Is BTC price sustainable with mining & electricity costs leaving the ecosystem?

[colinistheman]

P.S. This is a honest and serious question and not intended to spread FUD or anything. I just am trying to wrap my wits around this concept and understand if it's workable.
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Is bitcoin price sustainable with mining & electricity costs continually leaving the Bitcoin ecosystem?

I am a firm believer that some day a single bitcoin will be worth over $10,000.

But I can't wrap my wits around the math when it comes to the cost of electricity required to sustain a larger and larger market cap. I say this because the total cost of mining typically grows until it is close to the value of the coins being mined (because it is profitable to do so until they balance out. This is a form of arbitrage).



Some math:

At today's prices of roughly $230 USD per bitcoin, 3600 bitcoins per day are valued at about $828,000 USD. That means it is roughly that much mining/electricity cost per day to mine bitcoins and to secure the network.

To sustain a $230 USD price of bitcoin it will cost $302 Million per year in electricity & mining costs.

To sustain a $1000 USD price of bitcoin it will cost $1.3 Billion per year in electricity & mining costs.

To sustain a $10,000 USD price of bitcoin it will cost $13.1 Billion per year in electricity & mining costs.



The thing that has me concerned is all that money is continually leaving the bitcoin ecosystem!

How can this work with that much money leaving the system constantly?



update: Someone pointed me to this PDF file which seems to ask a similar question: http://www.academia.edu/7666373/An_Order-of-Magnitude_Estimate_of_the_Relative_Sustainability_of_the_Bitcoin_Network_-_3rd_Edition

[Amph]

for leaving the bitcoin ecosystem, you mean that they are dumped for fiat?

wouldn't the miners in this case pay the bills with bitcoin directly? it would be certainly possible when bitcoin will reach 10k and become mainstream as a result

[ticoti]

This is offer and demand,is there is high offer and low demand,the price goes down, and that is what's happening,besides the manipulation of the market

[ashour]

I think that mining doesn't affect the bitcoin price so much. It's all about adaption and trading volume that would cause a single bitcoin to be $10k as you say.

[Realpra]

You have to remember that it is a temporary situation, once the block reward is halved a couple of times more mining should find a more natural very low cost equilibrium between security and low voluntary TX fees.

[ashour]

This is offer and demand,is there is high offer and low demand,the price goes down, and that is what's happening,besides the manipulation of the market

AKA free market, which bitcoin always will trade in since it's a decentralized coin. It all depends on demand and supply, if the miners stop mining new coins the supply would  be lowered and ergo the demand would rise.

[colinistheman]

for leaving the bitcoin ecosystem, you mean that they are dumped for fiat?

Yes that's exactly what I mean.

wouldn't the miners in this case pay the bills with bitcoin directly? it would be certainly possible when bitcoin will reach 10k and become mainstream as a result

This is currently the only outcome I can think of as well. If some day electricity and mining equipment is payable with bitcoin directly and it isn't sold immediately.

Until that day, it's like we have a hole in our bag? Money leaking out constantly by bitcoins being sold to pay for electricity and mining equipment?

[jonald_fyookball]

OP, your confusion appears to be not understanding the causality.

Price is caused by supply and demand.  Energy costs
will then rise or fall based on the price as competition
works to mine coins.
 
You are looking at it the opposite way, as if the price is
primarily influenced by how much miners are spending
on it.  This is probably the wrong way to look at it because of
the difficulty adjustment.

IOW, miners do set the prices, true...and if there was
a fixed amount to how much it actually cost to mine
a bitcoin, you would see prices above those levels,
but as we know, the cost can change because difficulty
can change.

As someone mentioned, the block subsidies will
keep halving so the supply will become more and more
fixed.  miners will have to rely on fees.

a better question is how much transaction volume
will be necessary to maintain low fees?

[DooMAD]

I was trying to square a similar circle when trying to figure out how quickly Bitcoin adoption would start to hinder the profits of banks.  But then realised everyone who buys bitcoins is handing their fiat to the seller, who in turn puts it in their bank.  In a sense, money never "leaves" the fiat system in favour of Bitcoin, so the same technically applies in reverse too.  But obviously there is an effect on the value and market cap when there's less demand.

for leaving the bitcoin ecosystem, you mean that they are dumped for fiat?

wouldn't the miners in this case pay the bills with bitcoin directly? it would be certainly possible when bitcoin will reach 10k and become mainstream as a result

But would the energy suppliers keep the bitcoins?  Or would they dump to fiat?  All very tricky to foresee.

[Amph]

for leaving the bitcoin ecosystem, you mean that they are dumped for fiat?

Yes that's exactly what I mean.

wouldn't the miners in this case pay the bills with bitcoin directly? it would be certainly possible when bitcoin will reach 10k and become mainstream as a result

This is currently the only outcome I can think of as well. If some day electricity and mining equipment is payable with bitcoin directly and it isn't sold immediately.

Until that day, it's like we have a hole in our bag? Money leaking out constantly by bitcoins being sold to pay for electricity and mining equipment?

yeah we have a hole right now, but as long as the price not skyrocket, but will increase slowly, to give the time to bitcoin to reach mainstream status, it will not be a big deal i guess

also remembers that the halving will help this situation strongly, and the second one is coming

[GenTarkin]

wrong way to look at it because of
the difficulty adjustment.

IOW, miners do set the prices, true...and if there was
a fixed amount to how much it actually cost to mine
a bitcoin, you would see prices above those levels,
but as we know, the cost can change because difficulty
can change.

Miners dont really set the price, I mean, sure if they are dumping they cause falling prices pressure on the markets but miners follow price. If the price is on a huge downslump, difficulty will curve to match the current rate of btc profitiability for miners. Its been happening this entire past year. The reason why diff has gone from 40% increases to only 5-10% and more than a few times -% is because price has been on a steady decline. The demand for mining hardware decreases, supply of said hardware decreases, miners buy less and diff incriments are very minimal.
WHEREAS if the price stayed above $1000, you can bet yourself there would be at least 10+ other mining ASIC 'suppliers' and we would see constant 20-40% diff increases.

Heck, a perfect example of this was when ASICMiner announced over 2EHASH worth of chips to come into production. This announcement was at one of the higher price points of this bubble and ..what ya know.. that amount of chips never saw the light of day because of the huge price decline.

[SpanishSoldier]

Some math:

At today's prices of roughly $230 USD per bitcoin, 3600 bitcoins per day are valued at about $828,000 USD. That means it is roughly that much mining/electricity cost per day to mine bitcoins and to secure the network.

Wrong assumption

At current difficulty, for big miners it costs ~40 USD to mine one bitcoin. 230 USD is not the cost. It is the revenue they are making now for each bitcoin out of 40 USD investment. Net profit is around (230-40) = 190 USD, which is used partly to cover their initial investment.

[ticoti]

Some math:

At today's prices of roughly $230 USD per bitcoin, 3600 bitcoins per day are valued at about $828,000 USD. That means it is roughly that much mining/electricity cost per day to mine bitcoins and to secure the network.

Wrong assumption

At current difficulty, for big miners it costs ~40 USD to mine one bitcoin. 230 USD is not the cost. It is the revenue they are making now for each bitcoin out of 40 USD investment. Net profit is around (230-40) = 190 USD, which is used partly to cover their initial investment.

And where have you taken that calculations from?
So,why miners have been turning off machines when the price has fallen down?

[GenTarkin]

Some math:

At today's prices of roughly $230 USD per bitcoin, 3600 bitcoins per day are valued at about $828,000 USD. That means it is roughly that much mining/electricity cost per day to mine bitcoins and to secure the network.

Wrong assumption

At current difficulty, for big miners it costs ~40 USD to mine one bitcoin. 230 USD is not the cost. It is the revenue they are making now for each bitcoin out of 40 USD investment. Net profit is around (230-40) = 190 USD, which is used partly to cover their initial investment.

Yeah, I highly doubt this. This takes into account what elec rates & initial equipment cost & building cost...etc?

[minerpumpkin]

Yes, that's the way things go - basically. Bitcoin's security can only be achieved by having a proof-of-work system that can't be circumvented. Providing that proof has to be inherently expensive, otherwise it would be worthless. We've now pushed margins to such an extent that the limiting factor of Bitcoin mining is the cost of hardware, space, and electricity. I don't see how it can be done differently...

[colinistheman]

Some math:

At today's prices of roughly $230 USD per bitcoin, 3600 bitcoins per day are valued at about $828,000 USD. That means it is roughly that much mining/electricity cost per day to mine bitcoins and to secure the network.

Wrong assumption

At current difficulty, for big miners it costs ~40 USD to mine one bitcoin. 230 USD is not the cost. It is the revenue they are making now for each bitcoin out of 40 USD investment. Net profit is around (230-40) = 190 USD, which is used partly to cover their initial investment.

Those numbers are not true at all. Where did you get (make up) those from?

[colinistheman]

Yes, that's the way things go - basically. Bitcoin's security can only be achieved by having a proof-of-work system that can't be circumvented. Providing that proof has to be inherently expensive, otherwise it would be worthless. We've now pushed margins to such an extent that the limiting factor of Bitcoin mining is the cost of hardware, space, and electricity. I don't see how it can be done differently...

Yeah I guess the electricity and mining cost are the elements that causes there to be security in the end.

You have to remember that it is a temporary situation, once the block reward is halved a couple of times more mining should find a more natural very low cost equilibrium between security and low voluntary TX fees.

Is the block halving really helping though? I mean, the difficulty won't necessarily go down just because the block reward halved. So because the difficulty will stay more or less the same, the amount of electricity required to maintain the network will remain the same too. The value of the bitcoins which are being sold to pay for the electricity will go up, that's all.

[mika76]

P.S. This is a honest and serious question and not intended to spread FUD or anything. I just am trying to wrap my wits around this concept and understand if it's workable.
------------------------------------------------------------------------------------------------------------------------

Is bitcoin price sustainable with mining & electricity costs continually leaving the Bitcoin ecosystem?

I am a firm believer that some day a single bitcoin will be worth over $10,000.

But I can't wrap my wits around the math when it comes to the cost of electricity required to sustain a larger and larger market cap. I say this because the total cost of mining typically grows until it is close to the value of the coins being mined (because it is profitable to do so until they balance out. This is a form of arbitrage).



Some math:

At today's prices of roughly $230 USD per bitcoin, 3600 bitcoins per day are valued at about $828,000 USD. That means it is roughly that much mining/electricity cost per day to mine bitcoins and to secure the network.

To sustain a $230 USD price of bitcoin it will cost $302 Million per year in electricity & mining costs.

To sustain a $1000 USD price of bitcoin it will cost $1.3 Billion per year in electricity & mining costs.

To sustain a $10,000 USD price of bitcoin it will cost $13.1 Billion per year in electricity & mining costs.



The thing that has me concerned is all that money is continually leaving the bitcoin ecosystem!

How can this work with that much money leaving the system constantly?



update: Someone pointed me to this PDF file which seems to ask a similar question: http://www.academia.edu/7666373/An_Order-of-Magnitude_Estimate_of_the_Relative_Sustainability_of_the_Bitcoin_Network_-_3rd_Edition

From where Do you know ? ithink its all about bitcoin miner

[Elwar]

If you truly believe this is what is happening right now then you should be buying as many bitcoins as you can.


If this much money is leaving the ecosystem each day and the price is still maintaining its relatively steady state, then next year when the mining reward is halved that would mean that the money leaving the ecosystem that is currently maintaining stability will be cut in half.

That is a lot of money not leaving Bitcoin. Thus it is certain that the price will rise by that much money every day.

So consider these low prices as a great thing. You get to buy more bitcoins between now and the halving.

[Troonetpt]

it have last almost 2 years since winter of 2013, the price over $220, so at this price, it is sustainable.
If the price is continue to rise, it may not sustainable any more, but the market will fix it.