Bitcoin is Worth Less Than the Cost To Mine It (bloomberg.com)

The production-weighted cash cost to create one Bitcoin averaged around $4,060 globally in the fourth quarter, according to analysts with JPMorgan Chase & Co. With Bitcoin itself currently trading below $3,600, that doesn't look like such a good deal. However, there's a big spread around the average, meaning that there are clear winners and losers. From a report: Low-cost Chinese miners are able to pay much less -- the estimate is around $2,400 per Bitcoin -- by leveraging direct power purchasing agreements with electricity generators such as aluminum smelters looking to sell excess power generation, JPMorgan analysts led by Natasha Kaneva said in a wide-ranging Jan. 24 report about cryptocurrencies spearheaded by Joyce Chang. Electricity tends to be the biggest cost for miners, needed to run the high-powered computer rigs used to process data blocks to earn Bitcoin.

"The drop in Bitcoin prices from around $6,500 throughout much of October to below $4,000 now has increasingly pushed margins further and further negative for just about every region except low-cost Chinese miners," the analysts said, offering the caveat that their cost estimates may be skewed to the high side due to spotty data and conservative efficiency assumptions. The cost figures exclude equipment.

Comments

Re:Sort of

[Pseudonym]

No environmental problem, as bitcoin consumption is actually negligible, on the order of a large city (not a country as those who misquote and misunderstand the IEEE article 'absurd cost' claim, that was projection for future)]

At the risk of stating the obvious, there are plenty of countries with populations that are smaller than "a large city"; the population of New Zealand is roughly half that of Tokyo.

I couldn't find reliable data in the time that I had to compare like with like, but a reasonable null hypothesis is that both claims are true. I can easily see how a large city could easily consume the same power as a modest-sized country.

Re:Feedback mechanism?

[mamba-mamba]

Not exactly. The feedback operates to adjust the difficulty of mining. The way it works is that if blocks are mined faster than once every 10 minutes (on average), the difficulty is increased slightly. If it takes longer than 10 minutes, the difficulty is reduced slightly. As machines go offline due to poor profitability, the difficulty will likely have to decrease to keep the mining rate constant. This has pretty much worked as designed over the inception of bitcoin. Despite all the hash power people have thrown at bitcoin, the rate of new block creation has stayed consistent on average. The difficulty is not updated super often. Here is a chart of difficulty vs time.

https://bitinfocharts.com/comp...

How much bitcoin you get for mining a block (the reward) is pre-determined by the implementation. It goes down by half every so often. Currently, the reward is 12.5 bitcoin. The "reward" represents the creation of new bitcoin. Once all bitcoins are mined, the reward will be zero. In addition to the reward, miners also collect fees from all the transactions contained in the mined block. Eventually, the only incentive to mine bitcoin will be to collect the transaction fees.

If you haven't already read the whitepaper, I recommend it. It is not that long, and not that difficult to understand for people familiar with hashes and cryptography and whatnot. It is 9 pages.

In my opinion, most coverage of bitcoin, even in the technical press, is woefully uninformed. The ONLY reason bitcoin takes so much energy to maintain is because the price rose so high, and the difficulty therefore increased. Now, as some of the mania is dying off, things should be a lot more sane, and non-profitable miners will bow out.

https://bitcoin.org/bitcoin.pd...