- The competition within mining is higher than ever before, leading to increased energy requirements and lower profitability.
- Rising electricity costs and the current low value of Bitcoin have hurt miners significantly.
- Mining stocks are far riskier than Bitcoin itself due to a multitude of variables beyond just its price.
Bitcoin Mining Difficulty is Higher Than Ever Before
The competition within mining is higher than ever before. The beauty of the blockchain is that we can see all sorts of statistics regarding the Bitcoin network in real-time. One of these is the difficulty adjustment. For the uninitiated, the difficulty adjustment is a mechanism by which the difficulty of mining changes to ensure the new supply of Bitcoin released via mining remains consistent (at approximately ten-minute intervals). In other words, as more miners join the network, the difficulty increases so that Bitcoin is released at the same pace as prior. The same holds true the other way around – difficulty falls if miners stop operating. As the below chart shows, Bitcoin mining difficulty recently smashed through the 50 trillion hash mark for the first time ever. Only three years ago, that number sat at 14 trillion.
Rising Electricity Costs
As you may realise if you have turned on a light, charged your phone or boiled a kettle in last year,the price of electricity has skyrocketed around world. The next chart shows rise in electricity costs in US ,which according Cambridge Electricity Consumption Index ,has highest amount miners (nation estimated account for 40%of hashrate). This means they have greatest power over price bitcoin miners paid for energy .But this also makes them most exposed when prices go up .