Understanding Bitcoin Network Hashrate Increases

This editorial is by Alex, a Kaboomracks bitcoin miner. Individuals who are new to bitcoin mining should understand the importance and impact of Bitcoin’s difficulty adjustment on their mining profitability. Many people who are new to bitcoin mining will check the profitability of the ASIC on a mining calculator and assume that it will remain relatively stable in the future. This is a mistake as the profitability of any machine tends downwards over time. Before purchasing an ASIC, it is important to understand the causes of difficulty increases. This can be easily understood by comparing ASICs to other electronic devices. The device’s usefulness decreases the longer it is used, as new software requires more computing resources. It would be extremely frustrating to use an iPhone 6 years ago. The less utility a phone has, the older it gets. Mining is a similar process. Mining is a competitive industry. It becomes more difficult to compete with other miners as more machines are turned on. It is more difficult to compete with newer and more efficient hardware. Without difficulty adjustment, all bitcoin would have been mined and there would not be any incentive for miners who want to secure the network. Blocks are generated at a faster rate when more miners join the network. This is due to an increase in hash rate. To ensure that blocks arrive in 10 minutes, the network adjusts the difficulty. Increased difficulty adjustments translate into lower profits for miners. It means that the Bitcoin users have more security in the monetary network they use. Picture taken from insights.braiins.comDownwards difficulty adjustments mean that miners will be earning more profits as these are a result of hash rate coming offline. This is evident in the famous case of China banning Bitcoin mining. A large amount of the network’s hash rate was then offline for a time. As mining hardware gets more powerful and more efficient, downward difficulty adjustments are not common. Even if machine efficiency stagnated and hash rates increased, more machines would be manufactured and plugged in. The Bitcoin mining industry has a lot of potential growth. It is still very young and the Bitcoin mining industry is extremely immature. This means that there is plenty of room for growth. There is a possibility of difficulty adjustments going down as the hash rate goes offline. However, this is not something miners should consider. It is important to be prepared for the worst, as we have seen in the last few months. ASIC Manufacturers Release New Machines Every two years, a new machine is released with significant improvements in efficiency and hash rate. Bitmain’s S19XP and S19Hydro machines have been deployed, resulting in recent network hash rate increases. Another factor is that older generation machines are finally being connected to the network. This is due to Bitmain’s S19 XP and S19 Hydro being deployed. As network hash rates increase and new machines are introduced, ASIC’s value will continue to decrease. While the value of an ASIC will fluctuate depending upon the Bitcoin price, it is safe to say that it loses value over time. It is crucial to make sure the machine is running when you have it. Buying it to plug in later means you are throwing money away unnecessarily.Bitcoin Purchasing Power Bitcoin mining is like taking a long position on Bitcoin, but with a lot of headaches and execution risk. It can be extremely lucrative if done correctly. It can be a great way to quickly become poor if done wrong. Although the machine generates a steady income, the purchasing power of that income can fluctuate greatly. While power prices are stable in dollars, they are volatile when you factor in the income you make from the machine. A S19j Pro might make 38,000 to 40,000 sats per day in income. However, if you mine on $0.10/kWh, your power costs would be 41,263 Sats and bitcoin trading at $17.461. To maximize your ROI and profit, it is crucial to find the lowest electricity prices. It is not easy to find cheap electricity. Miners often fail because of hidden fees or complications. All miners regardless of how big or small are subjected to these economics of variable purchasing power, network hash rate increases, and machine devaluation/obsoletion. ASIC Pricing The manufacturers must set a base price to produce new equipment. We are currently at, or nearing, that floor for new equipment from the manufacturer. They are either slowing down, or stopping production of certain models. Because of their warranties, people will pay more for new equipment. However, used equipment is not covered by warranties and can be subject to unforeseen conditions. This is why used equipment is often sold at a significant discount. ASIC pricing is just like any other industry. Price is determined by supply and demand. There are many reasons individuals may purchase ASICs. However, Bitcoin price and difficulty are key factors. ASIC prices will fall if there is less demand for the income earned by ASICs. Because the demand falls, bear markets are generally a good time to buy. Moore’s Law and the Future of ASICs”Moore’s Law is an axiom in microprocessor development that states that processing power doubles every 18 months, especially when compared to cost or size. Merriam WebsterWe are approaching the end of the computer chip revolution, as chip makers push the boundaries of physics. This is not the end of Bitcoin’s network hashrate. The mining industry is still very insecure when it comes to basic principles like heat dissipation, software applications, and relationships with energy producers. Although computer chips have made slower advances in computing power, we have only scratched the surface of other technological advancements that will eventually lead to more power being used and more computing power expended to secure the Bitcoin Network. As bitcoin becomes more popular and its value is better understood, mining will become more popular. Naturally, this will lead to an increase in Network hashrate. This is a hard reality for me as a miner. It means that my hardware’s profitability will drop over time. It gives me confidence in the monetary system that I use every day as a Bitcoiner. This guest post is by Kaboomracks Alex. These opinions are not necessarily those of BTC Inc. and Bitcoin Magazine.

 

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