Skip to main content

Does the Cost of Mining a Bitcoin Make it Viable or Not?

Daniel Nyairo in Bitcoin & Cryptocurrency published on 23, January 2015

Bitcoin Mining

The Bitcoin value has been on a free fall in the last few months. From a high of $1,100 in the last quarter of 2013, the coin now costs slightly over $200, prompting every Bitcoin exchange to register extreme lows.

To those who do not believe in the potential of Bitcoin to succeed, this is the clearest indication that the cryptocoin does not have a long life ahead. Aside from a global-scale adoption, Bitcoin’s longevity also relies on the direct support from the community, especially through mining.

However, a certain cost is needed to sustain this activity, which in turn may be detrimental to mining’s growth in the industry.

According to the research conducted in June 2014by Hass McCook, a writer on Bitcoin trends, mining 1 BTC costs about $600 in terms of electricity bills and the hardware and software bought.

Essentially, cryptocurrency depends on the infrastructure provided by miners to continue operating. However, it is never publicly known to some enthusiasts that mining is, indeed, critical to Bitcoin’s survival.

Bitcoin MiningMining is an investment too, but of a special form

Mining offers rewards to those who provide service in solving mathematical problems. This computation is required to approve transactions and keep the public ledger healthy, up to date, and aligned.

Laws of economics dictate that any rational investor will engage in a production only if the returns exceed the effort either in the short or long term. And this is not different in Bitcoin cloud mining or in the regular crypto mining.

When the coin is doing well against fiat currency at the exchange market, more people find it prudent to mine. When the coin’s value suffers, then avoiding it seems to be the wiser move.

However, there are things that make mining different in this regard. In fact, if the above scenario were the case, then Bitcoin could be dead by now.

One of the reasons miners are not putting down their tools in mass is the fact that the cost of Bitcoin mining is not cast in stone. It changes too with variation of the tools of mining, of which electricity is the most prominent.

The cost of mining is not fixed, it can also decrease

Mining does not need to be expensive. In fact, modern software and hardware have continued to make the process less costly. Mining in a cold climate and using electricity from wind and solar generators have also made the cost fall significantly.

Second, when the price goes down, miners have the option to hold onto their bitcoins until the prices improve. Indeed, this action in itself has the effect of pushing the prices up.

However, most importantly, it is only fair that we look at Bitcoin in the same way we do with other forms of currencies. And in that regard, we should ask ourselves whether the cost of generating the other currencies has a direct impact on their worthiness.

The point is: it is not conclusive that when Bitcoin is selling at what we believe to be under the cost of mining, the whole system becomes unsustainable. There are different factors to consider before it can be said that the mining cost for each Bitcoin will have adverse effects on the cryptocurrency’s performance in various industries, even in the Bitcoin gambling market.

 

Like this article? Place your comments below