Bitcoin purchasing power
Bitcoin mining is like taking a long position on Bitcoin, but with a lot of headache and execution risk. If done right, it can be incredibly lucrative. Done wrong, it’s a fantastic way to get poor quick. The income the machine earns is fairly consistent, but the purchasing power of that income varies enormously. Power prices can be stable priced in dollars, but are very volatile when priced in the income you earn from that machine. An S19j Pro can earn 38,000-40,000 rate per day in revenue, but if you mine at $0.10 per kWh, your electricity costs will be 41,263 rate with bitcoin trading at $17,461.
This is why it is incredibly important to try to get the lowest possible electricity prices to be profitable and ROI on your equipment. Finding cheap electricity is neither simple nor easy. Often there are hidden fees or complications that cause miners to fail. All miners, no matter how big or small, are exposed to these economies of variable purchasing power, increases in network hash rate, and machine devaluation/obsolescence.
ASIC prices
It is a basic cost for manufacturers to produce new equipment. We are currently at or reaching that floor for new equipment coming from the manufacturer. As a result, they either slow down or stop production of certain models. Individuals choose to pay a premium for new equipment because they come with warranties. Used equipment, on the other hand, usually does not come with a warranty, and also uncertainty about the conditions it was driven in. For this reason, used equipment is often sold at a significant discount.
ASIC prices are variable just like any other industry. Supply and demand are the most important factors that determine the price. Individuals buying ASICs have a million different reasons why they might want to buy at a particular time, but Bitcoin price and difficulty are major influences. If the purchasing power of the income earned by an ASIC is low, there will be less demand and the ASIC price will fall. Bear markets are generally good times to buy because demand declines significantly.
Moore’s Law and the future of ASICs
“Moore’s Law: an axiom of microprocessor development that generally holds that processing power doubles approximately every 18 months, especially relative to cost or size.” —Merriam Webster
We are coming to the end of the computer chip revolution as chipmakers push the limits of physics. This is by no means the end of massive increases in Bitcoin’s hash rate for the network. The mining industry is very rough around the edges with respect to very basic principles such as heat dissipation, software implementations and relationships with energy producers. Chips may have slower leaps in terms of increases in computing power, but we’ve barely scratched the surface in terms of other technological leaps forward that will ultimately lead to more power being consumed and more computing power being used to secure the Bitcoin network.
As bitcoin becomes more widespread, and its value is understood, the demand for mining will inevitably increase globally. The result will naturally be an increase in the Network hash rate. As a miner this is a painful reality as it means the profitability of my hardware will decrease over time. As a Bitcoiner, it gives me confidence in the monetary network I use daily.
This is a guest post by Kaboomrack’s Alex. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
