.

hossbeast• 4 years ago

Do you think the world could benefit from money that can't be manipulated by governments? If so, is it worth some expenditure of energy?

EdwardDiego4• 4 years ago

It's being manipulated by private entities, so, I'm not really sure it's an improvement.

wiseowise8• 4 years ago

Do you think the world could benefit from money that can't be manipulated by governments?

Maybe, but that's not Bitcoin for sure.

speedgoose2• 4 years ago

Isn’t the money being manipulated by the governments an important positive feature for their economy?

c0nducktr2• 4 years ago

I do think so, but also believe bitcoin will not be that protocol.

It's the first, but not the best, and while it benefits from being the first, that will only take it so far.

dathinab4• 4 years ago

If we assume for a moment it's a currency (and not a security) and it fulfills the goal of an non manipulable currency well (IMO it doesn't) then you could say:

Besides the operators (miners, devs) following people are the main profiteers:

- in a progressive well working country, mainly organized crime, terrorists and people wanting to destabilize the country, so if you live in such a (non existing) country you would not want it at all

- in a autocratic country it's the opposite, you want it really really hard

- in a dysfunctional country it can be helpful but the "it's safe from government manipulation" point matters less then the it's not operated by the government point

Now most countries are somewhere in-between so there is no clear cut answer.

But as far as I can tell all ethically "good" use-cases which couldn't simpler be archived with other means are also illegal by law of at least some involved parties/countries.

Now by-law illegal doesn't mean bad.

Still IMHO Bitcoin completely failed as currency, and some of the other promises aren't really there either.

It did have a temp. huge success as security, (stock like) speculation target and high risk speculators (at some point, not now).

TomSwirly5• 4 years ago

No, and no.

"Manipulated by governments" primarily means "tax evasion and crime".

Synaesthesia• 4 years ago

Some expenditure, but how much? Because right now it's an incredibly large amount of energy. Also, the US govt controls quite a substantial amount of bitcoin, I even have a conspiracy theory that bitcoin could have been created by the US govt ..

alangibson3• 4 years ago

Do you think the world could benefit from money that can't be manipulated by governments?

Not really, no. What you call manipulation is really necessary maintenance and management meant to avoid the hypervolatility we see in crypto.

How many real world experiments do we need to run before people accept that markets, especially for money, aren't self regulating.

quickthrower2• 4 years ago

Yes it probably is worth “Some”. It is worth about 10 watts based on the transaction processing rate.

stjohnswarts2• 4 years ago

Bitcoin is a failed experiment and it's in free fall.

etaioinshrdlu• 4 years ago

It's not really serious unless transaction fees need to spike massively to compensate, otherwise like others noted, difficulty adjustments will handle to problem just fine.

addicted2• 4 years ago

Here’s what I don’t understand. I’m genuinely looking for an explanation for this.

Let’s assume everything works great for BTC. BTC is designed to eventually max out the number of coins. I believe the current expectation is that no more coins will be issued by 2040.

What happens after that? If no more coins are issued, there’s no incentive to mine. And if there is no more mining then there will be no more transactions.

Will the BTC blockchain just freeze at that point? If so why will it have any value any more?

I’m not sure what the ideal expectations are beyond this scenario.

bawolff2• 4 years ago

There are still transaction fees to encourage mining.

If you are interested in more detail, the original bitcoin paper goes in detail and is decently well written and much more straight forward to read then most people probably expect.

thrtythreeforty• 4 years ago

A lack of block rewards will incentivize all kinds of bad miner behavior:

https://economics.princeton.edu/working-papers/on-the-instab...

A nice quote:

... we are able to prove that an equilibrium exists. However, it is one where miners include only a fraction of available transactions into their blocks. This results in a backlog of transactions whose size grows indefinitely with time.

lmm• 4 years ago

The argument used to be that rising transaction fees would balance dropping mining rewards. I haven't heard that so much lately, probably because people are already not actually transacting in bitcoin due to the high transaction fees.

rs_rs_rs_rs_rs5• 4 years ago

probably because people are already not actually transacting in bitcoin due to the high transaction fees

That's Ethereum, not Bitcoin.

chii• 4 years ago

it's a bit of a chicken and egg problem. High transaction fees should attract more miners (who might be willing to accept lower transaction fees due to competition). This ought to reduce transaction fees to the market rate.

However, because there's so little real demand for bitcoin transactions from consumers, that this market rate isn't really a proper market rate. It needs to grow in volume. But the volume of bitcoin transactions is too low (by design).

So to get more bitcoin transactions to lower the rate, you first need more bitcoin transactions, but it's too expensive and consumers don't use it!

listenallyall• 4 years ago

no more coins will be issued by 2040.

The year is projected to be in the mid 2100's, so more than a full century from now. In other words, not an immediate concern.

elevaet2• 4 years ago

It will be a gradual process though, with mining rewards becoming more and more rare and approaching 0 over the years.

everfree4• 4 years ago

Bitcoin issuance halves every 4 years, it's a geometric series. It's like the lily problem but in reverse.

Lily pads are growing in a pond, and the number of lilies doubles every day. After 30 days, lilies cover the entire pond. On what day did the lilies cover half the pond?

The answer is Day 29. Very late on the timeline.

With Bitcoin, we've got halving instead of doubling, so most issuance happens very early on the timeline. In fact, 99% of Bitcoin's issuance happens within the first 28 years of the protocol's life. Bitcoin was launched in 2009. So a mere 15 years from now, in 2037, only 1% of all bitcoins will still remain to be issued.

Will 1% be sufficient to attract enough miners to properly defend the Bitcoin protocol from attack for the entire rest of its useful life? I have my doubts.

elevaet2• 4 years ago

I imagine this will spell the end of bitcoin's (already poor) utility as a transact-able unit of value.

As others have pointed out, transaction fees approach 100% of the incentive, so fees will have to increase to incentivize the hash network to keep running. A lot of the hash power will drop out without mining on the table, and I think the net result will be that transactions will be much more expensive and slow than they are currently.

jdthedisciple• 4 years ago

The short answer is this: The block reward is not meant to be a permanent part of the system. It is only there to bootstrap it. It's designed to slowly fade out, at which point a fully self-contained market of tx-fees will have been established, which works according to the classic rules of price-finding by demand and supply.

throwaway4good3• 4 years ago

How is "average cost of mining" calculated / assessed? (Following the link just leads to some random tweet).

It would be heavily dependent on the equipment used and the price of electricity which would vary a lot by location.

And meaningfully it could be split in two: A fixed cost that is still there if the mining stops and a variable cost. And miners would be expected (short term at least) to continue mining until the price hit the variable cost which, in cases where excess free energy is used, is probably very low.

latchkey25• 4 years ago

Pretty simple really. Capex and Opex. How much does it cost to set things up and how much does it cost to run things. In large scale deployments, like what I run, we colocate in existing datacenter space and they just charge us a flat power fee, which includes everything on their end.

At scale, the costs to mine are FAR lower than the existing drops in the market. Articles like this are quite wrong... it is only unprofitable for smaller miners.

throwaway4good3• 4 years ago

Yes. Where do they get this number from? How is it calculated?

croes5• 4 years ago

it is only unprofitable for smaller miners.

So this will lead to less smaller miners and more concentration of power for the big ones

88840-8855• 4 years ago

capex is not the cost for setting things up. opex is not the cost for running things.

you mix things up.

you mean fix and var costs.

arisAlexis• 4 years ago

It was profitable at $1 and it will remain profitable because of the difficulty adjustment. This is tge second uninformed post in 2 days, the other didnt get many upvotes. Who is writing all these fake news?

Edit: read up on pow before downvoting facts.

extant_lifeform• 4 years ago

GPUs shall be available again, REJOICE!!!

oaththrowaway• 4 years ago

Bitcoin is mined with ASICs, not GPUs

Elinvynia• 4 years ago

Still, the price of Bitcoin can have (and has had!) serious effects on the entire crypto ecosystem.

la_fayette• 4 years ago

Many people consider bitcoin as an investment, so it would not surprise me, that miners will do work if cost is higher than current bitcoin price.

yieldcrv5• 4 years ago

As several people already wrote, difficulty adjusts.

Are people playing devil’s advocate just for the sake of a rebuttal, or do you all really believe this “time is different”. Its not different enough to me. The macro environment’s influence isn't different enough to observe that the network still functions at a lower hashrate and a lower price.

The best conversation is regarding the difficulty algorithm as bitcoin’s is the oldest one and no other community has used it since 2011.

labrador• 4 years ago

I'm trying to imagine how many days I would lose money mining in hopes of helping establish equilibrium. I can't imagine miners are very altruistic. I can also imagine many of them deciding the party is over and selling their valuable hardware. I don't have a clue what happens when nobody wants to mine it.

rag-hav3• 4 years ago

The hardware would sell for a loss. But if they eat losses for 2 weeks, they could continue to extract profit from their hardware.

Aeolun2• 4 years ago

Yes! Maybe I’ll finally be able to buy a new graphics card without spending an arm and a leg then…

irusensei3• 4 years ago

Didn’t bitcoin survived the chinese crackdown on mining that yanked ~25%-ish of its hashrate overnight?

capableweb• 4 years ago

Biggest drop in hash-rate was in May/June 2021 when it dropped ~60% or something like that (https://www.blockchain.com/charts/hash-rate), but yes, it did survive that (as the network is still running, online and working as it should).

The all-time high of hash-rate for Bitcoin was in May this year.

usr11063• 4 years ago

Assume for a moment that the graph in the article is trustworthy. Then mining has been highly profitable for quite a while now and is now getting unprofitable. It has been unprofitable before. That's the same as in every busines: There can be periods of unprofitability. That does not mean that such business will die out completely. Especially after a phase of high profits there are buffers and there will be hope that profits will return.

The question is how that graph is created. The mining costs are not the same for everybody. Probably some electricity used for mining is not paid for at market prices. (Including some might not be paid for at all) And even if it were, market prices (after subsidies and taxes) vary proably quite a bit over places where mining is happening.

dzdt• 4 years ago

There is a serious problem that is not much discussed. Bitcoin is susceptible to a 51% hash rate double-spend attack. As Bitcoin has grown, this has never been a practical issue. No miner or consortium has had that much hash-rate compared to the rest of the market.

But when the hashrate drops below 50% of its previous maximum, that means that there are idle mining resources enough to carry out the attack. And owners of those resources may not mind throwing the whole Bitcoin system into chaos if they can get one last big payday.

The lower the active hashrate grows, the smaller the consortium required to make an attack.

So watch for chain forks and double-spend attacks. Maybe not this month or this year, but my expectation is it will be part of the eventual Bitcoin downward spiral.

QuantumGood• 4 years ago

In some sense bottom buyers wait for the worst news possible, and then calculate if the financial object can go to zero. This sounds like it might be the kind of news those kind of buyers would be waiting for.

Blackstone4• 4 years ago

Risk of a negative spiral if this continues and energy prices remain high…

sbarbarian• 4 years ago

hot take: it seems everything about crypto is full of problems invented for their own sake.

slantaclaus• 4 years ago

Unless you generate your own power, I assume

Bitcoin mining becomes unprofitable as BTC price falls to average cost of mining

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