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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

#71

Post by singpolyma3 »

Snoozus wrote: post #13
helsinkiandrew wrote: post #2

> 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.

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.

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

#72

Post by igsomething »

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.

It is a negative feedback loop, so yes, it makes systems stable.

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

#73

Post by nytesky »

singpolyma3 wrote: post #71
Snoozus wrote: post #13

Earlier quoted context omitted.

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.

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.

But as number of miners drop arent btc at risk of a 50% attack?

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

#74

Post by eterm »

didgetmaster wrote: post #67
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 differ…

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.

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

#75

Post by Joker_vD »

AlOwain wrote: post #62
JKCalhoun wrote: post #54

Earlier quoted context omitted.

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.

> costs do not have a causative relationship to prices. Prices only go down because as the cost of production goes down, supply increases.

Um. That's a causative relationship, even if it's mediated, but it's still causative. And generally, the relationship is even more direct: the suppliers are quite reluctant to sell at the price lower than their costs unless they expect the prices go up soon enough™, so the lower boundaries for the prices exist.

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

#76

Post by chistev »

didgetmaster wrote: post #67
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 differ…

Satoshi thought of everything, man.

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

#77

Post by Scholmo »

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.

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

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

#78

Post by Nursie »

didgetmaster wrote: post #67
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 differ…

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.

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

#79

Post by suryajena »

mathgeek wrote: post #10
suryajena wrote: post #5

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.

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.

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

#80

Post by bdcravens »

Scholmo wrote: post #77
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.

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, wh…

> 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.

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