Bitcoin "mining" is a notoriously expensive business: the recent calculations of the lighting company Elite Fixtures suggest that it costs a fortune to extract a Bitcoin in some countries, with a cost of $ 26,170 in South Korea.
Now Fundstrat analysts have said that it is no longer particularly profitable to extract Bitcoin. "Bitcoin currently trades essentially at the cost of a bitcoin's draw," said the research house in a Thursday report.
How does Bitcoin mining work?
Bitcoins are created when a "miner" (essentially a node in the Bitcoin network that boasts very fast computers) beats the other miners to pack the last block of Bitcoin transactions and add it to the Bitcoin blockchain, his famous shared ledger .
The winner, who receives the newly rewarded Bitcoin award as a reward, wins the race by providing the answer to a mathematical problem that is deliberately designed to consume a lot of computing power, in order to maintain stability in the speed at which these blocks are "Found ". People often say that miners solve mathematical problems, but all they really do is repeatedly try to guess a lucky number, as quickly as possible, using the brute force of powerful computers.
Why does Bitcoin extraction cost so much?
The Fundstrat model for calculating extraction costs takes into account some factors. The first is the cost of the computers themselves – since the mathematical problems become progressively more difficult over time, the miners must continue to upgrade their facilities. The second problem is energy. Making a lot of wrong hypotheses uses a lot of them. And then there's the cooling; all that energy consumes a lot of heat. (Bitcoin is, of course, terrible for the environment.)
Which brings us back to Bitcoin's profitability. This was not a problem when the cryptocurrency was heading "to the moon", as fans loved, but since the end of last year the Bitcoin has largely gone in the opposite direction. Having gone close to $ 20,000 in mid-December, it is currently worth just over $ 8,200.
According to Fundstrat, the current break-even point for Bitcoin mining is $ 8,038.
Miners compete for Bitcoin transaction fees
As noted by CNBC, miners not only have to deal with increased competition and a fall in the price of Bitcoin, but are also affected by another part of their revenue, transaction fees. While Bitcoin advocates cite low rates as an advantage of cryptocurrency over traditional financial networks, the average commission for a transaction reached $ 34 at the end of December. Now it's under 50 cents.
So everyone is going to give up and stop the Bitcoin mining now? Unlikely Its profitability depends heavily on energy costs and while the Fundstrat model uses a global average of 6 cents per kilowatt hour, Chinese miners should only pay 4 cents or less.
Whether or not your business still has a sense really depends on where you are.