The headline is dramatic but this is literally how bitcoin is designed to work. Miners leave, difficulty drops, costs go down, mining becomes profitable again. The interesting part isn’t the loss per coin, it’s how long the lag between unprofitable mining and difficulty adjustment keeps forced selling pressure on the market.
It sounds very similar to things like oil production, gold mining, and even farming. When the price is high, everyone wants in on the action. As supply explodes, the prices drop. Once prices get low enough, the costs to pump the next barrel of oil, find the next ounce of gold, or harvest the next acre of a certain crop; exceed the reward. When that happens, wells are shut down, mining operations suspended, and different crops planted. The cycle begins again.
If "difficulty drops, costs go down" so ought the price? Isn't that basic economics? Or are they chasing the "phase difference", lag, between supply demand?
I am not certain; but, costs do not have a causative relationship to prices. Prices only go down because as the cost of production goes down, supply increases. It is a correlative relationship.
Bitcoin's supply won't increase as costs go down, unlike other assets.
This only works when the difficult drop rates are below miner leaving rates.
Which in normal times, are something taken for granted, but once it does happen, the edge case collapse the entire system.
edit: the earlier language is not exact, the scenario is an exponential drop of value that results in exponential drop in miner willing to mine until this discrepancy can be resolved. i.e. the system is not protected against extreme volatility (e.g. -99% over a block cycle)
No but if more miners leave then dofficulty with drop faster right? Its modelling supply and demand curves which are a stable equilibrium in these circumstances
Might be wrong about what Aperocky is alluding to but there is an entirely theoretical edge case. The time to the next difficulty adjustment is based on the current speed of mining, and the possible change in difficulty is capped. With enough minors leaving it will drop the speed of mining/network speed/ and push out the expected time to the next difficulty adjustment.
I can't think of any realistic way this can occur given the miners that stay will (personally) be producing blocks as often, the increase in time being balanced out by being a larger proportionate of the mining rate. They don't care if they get 1% of the blocks, which average about 20 mins per block or 5% of the blocks that average 100mins per block.
Difficulty only adjusts every 2016 blocks. If the system gets out of whack enough it could slow down to a crawl for an extended period of time.
In practice it’s not much of an issue because bitcoin is not use for commerce but it’s a store of value and it some of the trades are not even on chain.
> but once it does happen, the edge case collapse the entire system.
Which is when exactly, and how likely is that to happen? It hasn't happened yet in ~14 years, but I guess "never say never". There is a lot of money saying it won't happen very soon though.
I don't think you know what you're talking about. If the difficulty lowers at a lower rate than miners leaving then the difficulty rate will stop dropping.
If you mean that if it reaches a certain point, the entire system will collapse, it means you don't understand the difficulty adjustment. If it's too expensive to mine, then some miners leave, which makes blocktimes be longer, but not to worry because the consequence of that it just that difficulty will go down, which means that you need less hashrate to mine (and maybe some of those miners that leave will come back because it is profitable again for them). This means that it is essentially impossible for all miners to leave at the same time; some of them stay even if at a loss, and some of them are just hobbyists that can already feed their miners with solar power (so there's really no loss for them in leaving them connected).
As you can see on https://www.f2pool.com/coins other coins using SHA256 as PoW algorithm only amount to about 1% of Bitcoin's daily dollars of Pow Produced, so
if any nontrivial amount of hash moves there, then those will soon become unprofitable too.
But I mean, their bitcoins are not going away, their wallets are still there, their bitcoins also right? I thought bitcoin mining was proportionally hard to the number of already mined bitcoins, not the number of people mining?
I probably should look this up in wikipedia first.
It's a common misunderstanding that mining just gets harder and harder as time goes by and more coins are minted. It's often misreported that way. But in fact, the difficulty is dynamic and adjusts itself to keep minting at the predetermined rate regardless of the number of participants. Mining has gotten harder on long timelines, but only because more computing power has been added.
> Miners who successfully create a new block with a valid nonce can collect transaction fees from the included transactions and a fixed reward in bitcoins. To claim this reward, a special transaction called a coinbase is included in the block, with the miner as the payee. All bitcoins in existence have been created through this type of transaction. This reward is halved every 210,000 blocks until ₿21 million have been issued in total, which is expected to occur around the year 2140. Afterward, miners will only earn from transaction fees.
Difficulty and block rewards are separate things. There is no contradiction here.
Block reward stays constant, amount of work required (on average) to get a block reward is dynamic in order to make it so that total number of rewards given out over a length of time stays roughly constant.
So if too many block rewards are claimed in a given time frame, difficulty is increased to slow things down. If not enough are claimed then difficulty decreases to make it easier to get one.
If bitcoin miners are losing $19k for every bitcoin they mine, why would they sell bitcoin to continue funding their mining operations. That just makes it even less profitable because they are driving down the price of their remaining bitcoin. It makes more sense to shut their rigs off completely and wait for the price to rise.
The funny thing about bitcoin is that the rate of bitcoin discovery doesn’t change when they shut off their rigs so it won’t change supply. It would actually make more sense to sell all their bitcoin, flood the market with coins to do the price, wait for large miners to collapse and then restart mining at hopefully lower prices.
> […] why would they sell bitcoin to continue funding their mining operations […]
There are usually some fixed costs involved and you need cash flow. Without cash flow, your business can shut down pretty damn fast. With cash flow, your business can stay around longer, maybe long enough for the economics to shift.
This sort of thing happens with oil. There are oil producers which sell at a loss. There was even a brief moment when the price of an oil barrel went negative, which meant that if you gave somebody a barrel of oil, you had to pay them for the privilege of taking that oil off your hands. Oil producers did not all shut down when that happened.
I am a little doubtful of the $19k figure anyway.
> It would actually make more sense to sell all their bitcoin, flood the market with coins to do the price, wait for large miners to collapse and then restart mining at hopefully lower prices.
This kind of market manipulation is not so straightforward.
This is just a lie. Coindesk is the worst media in the world.
They can't calculate correct price of mining because it's more complex and enerrgy costs are different in so many regions and inside the electiric producers etc. !
Exactly: "The average production cost was sitting at $88,000 per bitcoin in mid-March". Emphasis on average. Just as in a free market, those miners with higher mining costs are priced out of the market. Or are pressured to become more efficient. Those that are below-average probably already are efficient.
If everyone stopped mining transactions couldn't go through anymore and the value of bitcoin would drop.
If you're heavily invested in bitcoin that's bad.
Also miners try to squeeze in their preferred transactions which they can't do when they're not mining.
Finally the costs dont drop to zero when you turn the miners off, so the loss from mining might be less than the loss when not mining.
He's not saying everyone, just the ones who are unprofitable. Not everyone mines bitcoin at the same cost. The ones who do have to stop can also profit from curtailment depending on the price of energy relative to hash profit.
You can generate transactions but ultimately transactions are validated and written in the blockchain by miners. Mining is essentially a way to select voters based on their ability to solve puzzles, ensuring that if you are selected once you have no particular advantage next time. Without miners this whole system doesn’t work.
When I was mining circa 2017 - 2021 (approx. 1 BTC/month and 25-30 ETH/month) and planning it all out, I prepared myself psychologically to operate for up to 2 years without any profits or selling. It was a hard pill to swallow and a huge risk; my costs were $8500/month in electrical and then another ~$2200 on a lease for the warehouse. When it dropped to $3,000/BTC a few months after I came online and stayed there for 6-8 months, I started wondering if I was the biggest dumbass in my county.
Thankfully, it all worked out in the end very well. I don't know how anyone would put in the effort/money to get a major crypto farm going and plan to just cash out every month to pay bills. What's the point? I always thought of it as a long-term bet on the price going way up, which it did.
Up to a point; once it was over $12k or so, it was cheaper to mine them than to buy them. But yeah, I guess in retrospect I could have just dumped ~$450k into buying BTC when it was at $3,000 and made 3x what I ended up making, but there were other considerations for why I did it at the time. The mining was co-located with my cannabis grow/operations, and in many ways the mining was started secondary to that, even though the mining ended up being a little more profitable over the life of the facility
I dunno, probably only if you don't count for human psychology. If they bought N BTC and tried to held them, would they still hold them when they double in value? What about increasing 10-fold?
Compared to doing some work to getting 1 BTC per month, which you can then individually decide what to do with, instead of a lump sum you could cash out at any moment.
I mined in 2014 with free electricity and that was true even then. That's with hindsight though, the mining reward is more predictable than that market price would increase (more than) equivalently.
It's a very low effort article. There are several places where the cost of electricity is roughly zero and state actors have interest in Bitcoin (Iran/Russia) or strong actors more powerful than the state (Libya/Venezuela). It's not surprising that this is good news for them as mining rigs for Bitcoin are much lighter to transport than the ones for oil.
If you bought a bunch of hardware to mine bitcoins, then not using that hardware represents a 100% loss of value. You may lose money producing, but you would lose even more money not producing.
You're not missing anything. As you can see if you read through the thread, they rely on bitcoin miners being heavily invested into bitcoin and bitcoin equipment, so those people will operate unprofitably to prop up their holdings. It's a moron's economy. A system that relies on externalities and corruption, and produces nothing of value. It's the art market with no art.
If bitcoin miners are smart enough to have anticipated this, and decided not to hold onto bitcoin and just let it drop; and also to have repurposed their equipment, sold it to bigger fools, or have just run it into the ground, none of these ideas make any sense.
Why would they, though? The real answer is that governments and monopolists are propping up bitcoin through simply handing tax money to bitcoin holders, and in the case of the latter (also government tit-suckers) leveraging themselves to pump up bitcoin markets when they are down. I'm sick of humoring this because it was once mildly interesting technically. It's a criminal scheme and everyone involved needs to go to prison. When I hear a politician say the word bitcoin, I'm going to do everything in my power to damage that politician.
Isn't AI the new hot thing, why are the miners still going after Bitcoin, when they can probably just use the same infra for AI and make more money, stay profitable.
"don't work well for AI" is a hell of an understatement, the Application they are Specific to is literally just sha256(sha256(x)), what AI are you going to do with that?
GP probably didn't mean that hardware though, but rather the facility, electricity supply, cooling, etc.
SMST (Defiance Daily Target 2x Short MSTR ETF) could be a rough equivalent.
As the other poster mentioned though, many miners won't be using oil-based energy sources, so it does make one wonder about cause and effect. Maybe a dip in BTC would've done it regardless of oil?
The headline is dramatic but this is literally how bitcoin is designed to work. Miners leave, difficulty drops, costs go down, mining becomes profitable again. The interesting part isn’t the loss per coin, it’s how long the lag between unprofitable mining and difficulty adjustment keeps forced selling pressure on the market.
It sounds very similar to things like oil production, gold mining, and even farming. When the price is high, everyone wants in on the action. As supply explodes, the prices drop. Once prices get low enough, the costs to pump the next barrel of oil, find the next ounce of gold, or harvest the next acre of a certain crop; exceed the reward. When that happens, wells are shut down, mining operations suspended, and different crops planted. The cycle begins again.
If "difficulty drops, costs go down" so ought the price? Isn't that basic economics? Or are they chasing the "phase difference", lag, between supply demand?
I am not certain; but, costs do not have a causative relationship to prices. Prices only go down because as the cost of production goes down, supply increases. It is a correlative relationship.
Bitcoin's supply won't increase as costs go down, unlike other assets.
The mining reward isn't a direct transaction that has a price.
Competing for it is more of a game that has a cost to participate in.
Price isn't affected by mining difficulty, only the other direction.
This only works when the difficult drop rates are below miner leaving rates.
Which in normal times, are something taken for granted, but once it does happen, the edge case collapse the entire system.
edit: the earlier language is not exact, the scenario is an exponential drop of value that results in exponential drop in miner willing to mine until this discrepancy can be resolved. i.e. the system is not protected against extreme volatility (e.g. -99% over a block cycle)
No but if more miners leave then dofficulty with drop faster right? Its modelling supply and demand curves which are a stable equilibrium in these circumstances
Might be wrong about what Aperocky is alluding to but there is an entirely theoretical edge case. The time to the next difficulty adjustment is based on the current speed of mining, and the possible change in difficulty is capped. With enough minors leaving it will drop the speed of mining/network speed/ and push out the expected time to the next difficulty adjustment. I can't think of any realistic way this can occur given the miners that stay will (personally) be producing blocks as often, the increase in time being balanced out by being a larger proportionate of the mining rate. They don't care if they get 1% of the blocks, which average about 20 mins per block or 5% of the blocks that average 100mins per block.
Difficulty only adjusts every 2016 blocks. If the system gets out of whack enough it could slow down to a crawl for an extended period of time.
In practice it’s not much of an issue because bitcoin is not use for commerce but it’s a store of value and it some of the trades are not even on chain.
> but once it does happen, the edge case collapse the entire system.
Which is when exactly, and how likely is that to happen? It hasn't happened yet in ~14 years, but I guess "never say never". There is a lot of money saying it won't happen very soon though.
I don't think you know what you're talking about. If the difficulty lowers at a lower rate than miners leaving then the difficulty rate will stop dropping.
> below miner leaving rates.
What does this mean, sorry?
> the edge case collapse the entire system.
If you mean that if it reaches a certain point, the entire system will collapse, it means you don't understand the difficulty adjustment. If it's too expensive to mine, then some miners leave, which makes blocktimes be longer, but not to worry because the consequence of that it just that difficulty will go down, which means that you need less hashrate to mine (and maybe some of those miners that leave will come back because it is profitable again for them). This means that it is essentially impossible for all miners to leave at the same time; some of them stay even if at a loss, and some of them are just hobbyists that can already feed their miners with solar power (so there's really no loss for them in leaving them connected).
Yup
The problem with BTC going down is that it's a double whammy of not only BTC going down but also the cost of its shovels going up
Before: BTC pays $100k but a shovel costs $300
Now: BTC pays $70k but a shovel costs $$??
Bitcoin asked the right questions but came back with the wrong answers
What's a shovel?
They're using the analogy of mining for gold. the cost of a shovel/pitchfork goes up when the price of gold goes down - which is a double whammy
you didn't answer the question. A shovel in this case is the equipment + energy needed to mine (GPU's etc.)
Which is pretty much obvious to anyone who has heard of bitcoin in the year of our lord 2026
Especially since the "sell shovels during a gold rush" has been used to apply to nVidia
What does “leave” in this context mean?
Turn off their mining rigs.
Or use it for other coins.
As you can see on https://www.f2pool.com/coins other coins using SHA256 as PoW algorithm only amount to about 1% of Bitcoin's daily dollars of Pow Produced, so if any nontrivial amount of hash moves there, then those will soon become unprofitable too.
They all correlate with bitcoin. Same problem probably applies.
...and sitting on a lot of ASICs which are soon worthless....
Stop mining.
"stop"
(Obviously the equipment doesn't go away. You can start it again. But if you can't make a buck doing something, you won't do it.)
But I mean, their bitcoins are not going away, their wallets are still there, their bitcoins also right? I thought bitcoin mining was proportionally hard to the number of already mined bitcoins, not the number of people mining?
I probably should look this up in wikipedia first.
It's a common misunderstanding that mining just gets harder and harder as time goes by and more coins are minted. It's often misreported that way. But in fact, the difficulty is dynamic and adjusts itself to keep minting at the predetermined rate regardless of the number of participants. Mining has gotten harder on long timelines, but only because more computing power has been added.
Doesn’t that contradict the Wikipedia article?
> Miners who successfully create a new block with a valid nonce can collect transaction fees from the included transactions and a fixed reward in bitcoins. To claim this reward, a special transaction called a coinbase is included in the block, with the miner as the payee. All bitcoins in existence have been created through this type of transaction. This reward is halved every 210,000 blocks until ₿21 million have been issued in total, which is expected to occur around the year 2140. Afterward, miners will only earn from transaction fees.
https://en.wikipedia.org/wiki/Bitcoin (emphasis mine)
Difficulty and block rewards are separate things. There is no contradiction here.
Block reward stays constant, amount of work required (on average) to get a block reward is dynamic in order to make it so that total number of rewards given out over a length of time stays roughly constant.
So if too many block rewards are claimed in a given time frame, difficulty is increased to slow things down. If not enough are claimed then difficulty decreases to make it easier to get one.
The reward of each block will only get smaller. But the power needs to mine a block is dynamic.
A perpetual boom bust cycle? Sounds healthy.
It is a negative feedback loop, so yes, it makes systems stable.
Regression to the mean. The alternative is no adjustment at all.
If bitcoin miners are losing $19k for every bitcoin they mine, why would they sell bitcoin to continue funding their mining operations. That just makes it even less profitable because they are driving down the price of their remaining bitcoin. It makes more sense to shut their rigs off completely and wait for the price to rise.
The funny thing about bitcoin is that the rate of bitcoin discovery doesn’t change when they shut off their rigs so it won’t change supply. It would actually make more sense to sell all their bitcoin, flood the market with coins to do the price, wait for large miners to collapse and then restart mining at hopefully lower prices.
> […] why would they sell bitcoin to continue funding their mining operations […]
There are usually some fixed costs involved and you need cash flow. Without cash flow, your business can shut down pretty damn fast. With cash flow, your business can stay around longer, maybe long enough for the economics to shift.
This sort of thing happens with oil. There are oil producers which sell at a loss. There was even a brief moment when the price of an oil barrel went negative, which meant that if you gave somebody a barrel of oil, you had to pay them for the privilege of taking that oil off your hands. Oil producers did not all shut down when that happened.
I am a little doubtful of the $19k figure anyway.
> It would actually make more sense to sell all their bitcoin, flood the market with coins to do the price, wait for large miners to collapse and then restart mining at hopefully lower prices.
This kind of market manipulation is not so straightforward.
> There was even a brief moment when the price of an oil barrel went negative
More accurate: The price for an _option_ to buy/sell oil was negative, not the price of the barrell itself.
This is just a lie. Coindesk is the worst media in the world.
They can't calculate correct price of mining because it's more complex and enerrgy costs are different in so many regions and inside the electiric producers etc. !
It’s not a lie, nor a damn lie. It’s statistics!
Exactly: "The average production cost was sitting at $88,000 per bitcoin in mid-March". Emphasis on average. Just as in a free market, those miners with higher mining costs are priced out of the market. Or are pressured to become more efficient. Those that are below-average probably already are efficient.
It's 2026 and there's still people that believe that proof-of-work makes sense as a consensus mechanism
> When miners can't cover costs, they sell bitcoin to fund operations
Surely they should stop producing until its profitable again, or am I missing something?
If everyone stopped mining transactions couldn't go through anymore and the value of bitcoin would drop. If you're heavily invested in bitcoin that's bad. Also miners try to squeeze in their preferred transactions which they can't do when they're not mining. Finally the costs dont drop to zero when you turn the miners off, so the loss from mining might be less than the loss when not mining.
He's not saying everyone, just the ones who are unprofitable. Not everyone mines bitcoin at the same cost. The ones who do have to stop can also profit from curtailment depending on the price of energy relative to hash profit.
Isn’t mining and transactions separate? Sure you need to have online participants, but they don’t have to actively mine, right?
You can generate transactions but ultimately transactions are validated and written in the blockchain by miners. Mining is essentially a way to select voters based on their ability to solve puzzles, ensuring that if you are selected once you have no particular advantage next time. Without miners this whole system doesn’t work.
No, mining is exactly what makes transactions go through, computing the next result in chain, certifying that the transaction happened.
What? That's not true. You don't need more than one CPU miner online for tx to go through. That's why there are difficulty adjustments.
But as number of miners drop arent btc at risk of a 50% attack?
When I was mining circa 2017 - 2021 (approx. 1 BTC/month and 25-30 ETH/month) and planning it all out, I prepared myself psychologically to operate for up to 2 years without any profits or selling. It was a hard pill to swallow and a huge risk; my costs were $8500/month in electrical and then another ~$2200 on a lease for the warehouse. When it dropped to $3,000/BTC a few months after I came online and stayed there for 6-8 months, I started wondering if I was the biggest dumbass in my county.
Thankfully, it all worked out in the end very well. I don't know how anyone would put in the effort/money to get a major crypto farm going and plan to just cash out every month to pay bills. What's the point? I always thought of it as a long-term bet on the price going way up, which it did.
Seems like you could have made that same bet by just buying BTC with that money and doing twice as good.
Up to a point; once it was over $12k or so, it was cheaper to mine them than to buy them. But yeah, I guess in retrospect I could have just dumped ~$450k into buying BTC when it was at $3,000 and made 3x what I ended up making, but there were other considerations for why I did it at the time. The mining was co-located with my cannabis grow/operations, and in many ways the mining was started secondary to that, even though the mining ended up being a little more profitable over the life of the facility
I dunno, probably only if you don't count for human psychology. If they bought N BTC and tried to held them, would they still hold them when they double in value? What about increasing 10-fold?
Compared to doing some work to getting 1 BTC per month, which you can then individually decide what to do with, instead of a lump sum you could cash out at any moment.
I mined in 2014 with free electricity and that was true even then. That's with hindsight though, the mining reward is more predictable than that market price would increase (more than) equivalently.
It's a very low effort article. There are several places where the cost of electricity is roughly zero and state actors have interest in Bitcoin (Iran/Russia) or strong actors more powerful than the state (Libya/Venezuela). It's not surprising that this is good news for them as mining rigs for Bitcoin are much lighter to transport than the ones for oil.
You're missing that humans are often irrational.
They may be hoping it goes back up.
If you bought a bunch of hardware to mine bitcoins, then not using that hardware represents a 100% loss of value. You may lose money producing, but you would lose even more money not producing.
You're not missing anything. As you can see if you read through the thread, they rely on bitcoin miners being heavily invested into bitcoin and bitcoin equipment, so those people will operate unprofitably to prop up their holdings. It's a moron's economy. A system that relies on externalities and corruption, and produces nothing of value. It's the art market with no art.
If bitcoin miners are smart enough to have anticipated this, and decided not to hold onto bitcoin and just let it drop; and also to have repurposed their equipment, sold it to bigger fools, or have just run it into the ground, none of these ideas make any sense.
Why would they, though? The real answer is that governments and monopolists are propping up bitcoin through simply handing tax money to bitcoin holders, and in the case of the latter (also government tit-suckers) leveraging themselves to pump up bitcoin markets when they are down. I'm sick of humoring this because it was once mildly interesting technically. It's a criminal scheme and everyone involved needs to go to prison. When I hear a politician say the word bitcoin, I'm going to do everything in my power to damage that politician.
Isn't AI the new hot thing, why are the miners still going after Bitcoin, when they can probably just use the same infra for AI and make more money, stay profitable.
Totally different infra: bitcoin these days is all dedicated ASICs that have basically no other use, unlike GPUs.
Hash mining asics don’t work well for AI
This is true, but large miners also have beneficial electricity contracts and data center capacity, both suitable for AI workloads.
"don't work well for AI" is a hell of an understatement, the Application they are Specific to is literally just sha256(sha256(x)), what AI are you going to do with that?
GP probably didn't mean that hardware though, but rather the facility, electricity supply, cooling, etc.
Article covers that briefly.
There's a reason why countries invented a central bank who decides how much currency gets printed.
Maybe a basic question - do miners use solar?
Prices are dropping so fast it seems like the cheapest way to power mining rigs.
Also free grid electricity for three hours a day in Australia will be interesting.
Is there a SQQQ for BTC?
SMST (Defiance Daily Target 2x Short MSTR ETF) could be a rough equivalent.
As the other poster mentioned though, many miners won't be using oil-based energy sources, so it does make one wonder about cause and effect. Maybe a dip in BTC would've done it regardless of oil?
You can take stable-coins, borrow bitcoin against them and sell them. (Fully or over-collateralized). Then buy back bitcoin if/when it drops.
If you’re wrong, you lose your stable-coins.
Let us know how it goes :)
The CME offers Bitcoin futures which can be shorted if you have a futures trading account with a broker.
There is BITI which is the inverse of IBIT, the largest Bitcoin ETF afaik
If you're being sincere, there are many easily accessible ways to short Bitcoin with leverage.