In the face of a price slump, Bitcoin Miners keep defying expectations and continue to run their operations. Many have predicted that the effect on the economic value of Bitcoin mining would be so severe that there would be a precipitous drop in the number of miners on the network. However, in defiance of this prediction, the hashrate on the Bitcoin network, which measures the amount of total computing power available for Bitcoin mining, has continued to increase.
Part of the reason for the resilience of Bitcoin’s miners is continuing improvements to the efficiency of the hardware needed to mine. The Bitcoin network is dependent upon the work of miners to maintain it. Miners are responsible for processing and verifying the transactions that take place on the Bitcoin network, packaging them up into cryptographically secure blocks and adding them to the Bitcoin blockchain.
As a reward for their work, miners receive a cut of the transaction fees paid by each user when they send Bitcoin, but their main incentive to mine lies in the block reward, which is currently worth 12.5 BTC to the successful miner. Even when this reward is divided amongst the pools of miners who claim the majority of the rewards, it can still represent a decent payout.
The Bitcoin network is designed so that, as more hashpower is added to the network, the difficulty of mining work is scale up accordingly. In theory, this means that as more power is added, the cost of mining, and therefore the price of each Bitcoin, should rise in a linear and predictable fashion. However, what this equation doesn’t take into consideration is the rapidly increasing efficiency of Bitcoin mining hardware.
Running at a Loss
With the price of Bitcoin currently hovering around the $6,700 mark, the cryptocurrency is no longer profitable to mine according to the predictions of most analysts. The actual figure has been predicted as high as $8,000, and as low as $6,400, meaning that, most large-scale Bitcoin mining operations are running at a loss.
“The increased hash rate means people are here for the long-term because they’re happy to just accumulate what they have, potentially even run at a loss,” said David Sapper, chief operating officer at cryptocurrency exchange Blockbid Pty Ltd. in Melbourne.
However, the picture is further complicated by the potential for the largest mining operations to dump Bitcoin onto the market as a means of shoring their financial position up against potential losses. At the same time, “they do sometimes have to clear house and dump.”
Some of the crypto mining operations also manufacture proprietary ASIC hardware, the same hardware that many other hobbyists and professional mining operations use. By enabling themselves cheaper access to this hardware, they are securing an advantage that is unavailable to their competitors.
Other factors beyond efficiency that are believed to be shoring up the miner’s position include the falling costs of hardware and the increasing availability of ultra-cheap electricity to large mining operations.
While most agree that the heyday of Bitcoin mining is over, it is likely that a handful of the largest mining operations will hold-out and remain in operation until Bitcoin mining becomes completely uneconomical.