Bitcoin Purchasing Power
Bitcoin mining is like taking a long position on Bitcoin, but with a lot of headaches and execution risk. If done correctly, it can be incredibly lucrative. If done incorrectly, it is a fantastic way to get poor quickly. The income the machine makes is fairly consistent, but the purchasing power of that income varies tremendously. Power prices may be stable priced in dollars, but are very volatile when priced in the income you are making from that machine. A S19j Pro may make 38,000-40,000 sats a day in income, but if you are mining on $0.10 a kWh, your power costs will be 41,263 sats with bitcoin trading at $17,461.
This is why it is incredibly important to try and get the lowest possible electricity prices in order to be profitable and ROI on your equipment. Finding cheap electricity is neither straightforward nor easy. Oftentimes there are hidden fees or complications that cause miners to fail. 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
There is a base cost for the manufacturers to produce new equipment. We are currently at or reaching that floor for new equipment coming from the manufacturer. As a result, they are either slowing down or halting production of certain models. Individuals choose to pay a premium for new equipment because they come with warranties. Used equipment on the other hand generally does not come with a warranty, and also uncertainty of conditions that it was run in. For this reason, used equipment is often sold at a substantial discount.
ASIC pricing is variable just like every other industry. Supply and demand are the major factors that determine price. Individuals buying ASICs have a million different reasons why they may want to purchase at a certain time, but Bitcoin price and difficulty are major influences. If the purchasing power of the income being 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 the demand drops significantly.
Moore’s Law And The Future Of ASICs
“Moore’s Law: an axiom of microprocessor development usually holding that processing power doubles about every 18 months especially relative to cost or size.” — Merriam Webster
We are coming to the end of the computer chip revolution as chip makers are pushing the boundaries of physics. In no way is this the end of massive increases in Bitcoin’s network hash rate. The mining industry is very rough around the edges in regards to very basic principles such as heat dissipation, software implementations, and relationships with energy producers. Computer chips may have slower leaps as far as increases in computing power, but we have barely scratched the surface in regards to other technological leaps forward that will ultimately lead to more power being consumed and more computing power expended in order to secure the Bitcoin Network.
As bitcoin becomes more widely adopted, and its value understood, the demand for mining is bound to increase globally. The result will naturally be an increase in 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 that I use daily.
This is a guest post by Kaboomracks Alex. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
