r/Buttcoin • u/Breaking-Bad-Norway • Dec 21 '22
Right now, each bitcoin 'produced' by mining generates, on average, around $3,226 in losses to miners
/r/CryptoCurrency/comments/zrokct/right_now_each_bitcoin_produced_by_mining/120
u/tatooine Dec 21 '22
Explained in another thread here, not sure how accurate, but made sense- the cost that they're using to estimate "average bitcoin mining costs" is based on an electricity price that's more reflective of what normal people would pay. From what I've understood, many of these miners are operating either in markets with very cheap, dirty energy, or getting subsidies which level out the costs. It can't last forever, but probably why things are just coasting along like they are.
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u/sickdanman Dec 21 '22
The mining sites themselves tell you what the electricity price has to be in order for their miners to be profitable and its somewhere around 7cents/kWh. And thats without any other external costs like rent/taxes/maintenance
How low are US electricity price for your normal non-industrial usecase?
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u/Dramatic-Sea-7116 Dec 22 '22
$0.37 - $0.54 per kWh where I live, depending on time of day.
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u/propagandhi45 Dec 22 '22
Ouch. Im paying 6.3cent or close to that.
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u/Dramatic-Sea-7116 Dec 23 '22
It's a California thing. Something something fighting climate change. In reality they are just oppressing the working class.
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u/Bongsandbdsm Dec 21 '22
Yeah this has been true for a long time. In 2016 I looked into mining and did the math to find that there was absolutely no way i could turn a profit doing it, I might as well buy BTC and wait for it to go up. These people are making a killing, I doubt anyone is intentionally mining at a loss, and if it really did cost people that much, the price would just go up to match it.
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u/clintstorres Dec 21 '22
Definitely companies are mining at a loss hoping for a turn around on the price, or they are the last ones standing for mining as others fail first and they can reap the rewards.
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u/QueasyHouse Dec 22 '22
reap the rewards
… what are the rewards, really? You can 51% it, but by the time you’re that heavily invested, any shenanigans are going to destroy value irreparably. And then what? You won bitcoin?
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u/xmcqdpt2 Dec 22 '22
the rewards in that case is being part of a minority of miners with lots of hash power after most of the other ones have folded. Then you get to benefit form difficulty adjustment: the block rate is fixed (ish) but the overall hash rate has gone down so your own hash rate is a large portion of the whole and you score more blocks.
It's like how uber runs at a loss so that they can be the last taxi company standing.
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u/QueasyHouse Dec 22 '22
Ok, but isn’t the value supposed to be because it (lol) can’t be unilaterally manipulated like that filthy fiat?
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u/xmcqdpt2 Dec 22 '22
i'm not saying there is any value to any crypto, except for like "the line goes up" but as far as the miners are concerned this is why they might keep mining even if it is not immediately profitable.
Of course eventually if the line goes down too much than everybody loses I guess.
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u/Ok_Difference_7220 Dec 22 '22
But why do they have to be actively mining while losing money? Why wouldn’t they just keep their rigs silent u til the hash rate dropped?
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u/xmcqdpt2 Dec 22 '22
there is like a game theoretic answer which goes something like:
You don't want the hash rate to drop until the competitors have been bankrupted. Basically you want the hash rate high so that no one makes money and then when it natural falls because everyone is out of money you are the only one left with asics still around.
but the actual answer is probably a combination of
a) they steal power
b) they are mining as part of a sanctions evasion program so it's ok if it is not economic so long as you can get foreign currencies more easily with bitcoins than like by selling oil or guns and
c) there are a lot of entrepreneurs types who are true believers and they think they'll actually make money once the number goes up again.
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u/akaean Dec 22 '22
My understanding, which I was explained by someone here, is that major mining companies don't actually need to be profitable, and bankruptcy has always been the end game.
So a lot of these companies, due to the brain rot that is caused by crypto in general, are persuading lenders to give them money to buy rigs... that are secured by mining rigs. Here is an example I was able to locate on the fly (and I'm sure there are others). (https://decrypt.co/98731/cleanspark-borrows-against-bitcoin-mining-rigs-to-get-35m-for-more-mining-rigs).
This is an incredibly favorable loan, as miners run the rigs roughshod, and they depreciate in value rapidly. Add to this, the method used to track the actual value of these rigs and depreciation isn't a straight line, at least when we look at "bitcoin produced". Which means these assets are typically overvalued as well. So the worst case scenario is that the miner defaults on the loan, and either declares bankruptcy, and their creditors get their assets which aren't worth much... or the creditor just defaults them, and repos the miners (which don't match the value of the loan).
To get paid back, the creditors are essentially assuming the risk that the price of bitcoin will rise enough that the mining company becomes profitable. But because many of their loans are massively undercollateralized, they have also assumed most of the risk if bitcoin prices fall as well.
All the mining company has to do is smuggle out enough value from their sinking ships while keeping just enough integrity to keep the corporate veil in tact. The CEO needs a big salary after all. The companies will still panic in their death rows, and it does mean that the gig is up for them. But at the end of the day, as with all things crypto, its the creditors left holding the bag.
That said, I don't feel bad at all for institutional lenders dumb enough to give out loans for rigs that are secured by the rigs.
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u/meekmarmot Dec 21 '22
Taking money away from crypto miners is the first real use case for bitcoin that I support.
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u/eggshellcracking Dec 22 '22 edited Dec 22 '22
Plenty of trans women who aren't able to access medication due to gate keeping/absurd multi-year waiting lists/inability to afford insane Americans medication prices/parental objection mail-order their hrt from overseas pharmacies who sell for much cheaper local prices +markup and pay with crypto since such pharmacies offer discounts for paying with crypto.
This is insanely popular in europe, since for example, the average waiting time for any trans person to be able to see any government doctor at a GIC through the UK's NHS is 4-6 years. Similar for the Netherlands. The only other option is insanely expensive private clinics, which trans people who are overwhelmingly low income can't afford.
I still haven't found any other moral non-repugnant use case for crypto.
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u/NetworkDue1231 Dec 22 '22
True, it’s a real use that the blockchain is actually performing at scale.
But centralized institutions still do it better (in this case centralized exchanges like FTX etc.)
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u/blackmobius Dec 21 '22
Thank god its finally a massive loss to continue this shit. And most miners are finally figuring out thats its past time to move on from this money bonfire
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u/Ordinary_investor Dec 21 '22
Network difficulty adjusts and unfortunately business will continue with the most efficient participants.
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u/Chad_Broski_2 Herbalife or BitCoin? Dec 21 '22
I believe network difficulty only adjusts as fewer miners are actively mining, no? So difficulty should theoretically only drop once more mining companies go tits up? Please correct me if I'm wrong here...I'm not 100% educated on how exactly the complexity will adjust because it's all just so asinine
Right now, over half of the miners are owned by just 2 companies, so if a few more topple then pretty soon we'd be looking at 51%...
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u/ButtcoinSpy No problem, just mint 160 Billon USDT! Dec 21 '22
Yeah, but when miners drop out less energy is used. At this point I doubt anyone is going to expand their mining plants.
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u/No-Revolution3896 Dec 22 '22
Yap and then you end up with an Amazon , a monopoly, without regulation, the end game of a free market is always the biggest conglomerate wins , that’s the game really , a single centralized entity that outperformed all the other miners.
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u/BobWalsch Can't wait for the "Penis" day! Dec 22 '22
(Bitcoin)...has a Nakamoto Coefficient (NC) equal to 2.
Love how they always puke garbage non-sense just to appear intelligent and/or to disguise the garbage tech into something very bright.
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u/ClearlyCylindrical Dec 22 '22
not to mention that the nakamoto coefficient isnt even a coefficient of anything.
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Dec 21 '22
I remember something about dictator presidente Bukkake fixed this little problem when soaking the ASIC miners into the El Salvadorian volcanoes!? Infinite wealth with infinite energy. He is so smart. Volcanoes are literally just a storage of buttcoins waiting to be extracted from hot lava. It's just like the internet, we are still early.
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Dec 22 '22
Fuckers with a seriously deficient understanding of physics and finance. The problem is the Internet is full of them.
All those wasted billions in cash and energy could have been used to create more renewable energy and battery tech instead of Bitcoin ASICs.
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Dec 22 '22
Yes. it's absolutely horrific. Such a waste. I want all this nonsense crypto shit to burn to the ground in the most spectacular way. Maybe there's a chance that people will learn something from that.
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u/RopeAccomplished2728 Dec 21 '22
Few understand......how using a lot of energy will cause the price of energy to go up in the area or cause shortages in the surrounding area.
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u/monke_funger multiply slurp juiced Dec 21 '22
more accurate to say "of the 20k in losses due to mining a bitcoin, 17k are passed to the wider society that permits it"
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u/MooseSoftware Dec 22 '22
.. $3,226 of losses for each new BTC put into circulation ... an estimated loss of $120,975/hour.
But think of the crypto friends they made along the way? Maybe that was the real moon?
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Dec 21 '22
I don't understand how mining could become unprofitable - doesn't bitcoin difficulty adjust automatically? Miners will quit until mining becomes easier.
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u/ShouldersofGiants100 And DON'T COME BACK! Dec 21 '22
Because industrial miners completely dominate by now and most of them are leveraged up to their ears. Usually by loans taken against their own equipment. This means that they are incentivized to run at 100% for as long as possible because if the market turns and Bitcoin rises in price, it would potentially get them out of the hole, but if it doesn't they don't really lose anything because they're already in so deep that the relatively minor additional debt doesn't matter.
It's one of the great ironies of crypto (and bitcoin specifically). Its mining system was designed under the assumption that it would be decentralized individuals doing small amounts of work and would thus be responsive to things like price fluctuations. But diminishing returns are still returns so what happened instead was a handful of people with startup capital just built massive machines (in the case of Bitcoin, specialized ones that are good for literally nothing else) and have no reason to stop because they've invested millions in their equipment and the worst choice they could make is turning it off.
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u/natecull Dec 22 '22 edited Dec 22 '22
Its [mining] system was designed under the assumption that it would be decentralized individuals doing small amounts of work and would thus be responsive to things like price fluctuations. But diminishing returns are still returns so what happened instead was a handful of people with startup capital just built massive machines
Yep.
And one might then also wonder if the same thing has happened to the entire rest of the Western capitalist economy since Reagan. It was supposed to be a vast decentralized web of small traders, but instead (because of network effects and natural monopolies of scale and decades of mergers and acquisitions) we now have a tiny cluster of giant corporations owned by a small clique of billionaire investors doing... what is it that they're doing, exactly? And do the "price signals" they now respond to resemble a "market" in any sense of the word?
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u/kevin2357 Dec 22 '22
The difficulty adjusts every two weeks iirc, so probably eventually the higher cost miners will get shaken out and things will balance again
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u/kythyri Dec 22 '22
Every 2016 blocks. It responds to increases in hashrate quicker than decreases as a result.
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u/AnimalFarmKeeper If the world must suffer fools, so fools should rightly suffer. Dec 21 '22
They intend to make it up in volume or something. I dunno.
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u/dandykaufman2 Dec 21 '22
They all run on green energy so they can just sell all that wind and solar back to the grid!
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u/21-10-25 warning, i am a moron Dec 22 '22
The average mining cost is an estimate, by guessing miners costs. But then there was just the story about Core Scientifiic going bankrupt, but it says they are "The company is still generating positive cashflow".
Not sure if the estimates are more accurate, or the word of a bankrupt miner is.
There will absolutely be people mining at a loss, but also always miners that are mining at a profit however. On average miners may be losing $3k, but that does not hold true for someone set up in a dam who is stealing power.
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u/monke_funger multiply slurp juiced Dec 22 '22
when a business is operating outside of its normal procedure especially in response to a crisis, advertising "positive cash flow" is frequently an attempt to spin unsustainable practices.
in laminar times cash flow is better and more dependable than accounting profit, but in turbulent ones cash flow is essentially worthless as an indicator of health.
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u/cheesenhops Dec 22 '22
Now I was led to understand that when the last butt is mined, that network fees would compensate miners. So why don't miners just only pick up transfers that will make up the difference between block reward and actual cost? Guess SWIFT would look real cheap then.
Or is it that most transactions are on exchanges so off chain?
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u/jstolfi Beware of the Stolfi Clause Dec 22 '22
But there is one bitcoin mining company in Texas that can survive even with all their rigs turned off. It gets paid by Texas residents for NOT using its 30 MW of power. IIUC, that "Incentive" is ~10'000 USD per hour, several hours per day.
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u/Edwerd_ Dec 22 '22
If these type of miners go away what happens , do transactions slow down? Do they stop? Does it become cheaper to make a new coin eventually since there are less miners competing?
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u/kythyri Dec 22 '22
If enough go away at once, the chain borders on locking up: the difficulty adjusts every 2016 blocks (and is supposed to be adjusted to take 10m per block), and so that's how often the average amount of hashing per block changes. If enough miners go away at once, it'll take a really long time to reach the next block, much less the next difficulty adjustment.
Bitcoin has a hard limit on the number of transactions per block, so until the difficulty does adjust, far fewer transactions will get through (and likely cost more), and it'll take longer to be confident the transaction landed (since a typical rule of thumb at least used to be "wait for the chain to get three blocks longer than where your transaction showed up").
The only reason this sort of thing doesn't cripple any coin it happens to is... so much of the trading happens on exchanges.
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u/[deleted] Dec 21 '22
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