The mining paradox

[BlackHatCoiner]

Lots of miners are joining the bitcoin network to have a profit and we are on the all time high difficulty right now if I'm not mistaken. I'm not going to talk about those with 1-2 hardwares on their home, but those who own a mining farm. These people spend thousands of dollars everyday doing a great job with transaction validation, I don't know if they can solo mine, but they surely help the network. I see some kind of paradox about mining's future and the only reasonable explanation would be that price will reach the moon.

First of all, halvings happen once every 4 years, but they do a huge damage to those farms. Spending $20k everyday and earning (let's say) 3BTC would mean that after a halving, the pool will reward you with 1.5BTC, so those people won't be able to continue mining, unless price increased.

If they stop mining it means that hash rate will drop. What concerns me about is that after our 3rd halving, difficulty dropped (as you can see here) but after a few days, it reached on ATH. So what exactly happens to mining after lots of halvings? If the hash rate increases it means that price increases too?

If halving means damage to mining farms I see three different optics on bitcoin's future generally:

1) Price increases so much that it would be profitable for miners.
2) After lots of halvings difficulty decreases dramatically which leaves bitcoin in danger for a 51% attack.
3) Median fee reaches the moon and bitcoin becomes a useless medium of exchange.

[Artemis3]

Its none of that. its hard to put in words so you will have to see for yourself, in fact if you studied the history of bitcoin and the other precious metals, you'll see it.

Mining is slowly becoming unprofitable as intended, reward is diminishing therefore interest in mining diminishes as well

Price increases, but not in exact correlation to the halvings. As time passes, the increase of bitcoin's price will be less and less.

While it is true that difficulty decreases (not as quickly as you imply), its also getting more expensive to mine. 51% attacks are prohibitively expensive, especially to the largest crypto out there. It has been done to little altcoins, but nothing major as it would bankrupt anyone. Don't forget the Binance guy thought he could pull it off...

So as people pre-halving at 7.5k were expecting a post halving price of 15k, but i said it would have to be anything but, i mean, below 15k somewhere between the double and the (then) current (7.5k~15k) and that's what it did.

Mining is still profitable, but less; as it has been after every halving.

There is no paradox, the effect you see has been smooth and progressive. Thanks to the free market forces, expensive countries leave first and then one by one they leave until no country is cheap enough to mine commercially anymore.

Bitcoin's value may suddenly raise if the politicians keep doing stupid things to the fiat. The current US administration might be collapsing the USD which would in turn pull the EUR and others, and then (when its already late) you'll see a stampede to grab bitcoins.

[arayde]

Hashrate may drop after next halving but not so dramaticly. ASICs are getting better and better with every year. Old one will become outdated and miners will buy new ASICs with x2 power for the same price

[odolvlobo]

If halving means damage to mining farms I see three different optics on bitcoin's future generally:

1) Price increases so much that it would be profitable for miners.
2) After lots of halvings difficulty decreases dramatically which leaves bitcoin in danger for a 51% attack.
3) Median fee reaches the moon and bitcoin becomes a useless medium of exchange.

#1. Because of the economics, mining should be profitable for at least some of the miners, whatever the price.
#2. That's a possibility.
#3. That is also a possibility.

[Oshosondy]

I don't know if they can solo mine

They are mining farms, why not, they can solo mine but, they will not solo mine because they prefer other small mining rigs to join them so that the chance of solving the algorithm and get the block reward will increase.

but they surely help the network.

Miners are helping the network, it happens in a way 51% attack can not occur. Miners are the ones that makes the bitcoin blockchain safe and secure from intruders or attackers.

First of all, halvings happen once every 4 years

No, halving happens when 210,000 blocks has been mined, but the last three halving was able to be in almost every four years, but do not get it wrong that halving is not about years but about how many blocks has been mined which is every 210000 blocks.

[Artemis3]

Hashrate may drop after next halving but not so dramaticly. ASICs are getting better and better with every year. Old one will become outdated and miners will buy new ASICs with x2 power for the same price

Not when they are going to earn less, it comes a point where they can't justify investing in mining equipment again, or if they do, not in the same quantities.

It is true that if you could see the number of actual people mining, vs their nominal hash rate you would notice that the number of people reduces more dramatically while the remaining miners have more and more hashrate than ever.

But this diminishing in mining will reach the asic manufacturers themselves, they also won't be able to justify the same amount or r&d into improvements to their current chips, etc.

If the price suddenly spikes, it will only delay the inevitable that has always been occurred.

[kryptqnick]

First of all, halvings happen once every 4 years, but they do a huge damage to those farms. Spending $20k everyday and earning (let's say) 3BTC would mean that after a halving, the pool will reward you with 1.5BTC, so those people won't be able to continue mining, unless price increased.

If they stop mining it means that hash rate will drop. What concerns me about is that after our 3rd halving, difficulty dropped (as you can see here) but after a few days, it reached on ATH. So what exactly happens to mining after lots of halvings? If the hash rate increases it means that price increases too?

If halving means damage to mining farms I see three different optics on bitcoin's future generally:

1) Price increases so much that it would be profitable for miners.
2) After lots of halvings difficulty decreases dramatically which leaves bitcoin in danger for a 51% attack.
3) Median fee reaches the moon and bitcoin becomes a useless medium of exchange.

Well, I think the system is pretty good, actually. If halving occurs and some are not willing to mine anymore because it's not profitable, they can always leave and sell their equipment. If others don't join instead, the difficulty rate will drop, making mining easier for those who are still doing it. But I think what often happens is that halving gives Bitcoin more publicity, and while the reward for mining decreases, people assume that others will leave, and they can join to replace them (FOMO). They also assume that now that the reward is lower, the price of Bitcoin will increase to keep mining profitable (which may or may not happen in reality), so this also encourages them to mine.

[o_e_l_e_o]

Miners are currently receiving about 6.25 BTC in block reward, which works out to around $65-70,000 at current prices. During the dip down to $3k last year, they were receiving 12.5 BTC, which was around half that at $37,500 per block. According to https://bitinfocharts.com/comparison/fee_to_reward-btc-sma7.html#6m, for the last few months the money miners have received from fees is about 10% of the block reward, so around 0.6 BTC per block on average.

If everything else stays the same and the price of bitcoin hits $100,000 (which is certainly not impossible), then the reward from fees alone per block will be $60,000. Over time, this is likely to be higher for a couple of reasons - increasing SegWit adoption means more transactions and therefore more fees per block, and I suspect long term that fees will be higher as the majority of transactions will be on and off ramps to second layer solutions such as Lightning Network. I've got no real issue spending a couple of bucks on the fee for a transaction rather than a couple of cents, if that transaction opens a channel which I can use for months for essentially zero fee.

None of this is going to happen suddenly - we have over 100 years before the block reward disappears - so I'm sure miners will be able to adapt to the changing conditions without too much issue. There was a lot of concern that the last halving was going to kill the hashrate and lead to 51% attacks. Instead we saw a modest drop of less than 20% which lasted only a month, and have been hitting new peaks since.

[Bttzed03]

I've read about more powerful and energy efficient mining equipment being built and that most miners are actually powered by green energy^[1]. Aside from BTC price increase, these two factors would also offset the decrease in mining rewards per block per halving. We can see right now that miners are capable of adjusting and I'm sure next generation miners will be able to do that too.

1. Bitcoin Mining Is Shockingly Mostly Powered by Green Energy

[zasad@]

1) Price increases so much that it would be profitable for miners.
2) After lots of halvings difficulty decreases dramatically which leaves bitcoin in danger for a 51% attack.
3) Median fee reaches the moon and bitcoin becomes a useless medium of exchange.

More than 20 million bitcoins will be mined by May 2028. After the halving in May 2028, the block reward will be BTC 1.5625.
After this date, miners will receive more profit from commissions than from a fixed block reward.
And with each halving, the price for bitcoin grows + we will face massive adaptation of cryptocurrencies.

[Lucius]

Those miners who have cheap electricity will certainly not stop mining because they will continue to make a profit regardless of block rewards if we take into account that (based on last year data) the average cost to produce 1 BTC was around $3500 to $4350, and this is calculated with 5.5 cents per kilowatt hour. If we further take into account that this price in China is even lower (3.5 cents kWh) then it is quite clear how profitable it is for some to mine today, and as long as the price goes up in relation to each subsequent halving we should not fear that the majority of those who exist today will cease to engage in this business.
 

After the halving in May 2028, the block reward will be BTC 1.5625.
After this date, miners will receive more profit from commissions than from a fixed block reward.

We can't know for sure because we can't predict the price of BTC and the number of transactions for 8 years in advance, but if you read the post from o_e_l_e_o you can see that the reward miners receive from fees is on average 10% of the reward they receive per block - and if we took for example that the price of 1 BTC for 8 years would be $100 000, then the reward per block would be $156 000. Of course by then most transactions should be on LN or even some better solutions so miners should get even less than today when it comes to transactions fees.

[hatshepsut93]

Bitcoin is valuable because of the halvenings/fixed supply, so they are not harming miners. It may look like it, but on a bigger perspective without halvenings we could have had less hashrate and less security. Only time will tell which model - inflationary with infinite block reward, or the eventual state where block rewards come solely from transaction fees, is better for network security. I'm personally not too worried, cause it will take a lot time to get there, and if needed, Bitcoin community might agree to change the rules.

[amishmanish]

The last time when bitcoin price, mempool and fees hit their ATH, there was a post by Greg Maxwell where he talked about the "Fee market". This was in a discussion on the dev mailing list about Total fees having almost surpassed the block reward. (which i personally think was momentous too).

Greg's comment was that he was happy that "market behaviour is producing activity levels that can pay for security without inflation". From a pure bitcoiner's POV, this was indeed a moment of achievement but people contrived this comment in all sort of ways. There was a hue and cry. That event basically demonstrated that there is a level of market activity that can lead to sufficient fee rewards. There are of course better ways that this can be achieved and it will be a debate unto itself needing an explanations of how one views bitcoin adoption. This is a problem of the future but we already have proof that it is not unsolvable. So there is no paradox here.

[Heisenberg_Hunter]

First of all, halvings happen once every 4 years, but they do a huge damage to those farms. Spending $20k everyday and earning (let's say) 3BTC would mean that after a halving, the pool will reward you with 1.5BTC, so those people won't be able to continue mining, unless price increased.

Speaking from a hardware spec perspective, I think we are still in the beginning stage of developing the mining hardware machines and we need to bring in more researches towards the development of hardware which can increase the hashrate and minimize the electricity cost. For example in the Intel Ice Lake processors, the lower base frequency was never a problem as they were powered by hyper-threading, lower lithography and various other advancements. In this case, the processor will run at lower speeds consuming less electricity and will turbo boost only when required. Similarly, there should be an increase in researches all over the world to be undertaken in order to make the mining more power friendly in future and similarly make machines more powerful in mining. The S19 Pro which ships in Jan 2021 is itself a beast in making and has quite a few advancements apart from hash rate increase over the S19 series if I am not wrong.

So what exactly happens to mining after lots of halvings? If the hash rate increases it means that price increases too?

This does indeed put intense pressure towards developers and mining hardware makers like Bitmain. Current Core developers are working hard to bring in new advancements for scaling and making the transaction size lower but we need more and more global support for faster advancements in terms of bitcoin which is quite lacking to be true. 95% of the people who are involved in cryptocurrency are interested in trading and making quite profits which is certainly bad for bitcoin and the whole community. We have atleast 100-500x smart developers involved in crypto who should be equivalent to sipa or gmaxwell but are they really interested in bringing any improvements to Bitcoin? The same goes with Mining Hardware Researchers where we would be having Electrical Engineers and Scientists who are willing for a quick profit in trading and less interested in bringing out something ground breaking.

1) Price increases so much that it would be profitable for miners.

Price increase has far less to do with profitability. Are we using the same Linux/Windows machines which we were using in 1990s? Didn't we change with advancements and less power usage? A normal 1995 PC had 8 MB RAM and i386 processor, do we have the same one running in our PC? Wasn't 8 MB a joke today? I feel like running Windows 10 in HDD is itself a bad move! Move onto SSDs. The same goes with mining machine researches. The next gen mining machines will reduce the electricity usage and produce more hashes with considerable profitability for miners.

3) Median fee reaches the moon and bitcoin becomes a useless medium of exchange.

Stop bringing in price discussions/traders to this booming technology and bring in more software and electrical engineers instead. Low level traders interested in prices alone are useless piece of shit for our bitcoin, so let us stop spreading bitcoin as a tool for making quick profits.

[sheenshane]

There ain't no paradox in mining. It's just that matter of time and it's not the perfect timing yet. I deeply understand that you're getting worried and have concerned with the profitability of mining especially for those who have invested their wealth to have a mining farm. But, halving isn't really connected with it the reason they will stop mining.
Why?
Economically speaking, countries are now considering Bitcoin for their inflation status.
If that happens globally, these are the possibilities:

• Bitcoin miners will then have their desired profits because of the increase of Bitcoin every now and then.
• Medians will take time to dominate the market. Bitcoin as a pioneer and proven will still be the choice of everyone once the time has come.
• Bitcoin is decentralized and volatile enough not to prove its value. Everyone will choose it as they think it is a safe haven

[The Cryptovator]

As we know halving happening every four years, so anything could happen during that time. Personally, I believe there would be a few mining machines which will consume very little electricity in near future. Because there are many developers who are working to improve the bitcoin experience. Currently, block rewards & transaction fees are enough to get profits from mining after cover the cost. I am not worried even there is halving and have been reducing block rewards since there are transaction fees. Price isn't really related to the hash rate. It's just to measure the processing power of the bitcoin network, price depends on circulation and demand.

[BrewMaster]

try not to confuse fluctuations with drops.
it is very similar to the mistake people make about the price. if hashrate goes from 130 EH/s up to 150 EH/s then comes down to 135 EH/s, that is not a drop in hashrate. that instead is a consistent rise with some ups and downs on the way.
that is mainly what happened during the halvings in the past. obviously some miners will always leave and some other miners will always join in. when there is a sudden and big drop in the amount of money they earn (it is cut by exactly 50%) some miners leave just as fast. that is why there is always a sudden but tiny drop.

[slaman29]

Why presume? Mining is at all time high and always has been on a long term trend. The paradox you speak of has also been discussed many times by a lot of people but guess what? Each time the industry proves everyone wrong and Satoshi Nakamoto's vision of mining incentive continues to work out.

[seoincorporation]

I would say mining is a temporary business... and i say that because the mining evolution is giving some huge steps. So if today you make a farm with 10,000 of the best miners, in 2 years or less those miners will be obsolete because there will be better miners, and what makes them better is more mining power for less energy consuption. So, is crazy to see people investing in farms of 10k or 20k miners knowing they will get obsolete in a short period of time.

[Artemis3]

Miners are currently receiving about 6.25 BTC in block reward, which works out to around $65-70,000 at current prices. During the dip down to $3k last year, they were receiving 12.5 BTC, which was around half that at $37,500 per block. According to https://bitinfocharts.com/comparison/fee_to_reward-btc-sma7.html#6m, for the last few months the money miners have received from fees is about 10% of the block reward, so around 0.6 BTC per block on average.

If everything else stays the same and the price of bitcoin hits $100,000 (which is certainly not impossible), then the reward from fees alone per block will be $60,000. Over time, this is likely to be higher for a couple of reasons - increasing SegWit adoption means more transactions and therefore more fees per block, and I suspect long term that fees will be higher as the majority of transactions will be on and off ramps to second layer solutions such as Lightning Network. I've got no real issue spending a couple of bucks on the fee for a transaction rather than a couple of cents, if that transaction opens a channel which I can use for months for essentially zero fee.

None of this is going to happen suddenly - we have over 100 years before the block reward disappears - so I'm sure miners will be able to adapt to the changing conditions without too much issue. There was a lot of concern that the last halving was going to kill the hashrate and lead to 51% attacks. Instead we saw a modest drop of less than 20% which lasted only a month, and have been hitting new peaks since.

Like i told you before, the only way bitcoin would reach 100k this quickly is because of the USD collapsing, not bitcoin suddenly becoming so valuable.

As more time passes the sudden price fluctuations can only diminish, this is what it means maturing. It also means people will no longer become rich overnight, that is a tale for the early adopters alone (that didn't do the mistake of selling or losing their wallet).

Bitcoin is an excellent asset to preserve wealth, it should not be seen in itself as a source of wealth.

Consider gold. You buy it for the same reason, not thinking you will sell it tomorrow at twice its price. Gold historically follows the exact same curve bitcoin is now following as its design was meant to mimic gold mining.

And the slowdown is also logarithmic. This means the slowing is increasing. You think a hundred years is too far away but Bitcoin is already becoming unprofitable to mine, and the reward becoming so low most people will just stop doing it. In a few years only enthusiasts will keep mining it, people who don't care to be "losing" to mine, as long as they contribute to the network maybe as a way of giving thanks to the community. Or if adoption becomes universal, those doing business in bitcoin are the most interested in having a reliable network, surely they can spare running a few full nodes here and there.

Interestingly the transaction fees are starting to weight more. A typical reward is around 7 o 8 bitcoin, everything above 6.25 is the tx fee. After the next halving, assuming similar rates, a reward of 4 or 5 bitcoin means one third is coming from these transactions and by 2032 transaction fee becomes the main source of income for the miners.

So its not a 100 years away, its a decade at most. Most bitcoins have already been made.