
Bitcoin Hash Rate Rapidly Growing Despite Price - deegles
https://cryptoslate.com/bitcoin-hash-rate-rapidly-growing-despite-price/
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JumpCrisscross
Is mining equipment purchased and paid for in advance? If so, this sounds like
a few years ago in oil and gas. Prices dropping but quantities supplied rising
due to sunk costs in drilling contracts.

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rcxdude
Generally yes. I would expect most bitcoin mining operations would continue
for a while after they stopped making a return on investment, until they were
no longer making a profit on the cost of electricity. However, electricity is
a fairly large part of the cost of mining, and there is a treadmill on the
hardware side as well as better ASICs are developed (the ASIC developers skim
the cream of this as well, units sold to customers have likely already been
used, sometimes heavily).

~~~
JumpCrisscross
> _mining operations would continue for a while after they stopped making a
> return on investment_

Marginal return. The ASICs could have been bought for $10 with the expectation
of making $1 a year and paying out 50¢ for electricity (a 5% yield). Now it’s
making 51¢ a year (a 0.1% yield). Not enough to make economic sense, but
enough to keep running the rig; 0.1% is more than zero.

Broadly, I was pushing back against the author’s inchoate claim that “the
continued growth in hash power demonstrates a strong, continued belief in
Bitcoin by miners worldwide.”

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craigc
What I would love to see is a breakdown of locations of miners over time. I
wonder if the increase is in places where electricity is cheaper and/or
subsidized.

I do _not_ believe the increase has anything to do with better mining hardware
since the top mining hardware has not really changed much in over two years.

My guess is either:

1\. Most people have already invested in the hardware and are therefore okay
mining at a loss with the hope that the Bitcoin price will rise again in the
future.

OR

2\. A lot of miners are using renewable energy in which case it wouldn’t make
sense to stop. For example, if you are using wind or solar or hydro energy,
then the energy is still going to be available even if you turn off your
mining hardware.

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Symmetry
I was interested to learn in the recent indictment that the Russians were
using bitcoin as essentially a means of money laundering. The Russia
government uses it's budget to mine some bitcoins and used those to buy the
servers used to hack the DNC. I imagine criminals and people looking to evade
currency controls have similar interests.

~~~
craigc
I would be _very_ surprised if mining was the sole source of the funding
simply because mining hardware is so expensive, and it would take a _long_
time to mine $90,000.

The Bloomberg article says

> the defendants conspired to launder the equivalent of more than $95,000
> through a web of transactions

So while they may have done some mining, I think the majority came via other
sources.

That is certainly an interesting perspective though – that the increase in
hash rate is due to people wanting to evade traditional currency systems to
fund their illicit activities. It would not surprise me at all if some
governments were involved in this too.

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lancewiggs
from the indictment [1], statement 62:

The Conspirators funded the purchase of computer infrastructure for their
hacking activity in part by “mining” bitcoin. Individuals and entities can
mine bitcoin by allowing their computing power to be used to verify and record
payments on the bitcoin public ledger, a service for which they are rewarded
with freshly-minted bitcoin. The pool of bitcoin generated from the GRU’s
mining activity was used, for example, to pay a Romanian company to register
the domain dcleaks.com through a payment processing company located in the
United States.

63\. In addition to mining bitcoin, the Conspirators acquired bitcoin through
a variety of means designed to obscure the origin of the funds. This included
purchasing bitcoin through peer-to-peer exchanges, moving funds through other
digital currencies, and using pre-paid cards. They also enlisted the
assistance of one or more third-party exchangers who facilitated layered
transactions through digital currency exchange platforms providing heightened
anonymity.

[https://www.justice.gov/file/1080281/download](https://www.justice.gov/file/1080281/download)

~~~
craigc
Okay cool so that confirms what I said that mining was not the _sole_ source
of the funds

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ur-whale
One of my theories to explain this phenomenon (actually discussed in a
previous thread) is that bitcoin mining might very well be a roundabout way to
launder money, or at the very least a mechanism by which you can circumvent
capital movement control: use local money to buy mining h/w + power, get
clean, freshly minted BTC from that.

If that is actually the case, then the "operating at a loss" part is not
really an issue: I suspect all means of money laundering have a sizable built-
in cost.

[edit]: both theories are discussed at length in other comments below.

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maerF0x0
Also this article seems to miss that you can take illegal money, buy hashing
equipment and launder it via mining... I'm sure having crypto in the news has
got more crime bosses' attention? Obviously I have no proof of this being the
case.

~~~
magnetic
If you can buy hashing equipment with your money, doesn't it mean you've
already "cleaned it"?

If not, what kind of business provides you with hashing equipment from dirty
money?

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fareesh
I guess it depends on what you mean by "hashing equipment"

For example, if you go to Ritchie Street in Chennai, India there are plenty of
stores that will sell you a top of the line GTX 1080 GPU for cash. No record
of the transaction, and no taxes. A lot of stores will probably even accept
USD.

You wouldn't be able to launder boatloads of cash this way, but with enough
motivation you could do this on a regular basis and offset some cash.

~~~
chanfest22
Wow, that's terrible! We should probably ban cash because it is being
blatantly used for money-laundering.

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Filligree
You kid, but in some places that's already in the process of happening. See
Sweden, for instance.

[https://www.bbc.com/news/business-41095004](https://www.bbc.com/news/business-41095004)

~~~
ur-whale
Yes, it is unfortunately already the case in most EU countries. In France and
Italy, for example, you can't buy a new car cash (cash transactions over 2.5K
euros are basically illegal).

This is a very profound loss of individual freedom, almost as important as
losing right to free speech would be, yet strictly no one on the political
spectrum seems the least concerned about it.

~~~
fel0nious
There is likely a balance here, somewhere.

Be careful equating money with free speech.

Citizens United in the US has had equally-troublesome consequences, based on
the premises that corporations are people and money is their speech.

Conflict of interest plays a role here, and that's unfortunately something
that has been under constant 'redefinition', especially in the last 20-40
years.

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ttoinou

       At Bitcoin’s peak, a single block was worth almost a
       quarter million dollars and miners may view the current
       market as a way to accumulate more Bitcoin at lower prices
    

Don't understand that last sentence. They create money via using electricity
and amortizing ASICs, not the other way around

~~~
downrightmike
The miners are more than likely expecting that the future value is worth much
more than the electricity today. Bitcoin went from 1k to 20 k inside of a
year. If that happens again, or more, they would be able to sell at 10x the
electricity cost.

~~~
tatersolid
> If that happens again...

It won’t. It’s a bubble. No real commodity or currency increases 20x in value
in a year. It’s funny-money, Just like the dotcom Boom in the late 1990s.

Bitcoin is basically unused as a currency except by criminals, and has no
functional advantages over other payment systems for honest people. Just like
stock of pets.com in 1998.

~~~
krageon
Have you tried sending money internationally with any reliability? Randomly
getting shut down by PayPal, waiting for insane amounts of time before normal
bank transfers get through, etc. Even if you completely ignore any other
aspect of it, this is a legitimate use case that works well.

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HashBasher
Bitcoin hashrate is a lagging indicator. It takes months to get the equipment
and set it up. This is probably a result of the Dec boom.

~~~
CydeWeys
Also, mining equipment is continually getting better. Large scale parallel
ASICs like these are still a relatively recent field, with lots of remaining
room for improvement. It's far less stagnant than current x86 processor speed.
Mining is very much a red queen's race.

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lancewiggs
Supply has going up (many producers), and demand has fallen relative to that -
as evidenced by the price falls and margin collapse for miners.

In the real mining industry we see the same effect, where there is a commodity
price (for say Nickel or Iron), and the suppliers, faced with very high
capital costs, will continue to produce until their marginal cost is
underneath the marginal revenue. At this stage they slow or mothball mines,
smelters and refineries. That comes at a huge cost.

The last mines left are the ones with the most efficient costs/tonne, which is
combination of access to ore, the type of ore, the closeness and efficiency of
smelters and refineries and so on. A big part of it is the scale of the
operation, and how up to date the equipment is, but also how well it is all
operated.

Aluminium refining is particularly relevant, as electricity is one of the main
input costs. We have seen refineries close down and sell their power back
during extended periods of high electricity prices and relatively low
aluminium prices (e.g. when Enron dove up Ca. prices). Newer/larger aluminium
plants are fr more efficient, but the price of electricity is everything.

(I've led turnarounds at very large nickel and alumninium smelters/refineries
and helped others with their turnarounds on mines/operations)

In the case of bacon mining the main factors are, once the computing equipment
is acquired, the price of electricity and the conversion efficiency per kWh.

~~~
antiphase
Tell me more about this bacon mining.

~~~
bwbw223
I’m interested too- it sounds like something I might try this morning...

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pastor_elm
Simplest explanation: Big players are willing to operate at a loss to gain
marketshare. Then when bitcoin hits $100k you're dominating the market and
bringing in the big bucks.

~~~
vkou
If you're spending $1 of electricity to mine $1 of coins, why not just spend
$1 to buy the coins outright?

~~~
gomox
Freshly mined coins have a premium because they are clean (i.e. you are 100%
sure they haven't been robbed before, which can create problems) and
untraceable (i.e. there's no way to link them to the original assets used to
purchase the miners).

Other than that, a person might not have access to the equivalent volume of
BTC but have easy access to energy/miners. Additionally, depending on how you
predict hash rate and BTC price to evolve, mining might have a better ROI.

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api
I've heard repeatedly that in some cases Bitcoin is mined at a loss. This can
be done to get money out of countries with capital controls or to launder
money. They don't mind taking a haircut... it's the cost of doing business.

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1996
Indeed I noticed too. Profitability halved compared to 4 weeks ago. There are
various possible causes, such as miners having to use equipment they ordered
before, but 6 months after the peak, and given the costs of power, it seems
unlikely. Mining remains widly profitable. A side effects is that it increases
the security of the network.

My best explanation is that we are noticing the runup to another peak.

Money can't buy enough coins through mining equipment anymore, and therefore
will eventually buy existing coins directly, causing another peak.

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nobrains
I think the reasons are as follows:

1) The supply of the miners are usually delayed by a month or two in some
cases. So people buying miners when bitcoin was 18,000 to 12,000 in Jan, would
be receiving their miners in March or later.

2) Prices of miners have fallen because of the price of bitcoin. You can buy
an s9 miner for _just_ USD 600 right now
([https://shop.bitmain.com/product/detail?pid=0002018062817430...](https://shop.bitmain.com/product/detail?pid=000201806281743005275bf20LAJ062E))
which might have resulted in people increasing their investment in miners,
increasing the hashrate.

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tboyd47
Halving is scheduled for 2020. Miners probably have lots of dormant equipment
they already purchased and are gradually turning on. They must increase
hashpower if they want to maintain the same return, but it's in their best
interest not to do it all at once to keep difficulty low for as long as
possible. Price is probably not a big factor in the short term.

~~~
cdiddy2
I sort of doubt that, you would want to use the mining equipment as soon as
you get it because more efficient equipment would/could come out between now
and then making your profits a lot less or even your equipment obsolete

~~~
tboyd47
This is true. They could also be mining a different coin or chain then
switching over. All speculation I guess.

~~~
bwbw223
Not with bitcoin - ASICS are the only profitable way to mine. They only work
on sha256 coins, and generally crypto currencies that use the same POW have
similar difficulty/profitability.

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AtlasBarfed
Hash rate increases are great. I wish they'd do a massive jump that takes
miner profitability out of reach even if it were 100k/coin.

The amount of power used on bitcoin miners isn't good for the world, unless it
funds alternative energy infrastructure that eventually gets repurposed for
other reasons, but I doubt that is the case.

