Bitcoin Cloud Mining – The Chickens will come home to roost!
4 stars based on
76 reviews
Bitcoin mining can be a very profitable activity. It's good that it is beause Bitcoin, as a system, only works because of the mining activity; next bitcoin reward halving a chicken the mining next bitcoin reward halving a chicken ensures the transactions actually take place.
Just how much money does it generate though and does this help us make any predictions for the future? Next bitcoin reward halving a chicken mining any other finite resource, Bitcoin next bitcoin reward halving a chicken gets harder over time and requires more investment to mine profitably.
Mining requires a capital outlay to buy mining equipment, incurs operating costs to keep it running and is ultimately only successful if, over the useful life of the mining equipment, the value of what's mined is higher than the total costs to mine it.
For Bitcoin the mining rewards seem pretty simple to estimate: This yields a nominal BTC per day. In practice though, this underestimates the mining reward for a couple of reasons:. Bitcoin was set up to try to track the amount of hashing capacity in the total network and to adjust the difficulty of the next batch of blocks every block nominally every 2 weeks. The aim is to try to have the next blocks take 2 weeks to complete. Between the adoption of GPUs and the introduction of ASICs for mining this actually worked out quite well but the huge increases in hashing capacity enabled by ASICs have meant that the difficulty level has lagged behind.
ASIC technology limits will eventually slow this but not for some months at least. The impact of steadily increasing hashing rates can be seen when we look at the date at which the fixed block reward halves.
The genesis block was created onwith the first mined block being on The fixed reward halves every blocks so at blocks per day this should have been days later, or In practice block occurred onsome 39 days earlier.
If we consider more recent trends the effect is even more marked. Between blocks and there should have been Over 19 months of hashing work was completed in a little over 16 months. Our average number of blocks per day has been slightly more than In fact most of the gain has come in the last 14 months so the average block rate has been higher still.
The downside, of course, is that while there's more money being made now, so the date of the next halving of the reward is moving closer. Instead of being in November it's already moved to August and, unless something unexpected happens, will almost certainly happen a month or two before that. Bitcoin mining was designed to steadily move from a phase where mining was about collecting the fixed per-block reward of new coins to one in which transaction fees next bitcoin reward halving a chicken the majority of what a successful miner gained.
So far the numbers of transactions haven't been high enough to provide significant rewards from the fees and they're typically only generating about BTC per day.
It's not unreasonable to state that Bitcoin needs transaction fees to become a larger part of the system otherwise the reduction in the fixed mining reward will be a serious problem. Typically miners will invest in the best hardware available in order to maximize their returns but that investment is funded by what they mine. If there's not a major increase in the value of transaction fees when the fixed mining reward halves again then next bitcoin reward halving a chicken an equally strong risk that mining investments will drop next bitcoin reward halving a chicken.
Given that mining uses highly specialized hardware and that the hardware comes from highly specialized companies then any such drop poses a serious risk to the profitability of companies supplying the virtual picks and shovels! In an earlier article, " Chickens And Eggs? In retrospect it seems a more interesting comparison is between hashing rates and the total daily miners' next bitcoin reward halving a chicken. Here's that new chart:.
As with earlier charts both of these traces are plotted on logarithmic axes but the two lines are spaced apart a little to make comparisons easier. Given that the hashing rates have been increasing so dramatically for more than 12 months it's also highly unlikely that more than a very small fraction of the currently-deployed hardware has been in use for more than 8 months. This suggests that a huge fraction of the money being made from mining is now also being spent on mining hardware.
Another jump in the BTC price will help make things more profitable for miners but will probably also just trigger yet more spending on mining hardware.
It also suggests that the correlation between mining hash rates and the BTC price is certainly more circular than might otherwise seem likely as purchases of mining hardware has been one of the biggest uses of Bitcoin itself.
As ASICs start to hit the limits of the process technology the huge expansions in the hashing rate will have to slow down and that will start to change the mining economics again
