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> the mining difficulty will keep on rising even when your hardware is turned off This is not accurate. I mean, this is generally the case, yes. But technicall
by knocte 7y ago
> the mining difficulty will keep on rising even when your hardware is turned off
This is not accurate. I mean, this is generally the case, yes. But technically speaking, difficulty only increases if there needs to be an adjustment in the block-generation time. If in the last two weeks, the average block has been generated faster than 10 minutes, then it means that miners have become faster (either because of better technology or because of more of them entering the market), so difficulty increases. But it could happen also that blocks get slower and difficulty goes down.
What I'm getting at is that constant raising of difficulty levels is not an artificially decided, it's a consequence of the market.
- oarsinsync 7y agoIndeed. As value of BTC goes up, number of miners goes up, hashrate goes up, difficulty goes up. As value of BTC goes down, the opposite occurs. This happened following the last crash.
- keymone 7y agoAll of these affect one another but there isn’t clear and strict causal relationship or ordering. Value follows difficulty but also difficulty follows value.
- gridlockd 7y agoValue doesn't follow difficulty. That's the "labor theory of value" fallacy. On the average, higher difficulty doesn't lower new Bitcoin supply, because difficulty adjusts to maintain steady supply. Difficulty is affected by price of Bitcoin and cost of production. Difficulty can still rise if Bitcoin price development is steady or negative, due to newer mining hardware that is more efficient, or due to new sources of energy that are cheaper.
- keymone 7y agoValue follows difficulty because difficulty is valuable in itself - it is a measure of security of bitcoin ledger.
- gridlockd 7y agoOkay, I can see that argument, however I don't think it has much of an impact on price, certainly not to the point of "value follows difficulty". You can arbitrarily decide what a "secured" transaction is by requiring a certain amount of prior blocks. There is no extra value in security beyond "secure for all intents and purposes". I guess you could say higher difficulty equals fewer minimum prior blocks and therefore better performance for the system, but in practice the common minimum block requirement isn't going to fall below two and that's what many sites have been using even at far lower difficulty levels than today.
- keymone 7y agoYou’re right that number of blocks until transaction is considered safe is arbitrary but you can’t just arbitrarily raise this number to compensate for lower difficulty because interval between blocks is 10 minutes and so in effect you’re reducing usefulness (and value) of the whole transaction system. High difficulty is certainly non trivial value proposition of bitcoin, among many others.
- gridlockd 7y ago> You’re right that number of blocks until transaction is considered safe is arbitrary but you can’t just arbitrarily raise this number to compensate for lower difficulty because interval between blocks is 10 minutes and so in effect you’re reducing usefulness (and value) of the whole transaction system. Yes, I admitted as much, but it's not a linear value relationship. There's a point where difficulty that is "too low" makes the system unacceptably vulnerable, but at that point the coin must be almost worthless and the incentive to be a malicious actor is equally low. There's another point where difficulty is high enough that for all practical purposes, a malicious actor has no chance of turning a profit. No further increase in difficulty beyond that point adds any value. Bitcoin is well past that point. I wouldn't rule out that the belief that "more difficulty = more security" may cause certain people to go bullish and buy, therefore driving the price, but it's not such a direct relationship as price vs. cost of mining.
- TeMPOraL 7y agoGiven that, presumably, bitcoin mining rigs don't magically downgrade, how can the difficulty ever go down?
- hollerith 7y agoIf his cost in electricity and connectivity exceed his revenue from mining, the miner will stop mining even if he has invested a lot of money in mining rigs.
- TeMPOraL 7y agoBut they won't likely sell the rig immediately. Which means that as miners halt their mining, if the difficulty would start falling again, it'll eventually make those miners resume their operations and halt the fall of difficulty.
- faissaloo 7y agoIn fact they may never sell the rig, used mining rigs aren't worth much
- TeMPOraL 7y agoASICs might be worthless, but crypto miners using GPUs do rotate them, pawning them off as "lightly used" on auctions.
- gridlockd 7y agoIf difficulty drops to the point where it's profitable again, they turn the rig on. If, as a result, difficulty rises to the point of unprofitability again, they turn them off again. This is basically equilibrium. It's not theoretical, it's what actually happened lately. Difficulty dropped along with price, now it's rising again along with price - but it's still below historical highs.
- gpm 7y agoPresumably they fail at some point, and if the cost of electricity is greater than the profit they are turned off.