Author: Alex Mizrahi 2014-10-25 18:06:32
Published on: 2014-10-25T18:06:32+00:00
The article discusses the potential consequences of a reduction in miner income margin (MIM) to less than 50% after the reward halving in Bitcoin. The author defines MIM as (R-C_e)/R, where R is the total revenue a miner receives and C_e is the cost of electricity spent on mining. The article offers a theorem stating that if a miner's MIM is less than 0.5 before subsidy halving and bitcoin and electricity prices stay the same, then mining is no longer profitable after the halving. The worst-case scenario is when a miner's MIM is close to zero before the halving, and approximately half of all hashpower will drop out. The article estimates the long-term MIM to be less than 50% when the ratio of the cost of electricity to the cost of hardware (f) is greater than 1. The author uses the example of Spondoolies Tech's SP35 Yukon unit, which has a useful lifetime of more than two years and costs $4000 while consuming 3.5 KW. The total expenditures on electricity will be at least $6135 for this device, making f greater than 1.5, resulting in an MIM lower than 0.5. The author concludes that while reward halving is a deficiency in Bitcoin's design, there is hope that it won't be critical as hashpower drop is less than 50% in the equilibrium break-even situation. However, the hashrate might drop by more than 50% immediately after the halving, posing a real threat due to the slow difficulty update.
Updated on: 2023-06-09T03:30:06.612564+00:00