Bitcoin Mining: The Gravitational Pull of Difficulty
While doing my regular weekend reading, I stumbled across a very interesting article from a bitcoin mining rig distributor company called Blockware Solutions.
Ability to survive elementary for Miner
Their article makes it very clear that mining profitability, and their breakeven rates are NOT the price floor. The key statement in the article is that mining is about the ability to survive, which is very closely connected to the cost of electricity and technological developments.
The code is law
The race for hash rates and the linked difficulty adjustment in combination with some game theory work perfectly to keep the network safe and the mining sector efficient. As brutal as it sounds, this article also points out that companies have to shut down when they are no longer profitable because that is the only way to have a balanced economy. The "cleansing", as they call it, ensures that only the healthy businesses survive. This is something that is dearly missing in our traditional world economy.
Due to the fact that the "code" is the law and no human being is able to overwrite it on their own (I am simplifying things a bit here), emotions are removed from the decision-making process. Additionally, there is no politician needing re-election to skew the law/code in order to gain the needed votes.
Of course, a world economy cannot just be based on code, but it should give us a nudge to start thinking about the current state of our economy and the way certain businesses are run. Many of them are way below the survival limit (or on the edge) and should be "cleansed" out. But due to the lack of this for years, and extraordinary measures taken by politicians and central banks around the world, we have probably already passed the point of no return.
Read the full article here: Understanding Bitcoin Market Participants – Vulnerabilitiies in the Price of Bitcoin Driven by Miners.