
Bitcoin Can Drop 50% and China Miners Will Still Make Money - sharjeelsayed
http://www.bloomberg.com/news/articles/2018-01-10/bitcoin-can-drop-50-and-china-s-miners-will-still-make-money
======
mrb
Actually Bitcoin needs to drop 94% for mining to be unprofitable. The break
even is 1 BTC = $922. Yes, mining is insanely profitable right now. Miners are
swimming in cash.

This is assuming $0.05 per kWh (which is a rate available to many miners
outside of China, eg. Gigawatt Mining in Washington State pays $0.028 per
kWh,) and a miner efficiency of 0.1 joule per gigahash (such as the popular
Bitmain Antminer S9). The break even point is calculated with:

j_over_gh × cost_per_kwh / 3.6e6 (joules per kWh) / reward × (2^32 × diff) /
1e9

The parameter are: j_over_gh = 0.1, cost_per_kwh = 0.05, reward = 12.5 BTC per
block, diff = 1931136454487.72. (This ignores transaction fees which have
pushed the average block reward from 12.5 to around 17 BTC over the last few
weeks, so the true break even point is even lower, around 1 BTC = $680).

I am occasionally interviewed by journalists who write about Bitcoin mining
and they often get many details wrong. This one is no exception—Dan Murtaugh
should have contacted me :)

~~~
mpfundstein
How many machines would you need to be sure that you actually mine a block in
a given year? AFAIK its a stochastic process right? I think I calculated once
that , given the current hash power, you'd need about 20 miners in order to
have P(you mine a block within a year) close to 1. Can you confirm/discard my
conclusion?

I'd post my calculations but I don't have it here at work!

~~~
mrb
That's right, at current diff (1931e9) you need about 19 S9s (14 TH/s each) to
mine a block in a year:

19 × 14e12 × 3600 × 24 × 365 / (2^32 × 1931e9) = 1.01

------
bitoneill
"Miners break even at $6,925 at China’s top power price." It is my
understanding that they don't pay top power price but rather they locate in
areas where local electricity is abundant and cheap.

~~~
maxxxxx
Do they go and cash out their coins immediately? If Bitcoin ever drops, they
may lose everything.

~~~
FabHK
If I recall correctly, bitcoins from a coinbase (mining reward) transaction
can only be transferred after 100 blocks confirmation (ie about 16.5 hours).
I'd assume that they might keep a bit of a speculative long position, but
otherwise liquidate - they have bills to pay.

~~~
kompiuter
As far as I know only 6 confirmations are required for a transaction to be
considered practically irreversible. Is it different for coinbase (reward)
transactions?

~~~
makomk
Yeah, it's different for coinbase transactions because those transactions and
the reward from them vanishes if that block is ever reorganized out of the
main chain, whereas ordinary transactions will generally be included in the
new chain too. It's as much a protection against technical issues as it is
malicious attacks. I think there have been a small handful of reorganisations
that are larger than 6 blocks in practice, and this has generally held up
well.

------
iabacu
So China is basically exporting energy for a hefty amount of foreign currency.

~~~
prostoalex
Mining is the best way to export cheap energy without building high-power
lines. I am surprised Germany doesn't have more dominance in the field,
considering the headlines of their wind energy farms going into negative at
certain hours of the day.

~~~
ineedasername
I really don't understand this statement, the energy isn't being transferred
between power grids or otherwise exchanged as energy. The energy consumed
during mining no longer exists as grid-based energy, it is waste heat. You
don't get it back at the other end of another transaction. From the point of
view of energy transfer for use in a power grid, mining has a 100% loss rate.

~~~
prostoalex
> You don't get it back at the other end of another transaction.

Neither does the energy exporter. They get money.

~~~
ineedasername
Do you really not see the difference between money changing hands for a
comodity that has a physical basis, and the nominal creation of value through
a process where the computation involved results in waste heat?

~~~
prostoalex
One of them requires a smaller investment upfront and produces dividends
quicker.

~~~
ineedasername
This sort of thinking represents all of the things wrong with the current
hype-cycle of cryptocurrencies, damaging both their long-term credibility and
short-term stability.

------
throwaway5752
What a huge waste of resources, just to create competition.

~~~
LAMike
Competition for the cheapest energy in the world.

This will spurt R&D efforts in renewable energy once there is parity with
mining chips.

------
chis
I thought the number of miners is supposed to be equal to the expected value
of the coin. If there’s profit to be made, more miners would open up shop to
capture the marginal benefit.

So I guess China thinks that bitcoin will ultimately be worth half what it is
now.

~~~
icelancer
>> If there’s profit to be made, more miners would open up shop to capture the
marginal benefit.

>> So I guess China thinks that bitcoin will ultimately be worth half what it
is now.

The best BTC ASIC miners on the open market are all sold out and backordered
for months, and better ones keep being developed every six months. This means
that, no, literally it's not possible to bring more miners online at a faster
rate since they aren't openly available for purchase, and miners are still
running older hardware since those miners are not yet -$EV(power) but they
don't yet have enough money to purchase the new miners (which aren't readily
available anyway).

It's not a perfectly competitive market. It's supply constrained.

~~~
bsaul
Imagine that bitcoin is a bubble, and then I don’t think humanity would have
had ever spent such a huge amount of energy and resources for such a « useless
» purpose.

~~~
rangibaby
Nuclear weapons? Their existence is a blight on humanity. MAD hasn’t prevented
wars, only caused them to be outsourced to countries no one cared about like
Vietnam and Afghanistan. It is only through dumb luck that a superpower has
not destroyed the world by _accident_

The military-industrial complex:

Every gun that is made, every warship launched, every rocket fired signifies,
in the final sense, a theft from those who hunger and are not fed, those who
are cold and are not clothed.

~~~
1024core
>> MAD hasn’t prevented wars,

If North Korea didn't have nukes, you bet we would have invaded them by now.

~~~
fragmede
Between the close of the Korean war in 1953 (though no peace treaty was ever
signed) and 2006, when North Korea's first tested an atomic bomb, the US did
not invade North Korea for the same reason it has not invaded today, which is
not due to DPRK's nuclear capability.

Seoul, the capital of South Korea, is a _scant_ 35 miles from the North Korean
border, and North Korea has an unknown amount of _conventional_ artillery
pointed at South Korea, enough to kill millions of South Koreans.

If the US were to invade North Korea, Seoul, and the surrounding areas would
be obliterated.

That North Korea now has nuclear weapons changes things a bit, but the nukes
weren't previously the thing holding the US back from invading North Korea.

------
ineedasername
This is just basic math, and nearly axiomatic: All else being equal, _any_
mining setup that was was profitable when Bitcoin was at half its current
price will still be profitable with a 50% drop.

Because the price spike is so recent, the headline is true for nearly any
mining setup that existed even shortly prior to the spike.

~~~
gomox
That's not true. Network hash rate has increased dramatically too.

~~~
ineedasername
"All else being equal".

Besides, it increases equally for all miners, so a rig that existed on Nov 1st
and was profitable would still be profitable now at Nov 1st exchange rate and
today's difficulty. Only the rate of profit/day would change.

------
XR0CSWV3h3kZWg
Difficulty when bitcoin was last 7k: 1.3T Current difficulty: 1.9T

~~~
wmf
Yeah, profitability is declining
[https://fork.lol/reward/dari/btc](https://fork.lol/reward/dari/btc) but it
could still be quite high. When no miners shut down around the last halving it
was a sign that mining was nowhere near equilibrium.

This makes no sense economically, but it seems like the difficulty is
controlled by how much equipment Bitmain decides to manufacture and the
profitability is controlled by how much Bitmain decides to charge.

~~~
gomox
If anything the parent comment means that it's more profitable now. And that's
without the crazy transaction fees these days.

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solaarphunk
Didn't the WSJ just have an article today about China shutting down bitcoin
mining? Seems like there is a bit of disconnect in the reporting...

Source: [https://www.wsj.com/articles/china-quietly-orders-closing-
of...](https://www.wsj.com/articles/china-quietly-orders-closing-of-bitcoin-
mining-operations-1515594021)

------
mesozoic
Wow not even mentioning difficulty. What a terribly researched article.

~~~
tmh88j
It's a Bloomberg article, I think they wanted to keep it simple on the tech
side and focus on the money. Besides, electrical costs are essentially a
predictor of difficulty. The higher the electrical costs the fewer miners
there will be. Smaller operations and household miners might have to close up
shop if high electrical costs and low Bitcoin price don't make mining
feasible. Miners dropping off the network means the difficulty will drop too.

------
Hasz
The ASIC developer (mainly Bitmain) is in a huge position of power here.

Bitmain seems to be the only serious game in town, and spooling up a chip run
isn't quick, even for someone like Intel, AMD, or the dozens of other chip
makers (TI, microchip, etc). This gives them something of a headstart.

I wonder how long they can stay ahead of the other chip makers.

~~~
hossbeast
There is also Baikal.

------
amluto
This kind of has to remain true for Bitcoin to remain secure. If the price
were to drop enough that a large fraction of the mining fleet were
unprofitable to operate honestly, it could be bought up on the cheap to launch
51% attacks.

------
headmelted
From the video on the page:

"You have hundreds, sometimes thousands of servers out there. All trying to
get to the Algo!"

Nicely tried, my friend. Nicely tried.

~~~
shard
Is that quote a reference to something?

~~~
headmelted
It's a quote from the main Bloomberg video on the page linked above. The
presenter seems to have gotten the meanings to a few of his buzzwords mixed
up.

------
tomrod
I'm going to go out on a limb and emote regarding the article (especially the
headline), rather than be terribly contributory to the conversation or add to
knowledge of trivia. I believe this is more in spirit of the BTC speculative
bubble we find ourselves in.

\---

Yeah.... but I won't!

Please everyone, keep logjamming the transaction/second throughput to drive up
the relative scarcity!

Ah, whatever, it's more or less monopoly money anyway.

------
yogenpro
And it's NOT a waste of resource. Miners mostly use seasonal renewable energy
that otherwise would not be converted to electricity in the first place.

To maximize profit, they utilize hydroelectric power plants built on Yangtze
river. Not the ones like Three Gorges Dam, but those small/micro plants (<10MW
installed capacity). Most of those plants are owned by local governments or
private companies. Usually, State Grid -- which is obviously owned by the
state -- would purchase their power output but during rainy seasons, there is
just too much electricity that State Grid wouldn't buy it all.

That's when miners came and built datacenters close to the power plants, made
deals with the power plant owners to buy the power that State Grid didn't
want. It's a win-win for everyone: power plants get extra cash, miners get
cheap electricity.

And when it comes to dry season (starting October), miners ship their mining
rig to Xinjiang or Gansu, where wind turbines are having a similar situation.

~~~
hueving
One season perfectly coinciding with another with a giant consistent pile of
surplus electricity? And all of these miners transport whole data centers
worth of miners a couple of times a year?

I want to believe it but this sounds too convenient to be true. It sounds more
like propaganda invented to cover up the massive waste of energy. Do you have
any sources to back it up?

Also, most dams don't produce more electricity during high level seasons. They
generally produce a fixed amount with a constant flow to the generators and
then the only thing that changes is the spillways being used during the wet
season.

~~~
yogenpro
Well definitely not perfectly coincided. In fact in dry seasons some went to
Inner Mongolia where coal is cheap and coal power stations' output is much
stabler... That part indeed is a waste :\

Some sources:

[https://www.washingtonpost.com/world/asia_pacific/in-
chinas-...](https://www.washingtonpost.com/world/asia_pacific/in-chinas-
tibetan-highlands-the-bizarre-world-of-bitcoin-mining-finds-a-new-
home/2016/09/12/7729cbea-657e-11e6-b4d8-33e931b5a26d_story.html?utm_term=.92f61d71a226)

His latest mine is still under construction, between a hydroelectric power
plant and the concrete shell of a disused power transmission station, between
Kongyu and the city of Kangding.

As China’s economy boomed, private companies set up hydroelectric plants in
western Sichuan; then, as the economy slowed, they found themselves unable to
sell to the national grid, elbowed out of the market by more politically
powerful state-owned firms.

“It took a lot of money to build the plants, but it doesn’t cost that much to
maintain them,” said HaoBTC’s Mu. “So it makes sense for them to sell the
power to anyone willing to buy, even at a low rate.”

Also:

[https://news.bitcoin.com/brief-glimpse-lives-chinese-
bitcoin...](https://news.bitcoin.com/brief-glimpse-lives-chinese-bitcoin-
miners/)

[http://en.people.cn/n3/2017/0223/c90000-9181806.html](http://en.people.cn/n3/2017/0223/c90000-9181806.html)

