It sounds very similar to things like oil production, gold mining, and even farming. When the price is high, everyone wants in on the action. As supply explodes, the prices drop. Once prices get low enough, the costs to pump the next barrel of oil, find the next ounce of gold, or harvest the next acre of a certain crop; exceed the reward. When that happens, wells are shut down, mining operations suspended, and different crops planted. The cycle begins again.

The headline is confusing the issue. Bitcoin miners are losing money because October's crash took Bitcoin from $126,000 to below $70,000, and the Iran war has pushed up oil and electricity prices. The minor difficulty drop is a result of that, as some Bitcoin miners drop out. It's not the cause.

It is how bitcoin is designed to work, but it also shows very directly how proof-of-work systems can never scale to be the global monetary replacement its boosters push. If the opposite happened, and the price for some reason sky rocketed to, say, $1 million per bitcoin, it would necessarily mean that it would induce more miners until the difficulty and consequent electricity cost (regardless of the efficiency in electricity generation) also would rise to the neighborhood of $1 million per coin. At the point you're far beyond "Argentina levels" of electricity and getting into "Europe levels" of electricity to run the network.

The electricity demand (and here I mean the overall cost of the electricity, so improvements in $ per kilowatt just mean you need to use more electricity) in proof-of-work systems fundamentally scales linearly with the overall valuation of the coins in the network, which means proof-of-work systems can never scale as large as their fanboys would have you believe.

If "difficulty drops, costs go down" so ought the price? Isn't that basic economics? Or are they chasing the "phase difference", lag, between supply demand?

This only works when the difficult drop rates are below miner leaving rates.

Which in normal times, are something taken for granted, but once it does happen, the edge case collapse the entire system.

edit: the earlier language is not exact, the scenario is an exponential drop of value that results in exponential drop in miner willing to mine until this discrepancy can be resolved. i.e. the system is not protected against extreme volatility (e.g. -99% over a block cycle)

But mining costs are (cost of equipment+cost of electricity)/total coins mined, so can miners not end up in a situation where they need to keep mining to pay off equipment despite the individual coins being unprofitable?

I'm far from a crypto expert but aren't costs largely GPUs and electricity here?

Those are now being driven by massive AI demand and are likely to remain so for the forseeable future. So how would costs go down?

In the gap between cost going down and profitability, is there not an increased risk of sybel attacks?

What does “leave” in this context mean?

A perpetual boom bust cycle? Sounds healthy.

> The interesting part isn’t the loss per coin, it’s how long the lag between unprofitable mining and difficulty adjustment keeps forced selling pressure on the market.

I follow Bitcoin from a theoretical point of view and I find it fascinating.

Something that boggles my mind a lot is this: Bitcoin, which is somehow a bit "programmable", and Ethereum (which is definitely programmable) are basically the most correct computers on earth. Due to the consensus that needs to be reached by thousands+ of machines. Even if they're imperfect, ECC-less (for the most part), machines.

Now they may still run code with flaws: but they'll all run it exactly in the same way. If, say, a bit-flip occurs on a machine, that machine won't create a block or won't sign a transaction accepted by others. Not part of the consensus. That is wild.

Then the other thing which boggles my mind and which relates to your comment: the "selling pressure on the market" by Bitcoin miners is, no matter what they do, halved every four years. There were, 8 years ago, still 1800 Bitcoins mined per day. Today it's 450.

And in two years (we're midway before the next halving), it's going to be 225.

And Satoshi Nakamoto planned, from the very start.

Maybe it doesn't make sense (economically or from a security point of view: who's going to secure the network when there's not enough block reward anymore?).

But miners will mine 225 Bitcoins per day, not 450, in two years.

And that is totally fascinating.

Its still true and shows one of many issues with bitcoin.

Based on bitcoin cryptobros, you need a certain amount of independent miners for the 'quality' of bitcoins. A bitcoin miner if its a state, can operate with a loss a lot longer if not even infinit, than the decentralized normal people (who do not exist anyway).

It also creates a lot of pressure on miners if you do not run your gpus, yuou are also at a loss, which can break the mining for everyone if too many in parallel go offline, than go olnine again because difficulty droped to much.

And if it becomes to volatile, no one wants to risk it anymore