I am not sure what the implications are but apparently with the drop in the price of bitcoin and the increase in the cost of electricity means that some bitcoin miners are having to pay more for the electricity than the bitcoin is worth if they have a contract that guarantees that they will buy a certain amount electricity per month.
I looked around and this article seems to have a good summary of the situation.
Any idea what this means and if it might impact the non-crypto world?
Disclaimer: I do not own any crypto and I would not touch it with a ten foot pole so I am more curious about it than actually caring what happens to crypto.
This is always something that has me worry about the blockchain, and not just for $BTC. What is the incentive for miners, especially for expensive mining like proof of work? Someone here talked about putting real estate documents on a block chain and thus get rid of title insurance. But what is the incentive for people to keep that ledge going and accurate? A decentralized ledger requires a large number of independent people running it. If it’s not “central” and “trusted”, it has to be widely dispersed. And this, I think, is what makes blockchain unsuitable for a whole host of “problems” that people think it will “solve”.
I’m not sure what the ramifications are if the crypto bubble bursts, honestly. And it worries me some.
Nope, it’s fair to say I have no idea how it might impact the rest of the world. I’m pretty sure neither does anybody else, except the one guy we will read about six months from now who figured it out and made a bazillion dollars from it. Michael Lewis is writing the book about it right now.
It does seem to me that if electricity gets more expensive than the cost of mining that mining would stop (or severely slow down.) It also seems to me that would make already existing Bitcoin (for example) more valuable, so the price would rise and make “mining” economically viable again. Until it isn’t, at which time, well, infinite loop.
The article says that even when they’re underwater (some of) these miners are “selling their bitcoin” to keep going. OK, why? And then “to who?”
So people involved in counterproductive enterprise to solve problems that don’t mean anything using vast amounts of electricity are going to keep doing it, even when its economically unproductive to do so by selling their past riches to speculators who, what? Do I have that right? At least partly?
Thank goodness I’m old. I would be very frightened if I was younger.
Gold miners do the same thing to pay for equipment and loans, to fulfill the needs of the Equity holders when stopping production is more costly than running at a loss.
These losses were going on earlier this year. Then the market for BTC and Eth rallied. It will rally soon again.
The real issue in the “real world” is the bond market. The fireworks are going to off sooner or later. Japan is unwinding their US Treasury trades.
How bonds effect crypto? Not fully sure yet. We will be watching.
There’s something I am not clear about. Can bitcoin transactions (on the actual blockchain, not in an account database at a custodian like FTX or Coinbase) even occur if mining ceases? I’ve seen conflicting information, some of which indicates that mining is necessary to propagate transactions along the blockchain. Any crypto experts out there that can comment about this?
Earlier this year when BTC was at these levels and energy was more expensive mining slowed down. So yes the outstanding BTC can still trade. The mining is the profit center for the miners.
Hey preaching to the choir, financial tools invert back and forth between states. There are different answers for different players at different times.
The question is will the bottoms in BTC and Eth hold when the bond market collapses?
It sounded like they had contracts to buy X amount of electricity each day or pay a penalty. If the loss on the bitcoin is less than penalty then it could make sense to keep using the electricity at least for a while.
One open question is what you might be able to repurpose a bitcoin mining serving farm for. Maybe they can cluster them together into a supercomputer.
In addition to the Bitcoin generated by creating the block, miners also get a transaction fee.
Users set the fee rate, so in theory you could always make transactions if you wanted to badly enough.
I have seen at least a couple articles about miners buying a defunct power plant and then generating their own power to run their mining gear. Note: These businesses are in the crypto-mining business, so they are running a LOT of computers–and mining a lot of crypto (whichever one is hottest at the moment).