4 ms·

> The miners will not sell for less than their electricity costs, which makes the smaller piece of the block reward they receive have a higher price. That's no

> The miners will not sell for less than their electricity costs, which makes the smaller piece of the block reward they receive have a higher price. That's not how it works. If you spent $100 in electricity and you have an asset that's worth $50, you can either sell it for $50 and only be down $50 on your electricity, or you can not sell it at all and be down $100 on your electricity. Electricity cost of mining does not set a price floor. The price floor is 0.

Scaevolus 8y ago
More than just power, you have depreciating assets (mining chips, servers, buildings) that are effectively losing money constantly. Operating them at a small loss is better than leaving them idle for a huge loss. You see similar economics when farmers sell crops at a net loss.
- salawat 8y ago
  Note: Farming in that manner regularly is not sustainable. Also, at a certain loss point, you might as well compost the crop back into the soil to contribute to next year's crop as fertilizer. That stuff is expensive. Hell, the entire economy makes no guarantees at being sustainable in the long run. The unsustainability period just shows all indications of being longer than a human lifespan, thereby making it easy for people to write off as not their problem.
- luckydata 8y ago
  So slightly negative margins but making it up in volume?
  - jandrese 8y ago
    Think of it more as cutting your losses. You've already lost the money, so even if you can't make it all back you can make back part of it by selling the product at a loss.
  - joejerryronnie 8y ago
    That's how you lock up your Series A. For the next round of funding you'll need to upgrade to "large negative margins but hockey stick volume". The Saudi Sovereign Wealth Fund will accept nothing less.
  - gowld 8y ago
    No, it's positive margins offseting negative fixed costs.
- anbende 8y ago
  This is only relevant if your clearing bit coins above the cost of the electricity. If not, you’re losing more turning them on than off.
  - slavik81 8y ago
    In economic terms, suppliers will continue producing so long as the sale price is greater the marginal cost of production. The average cost is irrelevant in the short run because it includes sunk costs.
    - throwaway123156 8y ago
      The comment you were responding to was about electricity, which is clearly a highly linearly correlated marginal cost. I am not sure why you're bringing up average costs at all. And the comment you replied to did not even mention the other marginal costs that Bitcoin faces (employee costs, land rental, networking costs, etc).
      - slavik81 8y ago
        I was restating what they were getting at in a way that could be easily traced back to widely studied economic theories. It was an elaboration, not a disagreement.
klodolph 8y ago
> That's not how it works. Obivously, the meaning of the original sentence is that miners will turn off the mining equipment when they decide that it's more profitable to leave it off than leave it on. > …you can either sell it for $50 and only be down $50 on your electricity, or you can not sell it at all and be down $100 on your electricity. This is a false dilemma, the question is not just whether you sell the coins, but also how many, with what timing, on what markets, and in exchange for what. The “either sell it and make some money back, or don’t sell it and eat the loss” is only true if you are paying for your electricity in Bitcoin to begin with, or if you know that the asset you have will only depreciate in value. If I spent $10,000 on a car that I don’t need, selling it for $8,000 might be a good deal because if I wait I will only get less. For Bitcoin, the exchange rate fluctuates, and you can divide it and sell parts at different times.
- lossolo 8y ago
  > Obivously, the meaning of the original sentence is that miners will turn off the mining equipment when they decide that it's more profitable to leave it off than leave it on. Well, it all depends on price of electricity in your region. If you mine for almost free using solar/other renewable energy/your energy is subsidized by government then you will still make profit while miners in high cost electricity regions will stop mining. If they stop mining difficulty will drop, which means you will get more money for mining. This is self regulating mechanism, as long as bitcoin will have value it will be profitable to mine for someone.
  - fwip 8y ago
    Even with subsidies, there's an effective price floor. Even with renewable energy there's an opportunity cost - you can sell it back to the grid. Plus the fixed costs of buying the solar panels and mining equipment in the first place.
    - lossolo 8y ago
      > Even with renewable energy there's an opportunity cost - you can sell it back to the grid. Plus the fixed costs of buying the solar panels and mining equipment in the first place. In many cases this doesn't matter, as it 's being paid by someone else. Millions of teenagers mining crypto on their GPUs, their parents pay for electricity, what about enthusiasts? They will mine even if price is higher than the value of the bitcoin, there are bitcoin mines that steal electricity from the grid etc. And as I wrote before, this is self regulating mechanism, difficulty is adjusted every 2016 blocks. Less miners? then less power needed to mine the block, which means less resources/money needed to mine the block. Price of electricity dosen't matter.
deleted 8y ago
[deleted]
crististm 8y ago
What do you mean? That the miners will sell at a loss?
TACIXAT 8y ago
You can sell at a loss if the asset is dying off, but for the most part an actor isn't going to sell for less than their costs.
zaarn 8y ago
It kinda does set a price floor, the cost of operation of the cheapest miner is the price floor. No miner will want to sell below as it would be a loss and considering Bitcoin is deflationary in nature, it is likely worthwhile to just hold the coins and earn the deflationary interest on them until the price adjusts. Assuming you can only either sell or loose the money fails to take temporal effects into account, ie the fact that there is such a thing as time progressing that changes variables.

Scaevolus 8y ago

More than just power, you have depreciating assets (mining chips, servers, buildings) that are effectively losing money constantly. Operating them at a small loss is better than leaving them idle for a huge loss. You see similar economics when farmers sell crops at a net loss.

salawat 8y ago
Note: Farming in that manner regularly is not sustainable. Also, at a certain loss point, you might as well compost the crop back into the soil to contribute to next year's crop as fertilizer. That stuff is expensive. Hell, the entire economy makes no guarantees at being sustainable in the long run. The unsustainability period just shows all indications of being longer than a human lifespan, thereby making it easy for people to write off as not their problem.
luckydata 8y ago
So slightly negative margins but making it up in volume?
- jandrese 8y ago
  Think of it more as cutting your losses. You've already lost the money, so even if you can't make it all back you can make back part of it by selling the product at a loss.
- joejerryronnie 8y ago
  That's how you lock up your Series A. For the next round of funding you'll need to upgrade to "large negative margins but hockey stick volume". The Saudi Sovereign Wealth Fund will accept nothing less.
- gowld 8y ago
  No, it's positive margins offseting negative fixed costs.
anbende 8y ago
This is only relevant if your clearing bit coins above the cost of the electricity. If not, you’re losing more turning them on than off.
- slavik81 8y ago
  In economic terms, suppliers will continue producing so long as the sale price is greater the marginal cost of production. The average cost is irrelevant in the short run because it includes sunk costs.
  - throwaway123156 8y ago
    The comment you were responding to was about electricity, which is clearly a highly linearly correlated marginal cost. I am not sure why you're bringing up average costs at all. And the comment you replied to did not even mention the other marginal costs that Bitcoin faces (employee costs, land rental, networking costs, etc).
    - slavik81 8y ago
      I was restating what they were getting at in a way that could be easily traced back to widely studied economic theories. It was an elaboration, not a disagreement.

klodolph 8y ago

> That's not how it works. Obivously, the meaning of the original sentence is that miners will turn off the mining equipment when they decide that it's more profitable to leave it off than leave it on. > …you can either sell it for $50 and only be down $50 on your electricity, or you can not sell it at all and be down $100 on your electricity. This is a false dilemma, the question is not just whether you sell the coins, but also how many, with what timing, on what markets, and in exchange for what. The “either sell it and make some money back, or don’t sell it and eat the loss” is only true if you are paying for your electricity in Bitcoin to begin with, or if you know that the asset you have will only depreciate in value. If I spent $10,000 on a car that I don’t need, selling it for $8,000 might be a good deal because if I wait I will only get less. For Bitcoin, the exchange rate fluctuates, and you can divide it and sell parts at different times.

lossolo 8y ago
> Obivously, the meaning of the original sentence is that miners will turn off the mining equipment when they decide that it's more profitable to leave it off than leave it on. Well, it all depends on price of electricity in your region. If you mine for almost free using solar/other renewable energy/your energy is subsidized by government then you will still make profit while miners in high cost electricity regions will stop mining. If they stop mining difficulty will drop, which means you will get more money for mining. This is self regulating mechanism, as long as bitcoin will have value it will be profitable to mine for someone.
- fwip 8y ago
  Even with subsidies, there's an effective price floor. Even with renewable energy there's an opportunity cost - you can sell it back to the grid. Plus the fixed costs of buying the solar panels and mining equipment in the first place.
  - lossolo 8y ago
    > Even with renewable energy there's an opportunity cost - you can sell it back to the grid. Plus the fixed costs of buying the solar panels and mining equipment in the first place. In many cases this doesn't matter, as it 's being paid by someone else. Millions of teenagers mining crypto on their GPUs, their parents pay for electricity, what about enthusiasts? They will mine even if price is higher than the value of the bitcoin, there are bitcoin mines that steal electricity from the grid etc. And as I wrote before, this is self regulating mechanism, difficulty is adjusted every 2016 blocks. Less miners? then less power needed to mine the block, which means less resources/money needed to mine the block. Price of electricity dosen't matter.

deleted 8y ago

[deleted]

crististm 8y ago

What do you mean? That the miners will sell at a loss?

TACIXAT 8y ago

You can sell at a loss if the asset is dying off, but for the most part an actor isn't going to sell for less than their costs.

zaarn 8y ago

It kinda does set a price floor, the cost of operation of the cheapest miner is the price floor. No miner will want to sell below as it would be a loss and considering Bitcoin is deflationary in nature, it is likely worthwhile to just hold the coins and earn the deflationary interest on them until the price adjusts. Assuming you can only either sell or loose the money fails to take temporal effects into account, ie the fact that there is such a thing as time progressing that changes variables.