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Bitcoin Can Drop 50% and China Miners Will Still Make Money
- XR0CSWV3h3kZWg 9y agoDifficulty when bitcoin was last 7k: 1.3T Current difficulty: 1.9T
- wmf 9y agoYeah, 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 9y agoIf anything the parent comment means that it's more profitable now. And that's without the crazy transaction fees these days.
- chis 9y agoI 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 9y ago>> 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.
- hrrsn 9y agoI still don't see why we aren't seeing new ASIC suppliers set up shop. Is there a significant amount of R&D that goes into creating these chips?
- icelancer 9y agoThey're application-specific integrated circuits (ASIC) made specifically for generating money out of thin air (well, electricity). So yeah, there's a huge amount of R&D and competition to get the best stuff out there. And Bitmain dominates.
- tmh88j 9y ago>So yeah, there's a huge amount of R&D and competition to get the best stuff out there. And Bitmain dominates. You're right that Bitmain dominates ASIC Bitcoin miners, but why? Surely there are more than enough capable engineers to design ASIC miners in the US and some VC's willing to fund them, or is there something I'm missing? Manufacturing costs would be high in the US, but it's not like foreign manufacturing is an unknown concept to US based companies.
- wmf 9y agoThere have been a ton of mining ASIC companies but all but two of them went out of business. For some reason VCs have mostly refused to touch mining so the ASIC vendors had to use crowdfunding which went horribly wrong.
- RhodesianHunter 9y agoJust a hunch: No-one in the industry with the means to do anything about it thinks the trend is sustainable enough to invest in a 6mo-1yr setup followed by another year before profit?
- tmh88j 9y agoPeter Thiel is throwing his weight into Bitcoin. Surely there are more people out there like him, albeit less vocal about BTC/cryptocurrency.
- testvox 9y agoAssuming there is a free market everywhere this is true. However China does not have anything close to a free market, electricity is heavily subsidized and freedom to invest and run businesses is heavily restricted which can easily cause market failures such as this. The key takeway from the article is that for Chinese miners specifically there is still a large profit to be made, which indicates something screwy with the market in China.
- FabHK 9y ago> Assuming there is a free market everywhere this is true Sorry, but you can't assume that what theoretically holds in a long term stable equilibrium of a perfect idealised market holds at every moment in a fast moving dynamic real world market.
- rlanday 9y agoAt equilibrium, yes. Bitcoin's value seems to be changing faster than miners can acquire and set up new hardware. Also, it's probably not rational to buy hardware right up until the point the marginal gain becomes 0 if you expect the price is likely to drop in the future (are miners able to buy financial instruments to hedge this risk?).
- ajross 9y agoIt's lagging. A new ASIC order takes at best 2-3 months to arrive in the market.
- mesozoic 9y agoWow not even mentioning difficulty. What a terribly researched article.
- tmh88j 9y agoIt'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.
- wmf 9y agoNote that the article is a summary/advertisement for an analyst report. Hopefully the report itself takes difficulty into account.
- bitoneill 9y ago"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.
- JumpCrisscross 9y agoOr where they can split the gains with a corrupt official in exchange for free power...
- bgee 9y ago> Or where they can split the gains with a corrupt official in exchange for free power... Has this happened before? It sounds bizarre and Googling gave me nothing.
- hello_newman 9y agoIn China, everything has a price...
- vm 9y agoEvery country has corruption, both illegal and legal. https://en.wikipedia.org/wiki/Corporatocracy https://en.wikipedia.org/wiki/Corporatocracy
- adventured 9y agoThe bottom 150-160 countries in terms of corruption are extraordinarily corrupt compared to the top few dozen that are the least corrupt. The gap between New Zealand or Denmark, two of the least corrupt nations, and Croatia or Hungary, is night and day. There is a dramatic acceleration of corruption after you get outside of that general top 30-40 group. Your statement is an equivocation, when in actuality the level of corruption often varies dramatically from nation to nation. Saying every country has corruption is meaningless as such. https://www.transparency.org/news/feature/corruption_perceptions_index_2016 https://www.transparency.org/news/feature/corruption_percept...
- headmelted 9y agoFrom 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 9y agoIs that quote a reference to something?
- headmelted 9y agoIt'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.
- throwaway5752 9y agoWhat a huge waste of resources, just to create competition.
- FabHK 9y agoTypical arms race.
- throwaway5752 9y agoNot really? Just hashcash, intrinsically.
- LAMike 9y agoCompetition for the cheapest energy in the world. This will spurt R&D efforts in renewable energy once there is parity with mining chips.
- deleted 9y ago[deleted]
- iabacu 9y agoSo China is basically exporting energy for a hefty amount of foreign currency.
- deleted 9y ago[deleted]
- prostoalex 9y agoMining 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.
- matt4077 9y ago> I am surprised Germany doesn't have more dominance in the field Germany's power grid is well-connected to its neighbours. During peak production of renewable energy, it is "exported" to France, Poland, Austria etc. These neighbours have a different mix of production and can easily scale down power production from fossil fuels. [0]:in quotes, because trade within the EU isn't technically export/import
- taneq 9y agoThis is the first time I've heard "easily" in the same sentence as "scale down power production from fossil fuels". Usually it's everyone whinging about how coal plants can't be efficiently throttled and still burn 50% of their fuel or something at idle.
- mrb 9y agoActually 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 :)
- jknz 9y agoThis means that miners in these areas operate with a 1500% profit after buying hardware equipment (1500% is computed with current price of 1btc=$16000 and the break-even point at 1btc=$1k). So are they scaling up and buying more hardware as fast as they can?
- cwkoss 9y agoYep, the best ASIC Bitcoin mining hardware is almost always sold out... at least until a new better ASIC comes out.
- ineedasername 9y agoThis 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 9y agoThat's not true. Network hash rate has increased dramatically too.
- ineedasername 9y ago"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.
- paulddraper 9y agoBut all else is not equal. Bitcoins are getting increasingly more difficult to mine.
- em3rgent0rdr 9y agoIf the price drops significantly, then that would decentivize people from mining, which would lower the difficulty.
- cobookman 9y agoUnless people with hardware would lose more by not mining.
- tomrod 9y agoI'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.
- solaarphunk 9y agoDidn'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-bitcoin-mining-operations-1515594021 https://www.wsj.com/articles/china-quietly-orders-closing-of...
- denisehilton 9y agoChina has already started to hunt down all Bit coin exchanges and individual miners.I think the value is going to drop even further as China was the major stake holder.
- amluto 9y agoThis 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.
- Hasz 9y agoThe 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.
- yogenpro 9y agoAnd 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 9y agoOne 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 9y agoWell 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-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 https://www.washingtonpost.com/world/asia_pacific/in-chinas-... 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-miners/ https://news.bitcoin.com/brief-glimpse-lives-chinese-bitcoin... http://en.people.cn/n3/2017/0223/c90000-9181806.html http://en.people.cn/n3/2017/0223/c90000-9181806.html