discussed 6 days ago in https://news.ycombinator.com/item?id=16120062
Money quote from the top comment: "The break even is 1 BTC = $922". Personally I have my doubts, but even at the $6,925 the bloomberg article claims is still very profitable.
E.g. if you adopt the mindset that your CAPEX is a sunk cost, which is reasonable if you already own something nobody wants to buy (unprofitable oil or mining rig), your break even becomes much lower (just has to beat cost of operations/electricity).
With mining it's even more difficult, since mining at an "unprofitable" point in time could later actually become a very profitable venture if the price goes back up, assuming that the mining difficulty also goes down in unprofitable times.
Edit: ninjaed by mkempe.
I know it's just "one analyst", but I don't mind investing (gambling) on something that may give me a x10 yield.
Say your [marginal] production cost is USD 100, but BTC market price is USD 50. You could spend USD 100 to make 1 BTC, or you could turn off your mining equipment and spend USD 100 to buy 2 BTC...
Added: and when the market price goes back up to say USD 1000, would you rather have the 1 or 2 BTCs in hand?
But there are (perhaps edge) cases where your operation cost is essentially zero. A couple of friends are using their gaming rigs for altcoin mining, and simultaneously as space heaters (we live in cold climate). If they stopped mining, they'd have to turn on the actual space heaters, no electricity cost saved. And they already have the hardware, so no expense there either.
The reason why mining rigs aren't sold in the space heater aisle is that people usually don't buy $2000 space heaters.
You just aren't trying to make a return on the cost of your initial investment (CapEx).
With that said, here's what I think would happen:
1. Bitcoin price goes down enough that a lot of miners leave
2. The difficulty decreases since blocks are taking more than 10 minutes to produce
3. It gets cheaper to mine bitcoins, since less hash calculations are necessary per block (on average)
4. Miners want to join the system again, since it's cheap, thus taking away the risk of a 51% miner
So, bitcoin should self-correct
It’s possible those miners would find it more profitable to 51% attack, or sell their hardware to someone who wants to.
I don't see how a dropping price has any bearing on a 51% attack.
Sure it does. Lower miner income = lower security.
1. Mining equipment is a sunk cost usually, so many will keep mining. Inotherwords, its easy to continue operations as normal versus trying to sell off all the equipment (at a loss?) Also, cloud mining contracts are locked in for a year or two, most cannot be cancelled, so mining continues regardless.
2. The difficulty may not actually decrease that much to have a huge impact on the profitability. It really depends on the magnitude of the mining drop-off.
So the question is how many miners will leave at what price.
The GPU is doing a little better, but it's not even rent money, more like 'lunch once a week' money.
Marginal capacity that's barely profitable at $19,000 will disappear at $18,000.
As the hashrate decreases at same difficulty level and transaction volume, fees go up which attracts more capacity.
The difficulty level adjusts approximately every two weeks, so if mining isn't profitable and blocks aren't created fast enough, difficulty will drop to make mining more profitable.
In the last 30 days during the latest bloodbath du jour, hashrate is actually way up from 13 exahashes/second to 17 exahashes/second.
So the answer to your question is that miners ought to leave when the market value of their mined product is less than the marginal cost of production (assuming they keep track). If you have already recovered the cost of the mining tool, then the marginal cost is determined by power (electricity, cooling) and difficulty. At that point you'd be better off turning off the mining tools and using your money to buy BTC rather than power. On the one hand, BTC can go a long way down before that point, and difficulty would change; on the other hand, if the market price were to fall so much as to stop mining it would be tantamount to a complete destruction of the BTC system; I'm not sure how that would happen, it would surely not be simply a question of BTC pricing.
So if you're running a miner right next to the hoover dam, with your basically free hydro-electricity, you can mine for a lot longer than someone in San Francisco where PG&E quadruple charges them for any use above a certain threshold at an already high electric bill rate
In the possible but unrealistic scenario of all huge miners disappearing overnight right after an adjustment and thus making it impossible to reach 2016 blocks, the users will offer higher transaction fees and so make mining profitable again (or, at least, provide incentive to the miners to come back).
While the system will ultimately reach stasis eventually, it will be seen as an "outage" that will end up playing to many altcoins' strengths (more frequent/softer difficulty adjustments, no-PoW coins, etc).
So what, then the difficulty gets adjusted and that's it. People won't stay on altcoins except for speculation, they're not usable anywhere except on trading platforms or, in case of Dogecoin, on Reddit. The "big whales" BTC, ETH and LTC have sucked up the market - most of the other currencies can't even be directly traded against the dollar but trading has to be done against BTC... thus, whenever BTC drops, everything else drops.
The problem is/will be that BTC has lost its value as an usable payment instrument due to high tx fees, confirmation time and the ridiculous price volatility. I hope this will reverse a bit.
[disclosure: holding ~500€ in BTC]
If a large percentage of miners stop mining, the difficultly will be adjusted so it's easier to mine Bitcoin. The difficulty is tuned such that blocks are solved every 10 minutes, regardless of how many miners are working.
I'm sure my answer is technically correct. Transactions only happen if a block is mined. If all miners suddenly stop mining, there are no blocks mined, there are no transactions, all bitcoins are frozen.
I understand this seems an absurd situation, but this was the question, or have I misunderstood it?
Anyway, on the >50% attack, I'm not totally in agreement. The attack can drop transactions, but can't forge any (which, btw, goes towards the "there won't be transactions"). If the network would ever restart, it will be eventually verified.