Bitcoin’s value is still oscillating, volatile as ever. It has not even been a month into the new year and the cryptocurrencies value has seen some major ups and downs. We entered into 2019, with Bitcoins value a little over $3700, since then it has crossed $4000 and fallen down to around the same price again. The possibility of achieving heights to which the currencies value rose once upon a time in 2017, seems to be getting farther away as we witness the market being bearish than ever. But what does this mean for miners?
To answer that, let us consider the following preface.
Bitcoin was the first cryptocurrency ever that was equipped with blockchain. The underlying technology is what made Bitcoin stand apart from the centralized currencies. This blockchain was built upon the consensus mechanism that is known as Proof Of Work. The consensus algorithms was integrated in order for all the nodes on the network to agree on appending a block to the chain. These blocks are unlocked by a procedure called mining, which involves solving a mathematical problem against a nonce (a number). If the system is capable of correctly guessing the number a block is unlocked and a Bitcoin is offered as incentive.
Bitcoins are limited in number. There were 21 million initially present in the reserve. But an entire decade later, now 17 million coins have been mined, leaving roughly 4 million in the reserve. The entire reserve of Bitcoin is estimated to be exhausted by 2140. The reason why about 3/4 of the reserve has been mined in a decade and a whole century would be required to mine the res, is that the more Bitcoins are unlocked, the harder it becomes to mine the rest. This has to do with the complexity of the calculation that has to be processed in order to unlock the block. Also, the reward also decreases as time passes by. Initially, only 50 Bitcoins were earned as a reward for mining a block. Then it halved down to 25 Bitcoins, and then to 12.5 Bitcoins.
The Proof of Work consensus Algorithm is what makes the Bitcoin incorruptible. This algorithm may provide a high level of security, but it also associates a huge cost with mining Bitcoin. Mining Bitcoin requires a humongous amount of energy, if the miner has housed an entire mining farm with the appropriate mining rigs. The mining rigs are costly to buy and the amount of energy they consume is no joke either. This makes mining a quite expensive and arduous task.
Owing to the bearish market that has prevailed since the price hike at the end of 2017, many of the tech giants that used to manufacture mining chips, have dismissed their products, due to a decline in their demand. The prices also went down, which ultimately led them to discontinue the chips. Last year Nvidia, discontinued a range of GPUs owing to the decrease in the demand. This year, Bitmain, the China based Mining Giant was also reported to have been going through some rough parts.
The price associated with mining Bitcoin in today’s market is too high. The mining machinery and the amount of electricity it consumes has a cost associated with it. When the market is bullish, the miners make a handsome profit, but in a situation like this, there seems to be no hope for a profit. At least not if the miner sells the mined coin in today’s market. This does not however in any way imply that the miners should abandon their tools altogether. The market is known to be unpredictable and there is hope for recovery. Who knows which direction it is headed in the near future.