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Bitcoin miners are losing on every coin produced as difficulty drops

coindesk.com

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Re: Bitcoin miners are losing on every coin produced as difficulty drops

#61

Post by xigoi »

haakon wrote: post #48
illiac786 wrote: post #46

Earlier quoted context omitted.

But I mean, their bitcoins are not going away, their wallets are still there, their bitcoins also right? I thought bitcoin mining was proportionally hard to the number of already mined bitcoins, not the number of people mining? I probably should look this up in wikipedia first.

It's a common misunderstanding that mining just gets harder and harder as time goes by and more coins are minted. It's often misreported that way. But in fact, the difficulty is dynamic and adjusts itself to keep minting at the predetermined rate regardless of the number of participants. Mining has gotten harder on long timelines, but only because more computing power has been added.

Doesn’t that contradict the Wikipedia article?

> Miners who successfully create a new block with a valid nonce can collect transaction fees from the included transactions and a fixed reward in bitcoins. To claim this reward, a special transaction called a coinbase is included in the block, with the miner as the payee. All bitcoins in existence have been created through this type of transaction. This reward is halved every 210,000 blocks until ₿21 million have been issued in total, which is expected to occur around the year 2140. Afterward, miners will only earn from transaction fees.

https://en.wikipedia.org/wiki/Bitcoin (emphasis mine)

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#62

Post by AlOwain »

JKCalhoun wrote: post #54
dmk wrote: post #7

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.

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.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#63

Post by KellyCriterion »

illiac786 wrote: post #30
dmk wrote: post #7

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.

What does “leave” in this context mean?

...and sitting on a lot of ASICs which are soon worthless....

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#64

Post by KellyCriterion »

klodolph wrote: post #59
reenorap wrote: post #52

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 th…

> […] 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…

> 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.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#65

Post by AlOwain »

expedition32 wrote: post #57
dmk wrote: post #7

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.

A perpetual boom bust cycle? Sounds healthy.

Regression to the mean. The alternative is no adjustment at all.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#66

Post by andy81 »

JKCalhoun wrote: post #54
dmk wrote: post #7

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.

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?

Price isn't affected by mining difficulty, only the other direction.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#67

Post by didgetmaster »

dmk wrote: post #7

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.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#69

Post by bawolff »

xigoi wrote: post #61
haakon wrote: post #48

Earlier quoted context omitted.

It's a common misunderstanding that mining just gets harder and harder as time goes by and more coins are minted. It's often misreported that way. But in fact, the difficulty is dynamic and adjusts itself to keep minting at the predetermined rate regardless of the number of participants. Mining has gotten harder on long timelines, but only because more computing power has been added.

Doesn’t that contradict the Wikipedia article? > Miners who successfully create a new block with a valid nonce can collect transaction fees from the included transactions and a fixed reward in bitcoins. To claim this reward, a special transaction called a coinbase is included in the block, with the miner as the payee. All bitcoins in existence have been created through this type of transaction. This reward is halved…

Difficulty and block rewards are separate things. There is no contradiction here.

Block reward stays constant, amount of work required (on average) to get a block reward is dynamic in order to make it so that total number of rewards given out over a length of time stays roughly constant.

So if too many block rewards are claimed in a given time frame, difficulty is increased to slow things down. If not enough are claimed then difficulty decreases to make it easier to get one.

Re: Bitcoin miners are losing on every coin produced as difficulty drops

#70

Post by raincole »

xigoi wrote: post #61
haakon wrote: post #48

Earlier quoted context omitted.

It's a common misunderstanding that mining just gets harder and harder as time goes by and more coins are minted. It's often misreported that way. But in fact, the difficulty is dynamic and adjusts itself to keep minting at the predetermined rate regardless of the number of participants. Mining has gotten harder on long timelines, but only because more computing power has been added.

Doesn’t that contradict the Wikipedia article? > Miners who successfully create a new block with a valid nonce can collect transaction fees from the included transactions and a fixed reward in bitcoins. To claim this reward, a special transaction called a coinbase is included in the block, with the miner as the payee. All bitcoins in existence have been created through this type of transaction. This reward is halved…

The reward of each block will only get smaller. But the power needs to mine a block is dynamic.
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