As the price of Bitcoin and other top mineable cryptos continues to plummet, many crypto miners are cutting their losses and shutting down their operations. This is starting to cause widespread fear across numerous crypto communities – especially with those that have recently joined the crypto domain.
Without crypto miners, transactions simply won’t get confirmed, so ensuring miners have an incentive to remain operating is vital. This begs the question, is it possible that enough crypto miners could throw in the towel and end up killing crypto in the process?
It’s All About the Math
If you’re holding a crypto that is mineable – such as Bitcoin, Litecoin, and Bitcoin Cash – you shouldn’t panic about the dropping hash rate across the various networks. This is in fact a very good thing and it’s helping smart miners remain profitable. As the network difficulty decreases, it then becomes easier to mine blocks on the various networks. This reduces the expenditure on electricity and thus reduces the cost of mining a block and receiving the block reward. You have to constantly calculate a miner’s hash rate, the mining difficulty, power consumption, price of electricity, and the pool fee in order to stay on top of the mining world.
Balancing Coefficients
As the price of Bitcoin drops, miners running a more expensive system will slowly be priced out, until the network hash rate drops enough to balance the situation out. As the price of Bitcoin goes up, more miners join the mining party, which in turn pushes up the mining difficulty. Conversely, when the price of Bitcoin drops, miners switch off their equipment, causing the difficulty to drop – in an ideal world anyway.
What we saw this year was the opposite, as the price of Bitcoin started falling, the network difficulty carried on rising. This was due to a delay in the time it took crypto mining hardware manufacturers to produce and ship mining hardware. These orders were likely placed back in October, November, and December 2017 – right at the height of the crypto boom. Unfortunately, these miners have quickly realized that mining isn’t so glamorous, especially when you rush the setup of your mining firm.
Finally, the Result Miners Needed
The protracted bear market has finally caught up with miners, and many have burnt through their cash reserves. These miners are finally starting to shut up shop and sell off their crypto mining hardware to escape with at least some cash to their name. For the miners who were just hanging on, this event is wonderful – a bit like the first rain after a hot summer. These miners leaving the scene in turn causes the difficulty level to fall significantly and it means that mining becomes both easier and cheaper to do.
Most Miners Will Stand Strong
All of this means is that, as long as miners have cheap access to power and the difficulty level rises and falls with the price of Bitcoin – as it was intended to do – miners will always be around. Even if Bitcoin falls to $100, miners will still be able to operate and remain profitable thanks to block rewards and a lower difficulty rate.
There you have it, there is no reason to panic at all about the fact that Bitcoin mining is starting to become less popular. As more miners leave the scene, the better it is for the smart miners who set up their businesses with long-term planning in mind. Firms like Hut 8 were mining Bitcoin for around $2,300 earlier in the year. Now the bitcoin network hash rate has fallen, so too has its cost of mining Bitcoin. For that reason, now could actually be a better time than ever to add a publicly traded crypto mining firm to your investment portfolio.
