With falling Bitcoin prices, the incentive to mining Bitcoin is reducing. There are more people interested in mining since Bitcoin became popular. There also are many companies setting up mining farms. This is making bitcoin mining more competitive and less rewarding.Bitcoin is generated through a highly challenging computational contest between sophisticated computers. This demands a lot of electricity and miners have to work with several computers to stand good chances of generating bitcoins. The Bitcoin is ‘mined’ when the computer miner solve a mathematical function. The first computer (node) that does this is rewarded with Bitcoin.
The business of Bitcoin mining requires the purchase of these specialized miners which cost several hundreds or thousands of dollars. These machines are connected to electricity and have to be cooled to avoid thermal stress. These and the cost of changing hardwares add to the cost of Bitcoin mining.
This week, Bitcoin prices fell below $8000 for the first time since February. A report by Fundstrat says that at the present price, the coin is essentially trading at break even cost for miners. Although this is not the first time this is happening, however, expectations are higher because the crptocurrency last December was valued at nearly $20,000.
Shone Anstey, the president of Blockchain Intelligence Group said that “In some cases, the miners may just turn off their machines until prices come up a bit”. According to a report, it may get to a point when the miners may be running at losses.
Another disincentive for mining is transaction fees. When the price of bitcoin was at its peak last year, transaction fees was up to $36 sometime in December, these days it is less than 50 cents, Bitinfocharts reported.. The implication is that miners profit have halved since December.
However, the report says that there still are incentivee to mine, especially among Chinese miners who have access to cheaper electricity generated from hydro power. Mining is attractive in China, not just for block rewards, it also creates avenue for miners to send funds abroad without the usual government scrutiny. Fundstrat’s report says that the point at which mining will become unprofitable in practice is at $3000.