Bitcoin Mining - what, why and how?
Right. Let's talk Bitcoin mining.
Up-bup-bup!
Before you click away, this explainer is pertinent to the linked article - which is an absolute mine field of information.
( Ooooh, accidental pun - leaving it in!)
First, what the heck is Bitcoin (BTC) mining?
21M total BTC will ever exist.
There are 2 ways to own BTC: buy it, or mine it.
BTC uses the ‘Proof of Work’ (PoW) method of processing blockchain transactions.
For PoW, computers compete against each other to solve complex math problems. The first to solve the problem and ‘prove the work’, wins the right to process the block of transactions.
Back when BTC was first created, a standard old computer had enough computational power to mine blocks.
But now, after ~19M blocks have been mined, it takes a purpose-built setup - and those setups are expensive to both build and run.
The good(ish) news is that in a recent report, JP Morgan estimated that the cost to mine 1 BTC has dropped from ~$24k at the start of June, down to ~$13k in mid July.
What are the costs involved?
The key cost factors for miners are:
Hardware - the mining rigs and their fandangle chips
Electricity - energy used to solve the math problems
Labor - employees to manage the mining operations (especially if there’s an outage)
Land - where mining rigs are physically located
So how do cost fluctuations impact BTC?
Things used to be pretty dandy.
Even with mining costs at $24k, when BTC was valued up over $60k, miners were making a pretty penny.
The crash down to ~$20k has had a massive impact on mining. Many of the biggest operations have halted operations temporarily or sold large sums of BTC to stay above water.
When mining companies sell all at once, it puts more downward pressure on the BTC price.
But new chips and more energy-efficient mining rigs have led to a big reduction in costs of late.
And mining companies have also started to renegotiate their power deals, which has led to a decrease in running costs.
Alright, now you know!
Enjoy the linked article :)
