Mining Research Report: Industry Turning Point and Economic Cycle of Bitcoin Mining

Abstract: The bear market continues to compress the profit margins of all segments of the cryptocurrency market, and mining, which plays the role of cryptocurrency producer, is no exception. Take Bitcoin, which accounts for half of the cryptocurrency, as an example. Its overall mining revenue in February 2019 was only $190 million, down 10% from the beginning of the year.

Even so, the mining companies that operate in an enterprise still maintain high profits. According to Diar research, the profit margin of “Big Miners” in October 2018 remained at 59%. In contrast to the “big miners”, “personal miners” have been “unprofitable” since September 2018.

From the above picture, we find that the scale effect of bitcoin mining has gradually emerged: large miners with strong resources have stronger profitability, and small miners on the edge of breakeven either withdraw or hold groups.

Behind the phenomenon, the Bitcoin economy has its own cycle. With a large number of miners exiting due to unprofitable, the overall network computing power is reduced, the calculation difficulty is reduced, the mining cost is reduced, the profit space is increased, and then the new computing power is attracted… so cycle until the last One Cong (the smallest unit of Bitcoin, 1 Cong = 0.000000001 BTC) Bitcoin.

What is the nature of mining? How do the various links in the industry chain deliver value? What core logic do they follow? What are the key factors affecting mining revenue? At what stage is the market? How long can Bitcoin be dug?

These issues are critical for those who still want to enter and remain in the mining industry. The Odaily Planet Daily Research Institute will attempt to answer these partial questions in this article, and will focus on more details of the mining industry in subsequent reports. We welcome continued attention and communicate with our analyst Little Parker (lmm662381). The pdf version of the report can be downloaded from the Odaily Planet Daily Research website at https://www.odaily.com/research.

table of Contents

First, the basic principle of bitcoin mining

Second, the three factors affecting bitcoin mining

2.1 Calculation power

2.2 Calculation difficulty

2.3 Bitcoin price

2.4 Calculation cycle, computational difficulty, and feedback cycle between prices

Third, the main cost of bitcoin mining – electricity price

3.1 Power industry relations and procurement channels

3.2 Lowest price floating space

Fourth, Bitcoin mining hardware foundation – mining machine

4.1 Miner's perspective: mine machine cost performance

4.2 Manufacturer's Perspective: Pricing Rules for Mining Machines

V. Current mainstream mining methods – mining pool

5.1 Operation rules of the mining pool

5.2 Mining revenue settlement mode

5.3 Classification of mining pools

5.4 Distribution of power calculation in mining pool

Sixth, bitcoin industry chain overview

Seven, the stage of Bitcoin mining

Eight, reference and thanks

First, the basic principle of bitcoin mining

Bitcoin is a peer-to-peer electronic cash system where each transaction record is stored across the network rather than the traditional, unique central database.

To ensure that all participating nodes have a consistent transaction record, the Bitcoin system provides for competitive accounting. The specific rules are as follows:

1. The competitor finds the required value in a bunch of random numbers through the SHA-256 operation. Whoever has a large computing power and a fast computing speed will have a higher probability of finding the "answer" first.

2. The Bitcoin system averages the transaction data every 10 minutes (ie, packs it into a block). The competitor who first finds the "answer" gets the billing right and gets the bitcoin as a reward. The system will adjust the mining difficulty (with a certain lag) according to the whole network computing power, and ensure that an average block is produced every 10 minutes.

3. The mining difficulty is adjusted every 2016 blocks (about 14 days). The block height is a block that is an integer multiple of 2016, that is, the block corresponding to the system when adjusting the difficulty of mining.

4. Bitcoin mining revenue includes block awards and transaction fees. The block reward was originally 50 BTCs, and the system stipulated that for every 210,000 blocks (about 4 years), the block rewards were reduced by half until the minimum unit of Bitcoin was 1 Cong. Therefore, after 2012, the block reward will be adjusted to 25 BTCs, and in 2016 it will be 12.5, and the next halving will be in 2020.

5. Transaction fees (also known as miners' fees) are paid to the miners by the transferor to reward the latter with sufficient computing power to secure the network system. Transaction fees generally fluctuate between 0.5% and 2% of the day's block rewards. As block rewards are halved every four years, transaction fees will gradually become the main income of miners. Bitcoin is expected to be fully excavated in 2140, when the mining revenue is equal to the transaction fee.

6. The handling fee for each transaction depends on the size of the transaction (in kilobytes Kbytes). When the network is congested, more people submit billing requirements at the same time. Users can encourage miners to prioritize packaging by increasing the handling fee to shorten the transaction confirmation time. For example, in late 2017, bitcoin trading volume skyrocketed, with an average handling fee of up to $40 per pen, and miners' handling fees up to 30% of the monthly block award.

7. The size of the transaction is also related to the amount of money transferred into and out, that is, the larger the transaction amount, the higher the transaction fee/kilobyte.

Second, the three factors affecting bitcoin mining

Computational power, computational difficulty and bitcoin price are key factors influencing mining costs and revenue. Focusing on these three indicators and understanding the relationship between them will help to judge market trends.

2.1 Calculation power

Hashrate is the number of times a hash is calculated per second to measure the miner's computing power. The higher the power, the greater the probability of digging into the block.

More intuitively, the common units of computing power have changed from the initial hash value per second (H/s) to KH/s (thousands of Hash/s), MH / s (million hashes per second), GH/ s (billions of hash/second), TH/s (trillions of hashes), PH/s ($1 trillion of hash/s), EH/s (billions of hashes/s).

At present, the total network computing power of Bitcoin has reached 47 EH/s. This means higher computing power and electricity expenditure requirements for mining hardware. Once the bitcoin network computing power exceeds 500 EH/s, it will lead the hardware processing power into the zetahash era.

In general, the iteration of mining methods and hardware equipment has driven the growth of bitcoin network computing power and mining costs, and the increase in computing power and price has forced the former to evolve. Looking back at history, bitcoin mining has gone through the development of CPU-GPU-FPGA-ASIC-mine pools.

The ASIC miner chip is the core of the miner and the key to the entire plant. The emergence of ASIC miners' chips has enabled ASIC miners to start large-area applications. In addition to the original Butterfly Lab, there are more than a dozen different companies offering custom ASIC miners and a miner-hosting model. The growth of global computing power today can be attributed directly to the application of ASIC mining machines.

2.2 Calculation difficulty

Bitcoin mining difficulty (Difficulty) is a measure of the difficulty of mining. The more difficult it is to mine, the more difficult it is to dig out the block. The Bitcoin system controls the average time required to dig out blocks by adjusting the difficulty target value (Target, calculated from the values ​​of the bits field) in the block header.

Target is a string of 256 bits in length, in other words, Target has about 2^256 possible values.

Adjusting Difficulty is to adjust the proportion of Target in the entire output space. The higher the Difficulty, the smaller the Target. For example: mining is like shooting, and all shots will fall on a large target. Target is a range of spheres on this large target. The smaller the range, the higher the difficulty of being shot. Adjusting the Target is to adjust the proportion of this circle on the entire target.

In addition, the range of difficulty target ups and downs is limited by 4 times. For example: Assume that the 2016 blocks in the previous difficulty target adjustment period are all dug out in only 7 days due to the skyrocketing power. By adjusting the difficulty target, the difficulty target is doubled, and the average block time can be It is maintained at about 10 minutes, but if the computing power is skyrocketing, it only takes 1 day for the previous 2016 blocks to be dug out, so the difficulty target can only be adjusted to the original quarter.

2.3 Bitcoin price

Many people compare bitcoin to digital gold. Except for its limited supply of gold, its price is also affected by the supply and demand relationship.

We believe that the size of the calculation and the difficulty of mining determine the supply of Bitcoin, while the perception of Bitcoin, popularity, national policies and so on determine the demand for Bitcoin.

If the demand is high and the supply is not satisfied, the price of bitcoin will soar. Due to the limited number of bitcoins, the supply is limited. Under the premise that the public is optimistic about bitcoin, the price will continue to rise. However, the factors that specifically affect the price of Bitcoin are as follows:

(1) Community consensus

Trust factors play a vital role in the cryptocurrency environment, and the consensus among Bitcoin community developers is an important factor influencing price volatility. You can keep up with the community's ideas by focusing on and researching bitcoin forums, which helps to understand the price trend.

(2) Technology update

Technological innovation will also affect the price of Bitcoin. For example, the implementation of the Segregation Witness and Lightning Network solution will improve the transfer efficiency of the Bitcoin system.

(3) Policies of national policies

Because Bitcoin is not regulated by any government, it has become the object of government efforts to regulate. Bitcoin prices fluctuate as long as there is an official statement about digital currency regulation. For example, since April 2017 in Japan, cryptocurrency was considered a legal payment, and several stores began accepting bitcoin, thus triggering a rise in bitcoin prices.

(4) "Whales" activity

Sometimes the price volatility is behind the existence of well-funded holders, also known as whales. These whales are large and small, and their actions can affect the rise and fall of bitcoin prices, but they can be prevented by tracking their actions.

(5) Security incidents

Such as hacking the exchange will hit users' confidence in the cryptocurrency, causing the price to plummet.

(6) Influence of public opinion

The attitude of the mass media to the encryption industry affects potential investors and businesses. For example, speculation about bitcoin may cause prices to soar, while negative news will lead to price declines.

2.4 Calculation cycle, computational difficulty, and feedback cycle between prices

Because of the self-regulating mechanism of the Bitcoin system and the laws of the market economy, there is a feedback cycle between computing power, computational difficulty and price.

Under the premise that the infrastructure remains unchanged, the higher the price of Bitcoin, the stronger the attraction of mining, the increased computing power of the whole network, the increasingly fierce competition for miners, and the difficulty of mining (the system will adjust the difficulty in the next cycle, with There is a certain lag), while the cost becomes higher, mining becomes no longer profitable, and small miners withdraw or are merged.

As a result, the computing power of the entire network has decreased, and the difficulty of mining has also decreased (plus the gain effect of the system itself adjusted according to the difficulty of the previous cycle). At this time, the miners who have withdrawn from the market have a tendency to sell, and the price of bitcoin declines. (This is conducive to leaving the big miners). As the difficulty becomes smaller, the mining profit increases, the attraction of mining becomes larger, the new miners join, and the competition returns to a fierce competition.

It can be seen from Figure 9 that the trend of the power curve and the difficulty curve are basically the same, and the greater the computing power, the greater the difficulty. Bitcoin prices fell in 2018, but the increase in the computational power of mining has increased the difficulty.

We can use the "calculation difficulty / price" indicator to compare the extent of changes in "income factors" and "cost factors" to determine the profitability of mining.

In Figure 9, when the price declines, the power and the difficulty increase in 2018, the “difficulty/price” curve is on the rise. In December 2018, some of the calculation power was withdrawn under the pressure of high cost. The difficulty of mining is declining and the price of bitcoin is also falling. Instead, the “difficult/price” curve is lowered and the mining profit is increasing.

In the long run, the “difficulty/price” curve is generally higher. However, in the short-term (Figure 10), the overall decline of this line in 2017 indicates that the price growth rate in 2017 exceeded the growth rate of the calculation difficulty and ushered in the prosperity of the miners. In 2018, the trend turned around, and the difficulty of computing was far faster than the growth rate of bitcoin, which ushered in the decline of miners. It is worth noting that this factor was always below 0.5 before the beginning of 2018. Starting in September 2018, the coefficient began to be greater than 1, until the peak reached in December, ushered in the worst moment of the mining industry, namely mine disaster. From the end of December 2018 to the end of 2019, this coefficient has dropped, bitcoin mining has become profitable again, and miners have rejoined mining.

Third, the main cost of bitcoin mining – electricity price

Bitcoin mining requires a lot of computing power, and computing power requires machine and power to operate, so we can think of bitcoin as a digital product that is converted into electricity. As a result, machine and electricity prices actually constitute the main cost of bitcoin mining, and of course there are fixed costs such as infrastructure.

Among them, fixed costs such as infrastructure are distributed to each machine, about 700 yuan-800 yuan per mining machine (including turning high-voltage electricity into low-voltage electricity, mining machine cooling, dust removal, mining machine power, mining container, manpower, etc.) The mining machine is a one-time investment, as long as the market is the "cost-effective" highest mining machine (the next section is detailed); and the electricity price is the largest variable cost, which is therefore the main factor affecting bitcoin mining.

According to data from Bloomberg BNEF (Bitcoin in Energy Crisis as China Cracks Down, Lu et al., 10 Jan 2018), 78% of Bitcoin's computing power comes from China, so the floating space, procurement channels and related policies of China's electricity prices are bitcoin. Miners need to focus on the object.

3.1 Power industry relations and procurement channels

From the perspective of production process, power production is divided into five links, but from the entire power industry, it is generally believed that the power system is divided into four links, namely, transmission, transmission, distribution, and sales. Power generation is the power generated by power plants (the power plants have thermal power, hydropower, wind power, solar energy and nuclear power, thermal power is also divided into gas, coal, biomass, waste incineration, etc.), and transmission is long-distance transmission of electricity (the main application is DC UHV technology), power distribution is directly connected with the user and distributes energy to the user. As the name suggests, you want to buy electricity and I sell it to you.

These four links constitute a huge power system, the power generation link is completed in the power plant, and the other three links need to rely on the power grid to finally deliver the power to the users.

Power procurement channels include power plants, power grid companies, power sales companies, and power sales agencies.

It should be noted that the direct power supply transaction of the power plant is for large users and power sales companies and power grids with an annual electricity consumption of 10 million kWh. The sales company deals with less than 10 million users and large users who do not choose their own power generation companies. There are fundamental differences between the two users.

Based on the rough calculation of the ant S9j model, the annual electricity consumption of 10 million kWh requires 850 mine-scale mines. Therefore, mines with a mine size greater than 850 can theoretically purchase electricity directly from the power plant. However, direct purchases are highly competitive and involve government relations, so government resources are a very important factor.

3.2 Lowest price floating space

For miners, the biggest concern is how to find the cheapest electricity price. Knowing the floating space of the lowest electricity price can know the profit margin of mining.

Electricity prices vary greatly depending on different power generation modes, but China's electricity is mainly coal-fired and hydro-powered. Coal-fired power is the main output of electricity. In 2018, the market's electricity consumption was 1,044.9 billion kWh, accounting for 76% of the total market sales. Hydropower was 205.6 billion kWh, accounting for 15% of total market sales. Hydropower mainly generates electricity during the wet season (starting in March and April each year – ending in August and September), and the output power is small and unsustainable, but it is cheaper because of the low power generation cost.

The power generation industry has different tariffs, such as on-grid tariffs, transmission tariffs, distribution tariffs, and electricity sales prices. The on-grid electricity price refers to the electricity price of the power grid purchased by the power grid; the transmission electricity price and the distribution electricity price refer to the electricity price that increases the unit price due to the loss when transported to the major substations; the electricity price of electricity sold refers to the electricity purchased from the power sales company. price. The on-grid price < sales price, so the miners are mainly concerned about the on-grid price.

In the bitcoin mining industry chain, most mining unions host mines in large miners (mine owners), so in addition to on-grid tariffs (miners generally refer to bare metal prices, refers to the contract price of the mine owners and power plants) In addition, there is a custody price (the miner will host the miner in the mine and the contract price signed by the mine owner). Below we will analyze the floating price of the lowest electricity price for the on-grid price and the custody price.

(Note: The pricing policy on electricity prices is mainly based on the “Notice of the National Development and Reform Commission on the Implementation of the Reform of Power Generation Price Reform” document)

(1) On-grid price:

According to public information, the on-grid price of coal-fired power is generally 0.27 yuan to 0.47 yuan per degree, and the on-grid electricity price of hydropower is generally 0.2 yuan to 0.4 yuan.

In addition, in the case of thermal power (Inner Mongolia, Xinjiang, Shanxi, Shaanxi), there is also a kind of “pit-and-mouth electricity”, that is, coal is directly injected into the electric field next to the coal mine for power generation, and the marginal cost of the pit price is low, and the on-grid price is equivalent. The price of water and electricity. According to the survey, the cost price of pit and mouth electricity is generally 0.16 yuan to 0.18 yuan per degree, and the on-grid price is 0.26 yuan to 0.28 yuan per degree.

The Hangkou Power Station is mainly distributed in areas with abundant coal resources, such as Inner Mongolia and Shanxi. In Inner Mongolia, for example, the Mengdong area began to organize direct electricity transactions in 2014. At present, the access conditions for large users require voltage levels above 10 kV, and the annual electricity consumption threshold is 100 million kWh. The transaction is relatively mature, plus The government gives a generous subsidy of RMB 0.06 and is not open to electricity sales companies.

Still based on the ant S9j model mining machine, the scale of more than 9,000 mining machines can be built next to the pit-mouth power station in Mengdong area, in addition to the corresponding government resources.

The Mengxi area has been conducting electricity trading for nearly 8 years. In 2017, the large-user access conditions required users to use more than 10 million kWh of electricity per year, and all of them came to the government to reach a match between users and power plants, and also did not release electricity. The company entered the market. Still based on the ant S9j model mining machine, about 850 mines above the mine scale can be built in the Mengxi area, and government resources are also becoming core competitiveness.

Based on the above situation, the minimum price of thermal power that the mine can obtain is 0.06 yuan to 0.47 yuan per degree.

The cost of electricity for hydropower stations is 0.04-0.09 yuan per degree, while the sales price of hydropower not covered by some national power companies can be as low as 0.12 yuan per degree, that is, the minimum floating space for hydropower is 0.12-0.4 yuan, but legal risks and power stability need to be considered. Sex.

(2) Managed electricity price

The custody price is the contract price that the miner signs when the miner is in the mine, and the price of the custody is changed according to the bitcoin price. The price of bitcoin decreases, the price of electricity increases, the price of bitcoin rises, and the price of electricity decreases. In short, no lower than the on-grid price. When the price of bitcoin falls to the marginal cost, the price of electricity will rise to the price of the shutdown. Currently, the average price is 0.38 yuan per kWh.

In fact, the miners who catch up with the flood season every year are small miners on the edge of bitcoin mining costs. The large miners (mines) who find the price of pits are in a state of continuous profitability. Therefore, power resources are the core competitiveness of large miners. .

Fourth, Bitcoin mining hardware foundation – mining machine

Above, we introduced that in addition to electricity prices, bitcoin mining costs also include mining machine inputs. The mining machine not only conforms to the basic logic of industrial components, but also has more financial attributes related to the cryptocurrency market. We will introduce the mainstream ASIC mining machine on the market as an example.

4.1 Miner's perspective: mine machine cost performance

4.2 Manufacturer's Perspective: Pricing Rules for Mining Machines

As the price of bitcoin rises and pulls the demand for mining machines, upstream mining machine suppliers have absolute pricing power for mining machines under the oligopoly, and the price of mining machines has also risen. At the beginning of 2018, the ant mining machine S9 sold a futures unit price of 30,000 yuan in Huaqiang North. So, how should the mining machine be priced?

According to the model of Guosheng Securities Research Institute: current mining machine price P = fixed return period D × current mining day income (mining income R – mining cost C). That is, the price of the current mining machine is directly proportional to the daily mining income.

According to the above formula and linear regression results, Guosheng Securities believes that the pricing strategy of the mining machine supplier can be obtained: the fixed return period is about 180 days, and the mining machine price is dynamically adjusted according to the mining income of the current period.

It is worth noting that such a pricing strategy is based on the assumption that future mining gains remain unchanged, and that the return period is guaranteed to be 180 days. If the future currency price rise causes the daily mining revenue to increase, the actual return period becomes shorter, and vice versa.

In addition, the actual calculation of the static return period of the mining machine often deviates from 180 days, mainly due to:

(1) The price adjustment of mining machine is relatively low frequency relative to the mining gain and bitcoin price change, which causes the static return period to deviate. Therefore, the same mining machine may issue three shipments within one month, so the price will be adjusted three times a month.

(2) The mining machine supplier will also take into account the expected changes in future mining revenues when actually pricing. Especially in the case of rising market conditions, it will make an optimistic judgment on the future mining revenue, thereby increasing the price of the mining machine, resulting in a longer static return period.

(3) Mining machine suppliers are reluctant to compress their profit margins in the case of a decline in mining revenue. When the price reduction is less than the decline in mining revenue, the static return period becomes longer.

The above viewpoint is further refined, that is, the mining machine can be regarded as a "call option" for the price of bitcoin. When the miners buy the mining machine, they obtain a relatively certain amount of bitcoin in the future at a determined price (although the overall network computing power is uncertain in the future, but the approximate interval can be estimated), and the miners’ motivation to purchase the mining machine comes from its prediction of the future. The price of Bitcoin will be higher than it is now, which is equivalent to buying Bitcoin at a price below the market in the future, thus obtaining excess returns.

V. Current mainstream mining methods – mining pool

With the increase of computing power, the probability of digging into bitcoin is getting smaller and smaller. At present, the computing power of the whole network has reached 47Eh/s. In order to pursue sustainable and stable income, the mining pool has become the mainstream mining method. To put it simply, the mining pool is a collection of computing power. When you concentrate your computing power on the mining pool, the probability of being able to dig into the block will increase greatly, and then the income will be distributed according to the calculation of each person's computing power. The core job of the mining pool is to assign tasks to miners, to collect workloads and to distribute revenue. Compared with the Solo model, the expected value of miners' returns has not changed, but the returns have been more stable.

5.1 Operation rules of the mining pool

We will introduce how the mine works in some basic concepts:

(1) Mine Pool Agreement:

The “mine pool” coordinates hundreds of miners through a proprietary agreement. After the miners set up the mine account, they set up their mining machines to connect to the mine pool server. When the mining machine runs mining on the line, it needs to maintain the connection with the mine pool server and work with other miners. Common protocols include: Stratum (STM Protocol) & GetBlockTemplate (GBT Protocol) and Obsolete (GWK Protocol).

(2) Miners in the mining pool:

Earn relatively stable rewards based on the power contribution share.

(3) Mine Pool Administrator:

A certain percentage of the handling fee is charged, and the mine manager can also contribute as a Solo miner.

(4) Access conditions for mining pools:

The pool is open to all miners. After a miner in the mining pool successfully mines, the block rewards the fixed bitcoin wallet address paid to the mine. The reward is not for the miners who dig into the mine, but for the entire mine pool.

(5) Reward distribution mechanism:

The pool will set a “threshold” for reward distribution, which is the difficulty target for each calculated TargetHash value, usually less than 1/1000 of the bitcoin network difficulty. For example, the mining difficulty of the whole network is the Hash value of 10 consecutive zeros at the beginning, and the difficulty threshold set by the mining pool is the Hash difficulty of the first 7 consecutive zeros; after a miner in the mining pool successfully digs the mine, those successfully Miners who calculate and meet the difficulty threshold of the mine pool can share the reward.

The distribution of rewards is not immediately distributed after digging a mine, but after the mining rewards are accumulated to a certain amount set by the mine, an award is distributed, or settled at a fixed time (such as daily). .

(6) Lucky value of the mining pool:

Bitcoin mining is probabilistic in nature, and the speed of the block is fast and slow. The lucky value has a certain probability factor in the theoretical value of the mine block, and the block speed is fast and slow; the lucky value floats up and down at the theoretical value of 100%. When the lucky value is high, the income of the mining pool will increase, and vice versa, but this will only affect the users who choose the PPLNS income model.

5.2 Mining revenue settlement mode

There are multiple revenue settlement models in the market. The mainstream mining modes include: PPS, PPLNS, PPS+ and SOLO modes.

5.3 Classification of mining pools

There are mainly managed mines and P2P mines on the market. Due to the low efficiency of P2P mines, this model has gradually faded out of the market.

5.4 Distribution of power calculation in mining pool

The calculation of the mining pool can be divided into Bitcoin Continental and Non-Bit Continental. BTC.COM, AntPool, BTC.TOP, and ViaBTC are all bit Continental, accounting for 46% of the total network, and 54% of other non-bit Continental systems. .

At the beginning of last year, the Bit Basin Continental's mining pool accounted for 53% of the total network, and has now fallen to 39%. In addition, according to Dir data, unknown miners are changing the distribution of power in the mine. In December 2018, mysterious miners dug up 22% of the Bitcoin network, compared with only 6% at the beginning of last year. This change has led to a decline in the dominant position of the pool. At present, mysterious miners control more than 22% of BTC's computing power.

The most basic function of the mining pool is to gather the miners' computing power together to mine. The difference in technology is very small. The current stage of competition is the computing power and service quality. The Bit Continental mine pool mine has the inherent advantages of preferential mining machine price and fast mining machine. The non-bit continental mine pool is supported by miners with its own word of mouth and differentiated service. Domestically, it is represented by F2Pool. It is represented by SlushPool.

Sixth, bitcoin industry chain overview

At this point, we have a basic understanding of the mining machine and the mining pool industry. The following picture will take the mining industry as an industry, depicting the relationship between the whole picture and the links of the participants.

Seven, the stage of Bitcoin mining

Finally, we have to try to answer the question about the “final end”, how long can Bitcoin be dug?

Some people say that bitcoin transactions are very similar to commodities, which is not completely accurate. Because when the goods stop production, the transaction of the goods can still be carried out, but when the miners stop mining, the bitcoin will die immediately. Because of the unauthenticated transaction, the bitcoin cannot be circulated, and the currency that cannot be circulated is worthless. That is, the "death spiral." This means that if the mining profit falls to zero, the value of Bitcoin will also be zero.

At present, all links are keeping profit margins for enough miners to ensure that the Bitcoin system is protected from attacks. However, when the block reward is completely converted into transaction fee, the elevated transaction fee will prevent the user from using Bitcoin transfer. At that time, it will become a new focus to stabilize the transaction fee at a reasonable balance. Mining will also usher in a new turn to become an industry that provides basic computing power to other sectors, and opportunities will tend to be large companies with power resources and operational strength.

In theory, this turning point is 2140 years, but from the bitcoin halving schedule (Figure 4), it can be seen that the 2048 bitcoin block reward is less than 0.1 BTC, less than the average transaction fee, when the bitcoin price rises to Sufficient to support mining costs, or have cheaper electrical energy. Otherwise Bitcoin or will really face a "death spiral."

In addition, according to Figure 2, from the small miners in September last year, there was no profit to dig. The price of $7,193 at that time could be regarded as the marginal price. At present, the reward is 12.5 BTC. It is roughly estimated that the price of Bitcoin cannot rise after 2048. At 125 times or about $900,000, bitcoin mining will become less attractive.

Eight, reference and thanks

Reference materials:

Bitcoin Developer Reference, Target nBits

How is difficulty calculated?

Proficient in Bitcoin Chapter 8 Mining and Consensus

Getting started with blockchain | 10 digits related to Bitcoin

What determines the price of Bitcoin

What is the relationship between power plants, power grids, power companies, power supply bureaus, and power generation groups?

What is the difference between the online bidding of power generation companies and the selling price of electricity sales companies?

Computer Industry: Special Report on Encrypted Digital Currency Mining Market

Bitcoin ore industry in-depth report: new battlefield in chip competition, consensus to create new carrier

Decrypting Cryptocurrencies: Technology, Applications

And Challenges

Bitcoin's entire network computing power breaks through 1 Petahash per second

Special thanks to:

COO Wang Xiaoyi of Mine School, David Li of Rawpool CEO, Yan Lei, Marketing Director of Rawpool, Yan Danlin, Ph.D., Industrial Economics, China University of Geosciences, Aaron Yuan, CEO of ENT Public Chain, and Yang Xin, Product Manager of Bitland.

Analyst | Little Parker

Edit | Hao Fangzhou

Produced | Odaily Planet Daily Research Institute