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.
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.
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?
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)
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?
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
> 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.
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.
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. !
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.
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.
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.
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.
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....
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).
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
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.
229 comments
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 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.
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)
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?
Burning $88k of carbon to run the world’s slowest payment network and produce a tiny corpus of data is stratospherically dumb.
The technological equivalent of raising a forest to produce a toothpick.
Just because “it works” (which is arguable in itself) doesn’t mean it isn’t stupid.
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
> 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.
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. !
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.
> 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?
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.
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.
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.
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.