[2016-09-15] Declining Profitability For New Miners Threatens Bitcoin

[CrimBit]

The halving of the bitcoin block reward this past July has changed the profitability of new miner entries, a development that could ultimately impact bitcoin’s decentralization, according to Sveinn Valfells of Flux, Ltd. and Jon Helgi Egilsson of the Faculty of Economics at the University of Iceland.

In a paper, “Minting Money with Megawatts” for the Institute of Electrical and Electronics Engineers (IEEE), the authors noted that declining profitability for new miners could further consolidate mining activity. This, in turn, could increase the likelihood of miners colluding to attack the blockchain’s bitcoin transaction history, which could threaten the cryptocurrency’s decentralized character.

Bitcoin’s architecture created a payment network independent of central banks and existing financial service providers.

https://www.cryptocoinsnews.com/declining-profitability-for-new-miners-threatens-bitcoin-decentralization/

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[yayayo]

The centralization of mining operations can become problematic indeed. Compared to the early days, mining has become a rather low-margin business. Most mining operations are now huge endeavors, operating in regions with low temperatures and low electricity costs. Individual miners have become relatively rare. I would welcome a comeback of private mining with new devices, maybe in a form where the miner generates heat for secondary use and electricity cost wouldn't matter that much.

On the other hand we have to wait and see how Bitcoin fiat valuation moves on after the halving. So far the price is almost three times higher than a year ago when the block reward was still 25 BTC. The difficulty has grown as well for sure, but mining efficiency has also increased. So it remains to see, whether new miner entries will be really harmed so much by the halving.

Another question is if miners really have a valid incentive to abuse their power if they reach 51% hash power. Such a step would have severe consequences for the trust in Bitcoin and most likely lead to a massive sell-off, ruining mining profits...

ya.ya.yo!

[Gahs]

I see no reason why miners will collude to destroy something just because it is not as profitable as it used to be. They know that is a very unwise thing to do...

[1Referee]

The mining industry is already centralized. People just don't look at it from that point yet. Well known farms run a second pool, or perhaps even a third pool to make it look like Bitcoin is still somewhat decentralized, even though it's just one entity in control of these pools. They may or may not admit it, but I think this is quite dangerous.

What I would like to see, is that new farms pop up in not Chinese countries and not related to the current farms. That's how you keep things more decentralized than they are right now. What is happening right now is that smaller miners move away, and that existing farms up their gear/mining power. Do the math...

[notthematrix]

If you have a power plantb that does not have customers , like in china , bitcoin is a solution to store otherwise wasted electricity in to money.
thats why is IS profitable.

[Carlton Banks]

For profitability to be declining, the market price would need to be declining by the same proportion that the block reward was cut by. The opposite happened; the exchange rate more than doubled, rendering profitability slightly better than before, which is not the same thing as declining.

[gentlemand]

Hashrate is rising. I don't really see how mining could become much more centralised than it is already. It's business as usual for better or worse.