Bitcoin seems to be standing firmly on its feet. People say it is the new gold. When in doubt, zoom out, and all that stuff. But you know what, Bitcoin mining seems to have a problem with no obvious solution yet.
Yesterday we published an article about terrifying things that could kill Bitcoin in the near future.
Mining wasn’t in the list. Because we intended to talk about ecological issues of Bitcoin mining some other time. We all know how much energy Bitcoin miners consume.
In comparison to other problems Bitcoin might have in the future those allegations are barely serious. Some people even call them preposterous because of the wide usage of alternative energy by miners in some countries.
But, as it turned out, Bitcoin mining might have a different kind of a problem.
Some people pointed out that if the BTC price is not rising fast enough in the near future the mining of Bitcoin will become unprofitable.
But the most frightening fact is that in order for mining to remain profitable, the price must literally rise to cosmic heights.
And we are not talking about a measly $100,000. We are talking about the value of millions of dollars per BTC token.
What is the logic behind this statement and can it seriously affect the future of Bitcoin mining? Let’s figure it out.
Bitcoin mining has a serious problem
Let’s get straight to the point. We’ll go into details later.
As some users have pointed out on social networks, all that ‘number go up’ philosophy that gently wraps Bitcoin has its flaws.
Mining profits are directly linked to the price of BTC. So despite rising mining complexity the miners are still rewarded enough to be motivated to keep working if the price continues to grow.
Now let’s do the math.
Today the block reward is 6.25 BTC, or in nominal dollar terms, equates to roughly $266,600 every block worth of value produced. BTC price is around $43,000 at the time of writing.
In the year 2056 the block reward will be 0.01220703.
It means that in order to produce the same nominal value per block in the year 2056, Bitcoin would have to be worth $21,839,874.
That’s 500x times higher, for the love of God! That’s a Bitcoin mining problem in all its glory.
Is such a price hike for Bitcoin possible at all?
Well, if you remember Bitcoin was worth nothing when Satoshi Nakamoto announced it. Now it is traded at $43,000. Not to mention it reached $69,000 in November 2021.
Why couldn’t it get to $21 million in like 30 years from now?
That’s a good question. Nothing in this world can simply steadily grow forever. Be it a commodity or a currency, at some point the price just hits the ceiling and starts cruising there.
Moreover, Bitcoin has already become something of a premium. Name other things in this world that cost like $43,000 a piece.
Even the most optimistic experts are reluctant to accept the idea of Bitcoin surpassing $200,000 in the near future. Some say that is possible by 2030 or even later.
Could Bitcoin surge from $200,000 to something like $21 million in just two decades?
Of course, predicting such a distant future is a thankless job. But such figures can’t be found even among the most outrageous predictions.
OK, it is unlikely but can it hurt Bitcoin mining?
Bitcoin mining becomes more and more difficult as the mining complexity rises. You have to upgrade your mining equipment constantly to provide a higher hash rate. And your electricity bills keep rising.
Simply put, as the complexity rises the mining operations become more and more expensive to run and thus the whole mining business becomes less and less profitable.
You receive less BTC for more work being done. That’s the simple formula.
So further Bitcoin mining can be economically justified only if BTC continues to rise.
Yes, you get less BTC with mining over years but the price of BTC rises. So in terms of nominal profit you are still receiving enough to continue.
That’s what those calculations I mentioned previously can easily refute.
Once again, in order for Bitcoin mining to stay at its current level of profitability in the next 30 years the BTC price has to rise 500 times.
What happens to Bitcoin then?
Bitcoin has to increase in value otherwise miners will gradually turn off.
This is where the fun begins.
Mining is not just a way to obtain new Bitcoin tokens.
Mining is essential for the Bitcoin blockchain to keep functioning. Miners help validate transactions, store records and thus keep the network secure. And fast, of course.
The more miners are there the more solid and secure the network is. As soon as the hash rate drops significantly the time to validate transactions will start to increase.
Oh, that dreadful waiting. Each BTC transaction today can take from 10 minutes to a few hours depending on the fees and some other circumstances that are often absolutely vague.
When miners start to quit and the hash rate begins to fade that story will become even more unbearable.
And of course the huge number of nodes and miners is the reason why Bitcoin is considered to be extremely secure. The cost of 51% attack is roughly half of the world global economy today.
But what happens if the hash rate drops?
At some point Bitcoin will become much less secure than it used to be.
So Bitcoin mining is kind of doomed?
All of the above implies that Bitcoin has no other choice than to increase in value significantly.
And by significantly I mean much faster than during the last couple of years.
Bitcoin doesn’t have the luxury of just cruising along at $50k or even $500k for the next decades. Because miners will inevitably turn off due to lack of profits, thus compromising the network. And the whole idea of Bitcoin as the most secure cryptocurrency, the next gold etc.
Bitcoin mining totally depends on the BTC value.
No rise in value accompanied by the increasing mining complexity that is implemented in the very core of Bitcoin blockchain, all of that will kill mining rather quickly.
What could solve the Bitcoin mining problem?
Well, the first thing that comes to mind is that the logic above overlooks one crucial moment.
If Bitcoin achieves global adoption and is widely used as a currency – and that is what many crypto enthusiasts dream of – the network fees would increase substantially.
At some point of the wide adoption those fees might reach the numbers that are comparable to mining rewards prior to the mining complexity rising to its extremes.
That would be enough for quite a number of people to take part in Bitcoin mining.
But this kind of assumption is definitely as brave – and probably naive – as the prediction that Bitcoin could surge to $21 million per token.
Why? Because Bitcoin can’t be the new gold, which is supposed to be held for long periods of time, and the currency to pay for your coffee every morning at the same time.
These approaches are mutually exclusive.
Any hope for Bitcoin mining?
But there is another argument in favor of Bitcoin’s ability to withstand all the troubles.
We have to assume that the efficiency of the ASICs – the hardware that is used for Bitcoin mining – will grow substantially over the years.
Just take a look at how the graphic cards have evolved recently.
If hardware continues to become more and more powerful with the same rate, would that allow for Bitcoin mining to stay relevant to the changes in complexity even without radical price surges?
We need some difficult math here. And anyways it will be based on rather bold assumptions.
Is it possible for ASICs of the future to be 500 times more powerful than what miners have now?
There is also a probability of a much cheaper electricity in 2055. The West might eventually fully refuse from Russian oil and switch to clean energy from nuclear plants or solar farms. While that sounds a bit preposterous, it is still possible. That would also contribute to Bitcoin mining staying profitable even if complexity rises while price doesn’t reach that crazy $21 million we mentioned earlier.