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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

#91

Post by rokkamokka »

arbuge wrote: post #86
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.

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?

Bitcoin is no longer mined by GPUs but by ASICs

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

#92

Post by comprev »

patapong wrote: post #89
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.

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.

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

#93

Post by fooker »

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.

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.

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

#94

Post by Geee »

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.

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

#95

Post by axus »

eterm wrote: post #74
didgetmaster wrote: post #67

Earlier quoted context omitted.

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 the…

I think you're right, it's counterintuitive but less competition means less rewards to share for those who keep mining. Though transaction fees / hour shouldn't decrease, maybe your share of that is bigger.

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

#96

Post by rayiner »

arbuge wrote: post #86
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.

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?

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.

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

#97

Post by tgsovlerkhgsel »

Geee wrote: post #94

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 h…

> 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).

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

#98

Post by raincole »

xigoi wrote: post #85
raincole wrote: post #70

Earlier quoted context omitted.

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

Sure, but that’s not what miners care about. The power needed to get a given amount of money doubles whenever the reward is halved.

I honestly don't know which part of "the difficulty being dynamic" is this hard to understand.

> The power needed to get a given amount of money doubles whenever the reward is halved.

Yes, by that moment it does.

And some miners still stop mining if mining became too unprofitable.

And the difficulty will decrease because less miners are mining.

And the power needed to get a given amount of bitcoin will decrease. (Not necessarily to the level before halving, ofc)

Or your comment was about this part of the grandparent comment:

> keep minting at the predetermined rate

?

If so, I think you misunderstood what they were trying to say (or their wording was misleading). It's a predetermined rate. Not a constant rate. It's predetermined to be halved at (roughly) certain moments. Halving happens about every four years, and pouring more power into mining won't make it happen significantly sooner or later. That's what they were trying to say.

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

#99

Post by tgsovlerkhgsel »

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 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.

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

#100

Post by kristjansson »

KellyCriterion wrote: post #88
kristjansson wrote: post #84

Earlier quoted context omitted.

No, the price of a contract for future delivery to a specific location went negative just before the delivery date, at a time when there was almost no unoccupied oil storage nor transport capacity at said location. In that circumstance you might sell your right to some oil for almost nothing rather than deal with the consequences of accepting it. You might even pay someone to take it off your hands. Options is “right…

Thanks for correction, that is true! (Both instruments are not that popular in my country, so my daily language is to put both of them as synonym, while they are different animals in some details)

There are cash settled futures there are closer to options in that they’re purely financial, but even those don’t have optionality at maturity.

Generally a dangerous thing to have as synonyms regardless, otherwise you end up with a coal barge in the east river https://thedailywtf.com/articles/special-delivery

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