Andreas Antonopoulos, the author of Mastering Bitcoin and a Bitcoin proponent, opined whether it was profitable to mine Bitcoin in light of its price, during a Q&A session on YouTube.
The author began by elucidating the difficulty re-targeting algorithm. He stated that it creates a dynamic relationship between the behavior of miners in the market and the issuance of new Bitcoin blocks.
Andreas explained this by presenting a scenario where there are thousands of different mining farms in operation and even more mining equipment, ASIC miners, at any given point in time. He went on to state,
“Imagine you are operating one of these farms within your factory or warehouse. You would probably have a variety of equipment; 80% of it is the very latest, most efficient equipment… at a certain cost and number of hashes [generated] per kilowatt of energy consumed. That is how you estimate the efficiency of your mining equipment”
He added that all equipment were not going to be at the same level, remarking that some of them would be less efficient as they would require more kW/h to produce hash power for the network. Meanwhile, there were other factors such as electricity costs depending on the contract, maintenance, and staff expenses that would determine whether a mining equipment was profitable or not at the current level of difficulty and price.
The author stated that the answer would be different for each mining equipment, adding that the less efficient equipment would become unprofitable before the more efficient ones. He went on to state that unprofitable equipment would be turned off, while the profitable equipment would be turned on. He said,
“Imagine this as a ripple effect across the entire industry. This is something that happens on a day-to-day basis. Thousands of miners around the world decide to turn new equipment on or off. They are constantly replacing equipment.”
This was followed by Antonopoulos talking about mining farms shutting down its operations owing to high costs. He stated that when a farm turns off its equipments, it would contribute to a drop in hash power across the entire Bitcoin network, and added that this happened “all the time”.
He further stated that the drop in hash power caused by a large number of miners turning off their least profitable equipment would, in turn, result in the readjustment of difficulty after two weeks. Andreas said that when this happened, miners who continued to keep their equipment on would be more profitable. This was because the low difficulty level would generate more Bitcoins for the same amount of electricity. He said,
“As the difficulty lowers, their mining equipment becomes more profitable, perhaps so profitable that the equipment they turned off is profitable again, so they turn it back on. This will cause the hash rate to increase, so by the next difficulty retargeting it will be less profitable again.”
This was followed by Andreas saying that the same theory applied to when Bitcoin’s price drops, rendering some equipment unprofitable. This also results in old equipment being turned off until the difficulty finds equilibrium again. He said,
“Supply and demand are constantly finding equilibrium at the right level, where the average miner is profitable […] Anytime the bitcoin price moves, that entire equation recalculates; the least profitable will turn off [machines], the most profitable to will keep operating. The difficulty will retarget to keep everything in equilibrium”
The author further stated that on an average, the profit margin of a miner was near zero and added that this was because of “economics”. He added, “a perfect market is where supply and demand reach equilibrium, so the price approaches the point of cost as closely as possible and profit margin goes to zero.”
He further said,
“On average, it will hover around zero and most miners will be operating just about break-even […] The price can never make mining unprofitable [on average]. The unprofitable miners turning off [their inefficient machines] will make the rest profitable again.”
The post Bitcoin’s [BTC] price can never make mining unprofitable, says Andreas Antonopoulos appeared first on AMBCrypto.