When Bitcoin Mining Cost is Higher Than Bitcoin Revenue.

[Wenbing]

Let me explain some of the variables associated with what I'll be analysing.

1.The production cost.

I researched bitcoin mining cost depends on some variables such as average hardware efficiency, average cost per kwh,  current difficulty, block reward and labour cost.

2.The Bitcoin Revenue.

The bitcoin revenue is hugely dependent on volatility which is caused by free market mechanism ie the forces of demand and supply.

3.Bitcoin Profit:
This is the difference between the bitcoin cost and Bitcoin Revenue per unit of bitcoin.

Assuming:
 Production cost/bitcoin is $15,000.
Revenue/bitcoin is $10,000.

The margin will be $-5,000, that's a loss.

Let me cumulate this analysis for a miner who mine 10 bitcoin. It means he will run at a loss of $-50,000.

The cumulative computation for a pool of miners who mine 100bitcoins will run at a loss of $-500,000.


If these market conditions hold for a certain time, what will be the effect to the following parties.
A. The miners
B. The investors
C. The speculators (traders)
D. Crypto Startup and forums

Here is an article that attempt to value production cost of bitcoin.
https://www.bitcoinproductioncost.com/

Kindly make your contribution.

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[odolvlobo]

I think your analysis may be flawed.

Any miners paying the average cost (or more) for electricity won't make a profit and will stop mining. As a result, only those miners with a very low electricity cost are going to mine. Using the average cost of electricity in your analysis misrepresents the actual situation.

[NeuroticFish]

I have been talking about this for a long time, mining does not bring any income at all now

Let's think a little.

Let's assume there is big mining business that's running for more than 2 years.
Let's assume that the investor was smart enough and also invested in renewable energy (solar panels, hydro..).
This would mean that there's a good chance his only costs are the maintenance / salaries.

Of course, this may be a rare situation, but the mining cost wold be very small, so even now he would be on profit.
A more expected case is that the investor has his mining warehouse near a hydro power plant and gets electricity almost for free. The result is pretty much similar: he's still on profit.

All in all, don't assume all the miners have the same costs for the coins they mine.
I myself simply don't know if the majority of them are doing bad or doing great.

[Lorence.xD]

I think the reason that the revenue from mining procures more losses is not the price of the hardware that is needed for the process is obviously the price of bitcoin was lower than it ever before. Maybe the price will go up, but I think we will gather more loss when we continue mining, it also depends also from what country where you are from because you need to consider the cost of living from your country.

If I am wrong, you can use what you earned from mining and investing it but if you do not have any means of sustenance other than the bitcoin that you earned from mining then disregard this advice.

[Darker45]

If a mining operation has a similar computation as yours, it should shut down. I am not saying all your points are correct but there are indeed miners who are giving up due to regular net losses. I'm aware of a few local independent miners who have turned off and eventually sold their rigs due to the high electrical cost here.

However, electrical cost is different from one country to another. Large mining industries could easily move to a place where electrical cost is significantly cheaper. Moreover, these industries switching to renewable sources of energy might also significantly lower down their production cost.

Also, the production cost of an individual miner is not the same level of cost when it is done on a larger scale. If a miner averaging 1 BTC a day is losing $5,000 in the process, it could actually turn into a net income when expanded into a farm which averages 100 BTC a day.

[Charles-Tim]

I have been talking about this for a long time, mining does not bring any income at all now

If you get things right, having access to cheap electricity, cheap cooling machines or cold weather, cheap labours, joining reputed mining pool with low mining feel. Mining is expensive and the reward is not over short time, but long time you will surely get back your initial capital.

I get you that bitcoin do halves every four years, people joining, and mining difficulties increasing, but mining is still profitable over long time period which some people can not hang on to.

[Jawhead999]

The margin will be $-5,000, that's a loss.

Let me cumulate this analysis for a miner who mine 10 bitcoin. It means he will run at a loss of $-50,000.

Does they'll continue to mine more if they have lose $-5,000  I think it's kinda stupid thing for everyone.

Before they start mine I thought they have thinking about many aspects like

• Bitcoin Mining Difficulty
• Bitcoin Block Reward
• Bitcoin Price
• Bitcoin Mining Hashrate
• Bitcoin Mining Hardware Watts
• Bitcoin Mining Hardware Cost
• Electricity Costs

And can calculate the profit in this sites https://www.coinwarz.com/mining/bitcoin/calculator

It's not 100% true about the profit they will earn after done calculating it, because everything can be changed soon like bitcoin price and difficulty. But, I think they're ready for facing the worst scenario because I believe they have analysis about it.

[maydna]

Before you mining, you need to calculate the cost. You need to know how much the money that you should pay for the electricity daily, you should know how much money you should use to buy the hardware. If you don't buy high-end hardware, you will not get a nice reward because you need to think about the cost in monthly. In this case, you need to have a big budget before you buy the hardware, including preparing the electricity system for your hardware.

If you have green energy or renewable energy for the electricity, then that would help you to reduce the electricity fee, but you should think about how long you can get ROI because you don't want to wait for a long time to get ROI.

I think if one big company can calculate this, they still get the profit from the mining process because they can get the cheap electricity which means they don't have to pay for a high fee.

[davis196]

Mining difficulty is flexible.It can go up or down,as more miners are joining or leaving the mining industry.
No miner will continue mining at a loss,but some big miners have capital reserves,so they can survive some BTC bullish trends for a while.I guess that all miners have the expectation that some day the bitcoin price will hit the moon.This is what's keeping them in the business,even if the times are though.
The biggest winners of the crypto mining industry are the companies that produce mining hardware.

[Wenbing]

I have been talking about this for a long time, mining does not bring any income at all now

Well, I feel you've a sound point to make but you stated it halfway.
Kindly, explain what you mean by that statement?

<snip>
The biggest winners of the crypto mining industry are the companies that produce mining hardware.

I'm not sure the hardware manufacturer will benefit more than the miners if the volatility of bitcoin affect it positively.

But can you prove your point.

[moderator's note: consecutive posts merged]

[meanwords]

I think the revenue is also base on the cost of the electricity in a given country, how you operate your miners, and what is the factors for the condition to mine. There's just few information given in your post because if those really are true points, then there will be no miners mining Bitcoin right now. They'd probably changed to other altcoins if that was the case.

[webtricks]

Hey OP,

I appreciate your curiosity as you have asked one of the common question people face when they are trying to understand the economics of bitcoin production.

However, it is not that simple. In short, difficulty of mining keeps changing depending upon the number of miners and the computational power being used by them. This in turn keeps changing the cost of mining which helps keeping mining profitable for at least one miner.

Read first page of this thread and most of your doubts will be solved: https://bitcointalk.org/index.php?topic=5236772.0

[kryptqnick]

Maybe I am missing something, but this is how I see what would happen.
1. The revenue gets lower than the cost.
2. Some miners leave the game as they don't want or don't have resources to go through a rough patch and hope that the situation will get better.
3. As there are not fewer miners, the difficulty rate drops, making mining profitable (or at least not too costly, so that miners stay in business).
The problem will fix itself. It doesn't mean mining is always profitable, but it means that it's always either profitable or not above what miners believe is worthy to keep going.

[cafetools]

If a miner is paying too much electricity cost he will stop mining, thus the next miner has an easier time/ pays less for his next coins he mines. Now maybe the first miner can profitably mine.

[hatshepsut93]

The thing is, you don't know exactly how much miners are paying for electricity. Everyone just googles electricity prices for some region in hopes to estimate those values, but they may be very different from reality. Maybe some specific places have extremely low prices due to being close to some power plants, maybe some miners can bribe the local officials and get them a better deal, etc. This can easily explain why miners seem to be mining at a loss.

[pooya87]

that is a very oversimplified thinking of how mining works. it is a lot more complicated than you think. for starters there is no one fixed value for "cost". there are thousands of different miners with just as many variety of costs. some have access to cheaper electricity, cheaper labor and high bid buyers and make a lot more profit and some are the opposite.
on top of that there is always a big margin of profitability that miners set for themselves. they are mining in profit and some small ones will leave if the profit reduces or gets close to zero.
and in the end due to how difficulty works, majority of miners specially the big ones are always mining at profit because the difficulty adjusts after smaller ones leave.
you have to keep in mind that when you are talking about mining you are not talking about 1 miner with 1 fixed condition. as i said it is thousands of miners with thousands of different conditions.

[franky1]

ok some math

if OP uses a 15k cost and a 10k sell

well imagine there were 25 people making half a bitcoin ($7.5k cost $5k sell)
12.5btc is worth $125k

now we have 25 people sharing 12.5btc so for $7.5k cost they are getting 0.5btc ($5k)
now if 1 person drops out due to a $2.5k loss
now it has 24 people sharing 12.5btc so for $7.5k cost they are getting 0.52btc($5.2k)
now if 1 person drops out due to a $2.3k loss
now it has 23 people sharing 12.5btc so for $7.5k cost they are getting 0.5434btc($5.434k)
now if 1 person drops out due to a $2.056k loss
now it has 22 people sharing 12.5btc so for $7.5k cost they are getting 0.5682btc($5.682k)
.. and so on until profit for 16 remaining people

.....
now another variable
people buying hardware at retail cost and paying domestic rate electric have higher costs.
so one hobbiests $7.5k cost might be some mining farms $4k cost

this means while a hobbiest is trying to decide to shut down asics to stop losses.
a mining farm is making 20% profit so can plan increasing asics and still break even.
....

when ever i work out bitcoins underlying value. i never deal with average cost of domestic hobby costs.. instead i find the cheapest electric cheapest hardware cost and use that as the base value.. because this is the value by which is the lowest that anyone would dare cost it at. thus it makes a good critical line of value where people would just avoid crossing
after all if a mining farm withe the most efficient asics could buy it cheaper than mine it. they would. thus cheap the price up. and the hobbiests with higher costs would have already given up mining it to just buy it so they woul be the buffer to not even get to farms needing to buy as a last resort

[Wenbing]

<snap>
ok some math

if OP uses a 15k cost and a 10k sell

well imagine there were 25 people making half a bitcoin ($7.5k cost $5k sell)
12.5btc is worth $125k

now we have 25 people sharing 12.5btc so for $7.5k cost they are getting 0.5btc ($5k)
now if 1 person drops out due to a $2.5k loss
now it has 24 people sharing 12.5btc so for $7.5k cost they are getting 0.52btc($5.2k)
now if 1 person drops out due to a $2.3k loss
now it has 23 people sharing 12.5btc so for $7.5k cost they are getting 0.5434btc($5.434k)
now if 1 person drops out due to a $2.056k loss
now it has 22 people sharing 12.5btc so for $7.5k cost they are getting 0.5682btc($5.682k)
.. and so on until profit for 16 remaining people

What if this your assumption doesn't hold. For instance, what'll happen if no miner want to leave the business at a decreasing revenue of their reward?

[Wenbing]

<snap>
ok some math

if OP uses a 15k cost and a 10k sell

well imagine there were 25 people making half a bitcoin ($7.5k cost $5k sell)
12.5btc is worth $125k

now we have 25 people sharing 12.5btc so for $7.5k cost they are getting 0.5btc ($5k)
now if 1 person drops out due to a $2.5k loss
now it has 24 people sharing 12.5btc so for $7.5k cost they are getting 0.52btc($5.2k)
now if 1 person drops out due to a $2.3k loss
now it has 23 people sharing 12.5btc so for $7.5k cost they are getting 0.5434btc($5.434k)
now if 1 person drops out due to a $2.056k loss
now it has 22 people sharing 12.5btc so for $7.5k cost they are getting 0.5682btc($5.682k)
.. and so on until profit for 16 remaining people

What if this your assumption doesn't hold. For instance, what'll happen if no miner want to leave the business at a decreasing revenue of their reward?

Miners wants or desire has little to do with it.

When the electricity company turns off the power for non-payment, or the loans on the asics are not paid and the asics seized as collateral or the owner of the ware house locks the miner out for non-payment. Then the miner is done.

Franky1 biggest misunderstanding is that he thinks someone will always be able to earn a profit in PoW,
the problem with that thought process, is government confiscations and resell of bitcoins,
will always be cheaper than the current production costs, which insures that PoW is a dying tech by an economic blade.

25 people mine bitcoin , all 25 are losing money, how does bitcoin survive using PoW, easy it won't.  

I sense the difficulty of bitcoin mining will continue to increase as the transaction on the blockchain increases.