Andreas Antonopoulos Shares Mind-Bending Bitcoin Mining Profitability Details Regardless of Price
The author of ‘Mastering Bitcoin’ Andreas Antonopoulos was asked of his opinion, on if mining of BTC is profitable with its current price, during a YouTube question and answer session.
Andreas started by explaining the ‘difficulty re-targeting algorithm’, stating that brings about a changing relationship between the allocation of new BTC blocks and miners behavior in the market.
Mining Farm Scenario
He explained further using a scenario in which at any given time, there are a huge number of mining farms in operation and a lot more mining equipments and ASIC miners. He stated :
“Imagine you are operating one of these farms within your factory or warehouse. You would probably have a variety of equipment; 80% of it is the very latest, most efficient equipment… at a certain cost and number of hashes (generated) per kilowatt of energy consumed. That is how you estimate the efficiency of your mining equipment”
In addition be stated that all the equipments will not at the same capacity meaning that some of the equipments would require more kilowatts/hour to supply hash power for the network. He also stated other determining factors:
- Electricity cost
- Staff expenses
Which will all be additional factors that will determine if a mining equipment is profitable or not at the current BTC price and difficulty.
PROFITABLE AND UNPROFITABLE EQUIPMENTS
Andreas stated that the answer regarding each mining equipment would differ, saying that the more efficient equipments would become unprofitable after the lesser efficient mining equipments, that the profitable mining equipments would be turned on while the unprofitable ones would be off. He stated :
“Imagine this as a ripple effect across the entire industry. This is something that happens on a day-to-day basis. Thousands of miners around the world decide to turn new equipment on or off. They are constantly replacing equipment.”
THE EFFECT OF EQUIPMENTS SHUT DOWN ON BTC NETWORK
He also stated that many mining farms shut down due to the operations high costs, and that whenever a mining farm shuts down its equipments, there is a drop in hash power across the entire BTC network and this happens “all the time”
Antonopoulos added that the resulting reduction in hash power, as a result of a good number of miners powering down their least cost effective mining equipment, is bound to alter mining difficulty in about 2 weeks. Andreas suggested that this effect would prove profitable to miners who maintain the use of even all their mining equipment.
This cascade of events are bound to happen as more Bitcoins would inevitably be produced with the same amount of electricity. Andreas said that
“As the difficulty lowers, their mining equipment becomes more profitable, perhaps so profitable that the equipment they turned off is profitable again, so they turn it back on. This will cause the hash rate to increase, so by the next difficulty retargeting it will be less profitable again.”
Andreas adds that the same principle also applied with a drop in BTC price, which would render some mining equipment unproductive, as this continues to happen, the difficulty levels inadvertently would increase. He explained this by saying
“Supply and demand are constantly finding equilibrium at the right level, where the average miner is profitable […] Anytime the bitcoin price moves, that entire equation recalculates; the least profitable will turn off [machines], the most profitable to will keep operating. The difficulty will retarget to keep everything in equilibrium”
ECONOMIC LAWS IN THE MARKET
He added that due to the laws of “economics”, miners profits were almost zero, he added to this saying that:
“a perfect market is where supply and demand reach equilibrium, so the price approaches the point of cost as closely as possible and profit margin goes to zero.”
He then concluded by saying that:
“On average, it will hover around zero and most miners will be operating just about break-even […] The price can never make mining unprofitable [on average]. The unprofitable miners turning off [their inefficient machines] will make the rest profitable again.”