 Is it still profitable to mine Bitcoin now that the price has dropped? This is a common question, but also a common misconception. Even supposedly serious analysts, organizations, and financial organizations get this wrong all the time. You can find articles in the Financial Times, in the Wall Street Journal, research reports published by JPMorgan Chase... that say things like, it is no longer profitable to mine Bitcoin, or it will not be profitable to mine Bitcoin soon. You can translate into common English as, I don't understand how Bitcoin works, but I like to write articles about it anyway. Basically, the way the difficulty-retargeting algorithm works is that it creates dynamic relationships... between the behavior of the miners in that market and the issuance of new blocks. Think about it this way. At any moment in time, there are thousands of different mining farms operating... thousands and thousands of different pieces of mining equipment, miners, hardware miners, ASIC miners, as they are known. Imagine you are operating one of these farms, and within your factory or warehouse, you probably have a variety of equipment. You might have 80% of your equipment being the very latest mining equipment that is efficient at a certain cost of energy... and produce a certain number of hashes per kilowatt of energy consumed. That is how you estimate the efficiency of your mining equipment. It is not all going to be at the same level. Some of it is going to be less efficient, meaning it requires more kilowatts per hash to produce hashing power for the network. At the same time, you are thinking about the electricity costs you have as an input into this equation... as well as various other expenses, operating expenses, maintenance expenses, staff expenses, maintenance expenses... rack, mount, dismount, recycle, equipment, all of these things. You have some kind of electricity cost, which may be on a three-month contract, or a six-month contract, or even a daily contract that gives you a certain price per kilowatt. Based on that, you can estimate whether, at the current level of difficulty and the current level of the Bitcoin price, your equipment is profitable or not. The answer you are going to get is different for different classes of equipment. Less efficient equipment is going to become unprofitable earlier than more efficient equipment. You look at your warehouse and say, as of today, this batch of miners here is no longer profitable, which means that the overall cost, specifically and most importantly the biggest input, the cost of electricity that they consume in order to produce hashes, does not produce enough Bitcoin at the current price to pay for that electricity. Therefore, the longer they are turned on, the more loss I am making. You have passed the breakeven point. That specific group of miners is no longer profitable. You may have in your warehouse other miners that, for every kilowatt of electricity they are consuming... at the current price, are generating enough Bitcoin from mining on average, that they pay for the electricity and then make a profit and pay for all the other maintenance costs, and continue to make a profit. Those are profitable, some of your equipment is unprofitable. What do you do? You turn that equipment off. It is very simple. You turn that equipment off. As long as it is working, it is consuming electricity without being able to pay for that electricity. You turn off just the equipment that is not profitable, and you leave on the equipment that is profitable. Imagine this happening as a ripple effect across the entire industry. This is something that happens on a day-to-day basis. Miners all around the world, thousands of them decide to turn off or turn on new equipment. They are constantly replacing equipment. They have truckloads of ASIC miners in their loading docks... that they have to mount and install, and at the same time taking out old miners that are no longer profitable. This is a constant churn. Imagine, as an industry, the most profitable of mining farms, the ones that have the lowest operating costs, the best location, the best electricity price, the lowest staffing costs, they remain profitable, while others, even perhaps at the same electricity costs because of higher maintenance staffing, location costs, etc., are no longer profitable. They may turn off their entire warehouse. What that does is, when they do that, it reduces the hash power across the entire network. The amount of hashing happening drops. You will see that happening all the time. It goes up and down and changes. It is highly volatile. It changes a few percentage points every hour, as new machines are turned on, old machines are turned off, warehouses suffer power cuts, new warehouses are turned on, etc. If a large number of miners are finding it unprofitable and turn off their least profitable equipment, that drop in hash power causes the difficulty retargeting after two weeks. When the difficulty retargeting happens, the miners who are still operating will be more profitable. As the difficulty gets lower, their hash power generates more Bitcoin for the same amount of electricity used. As the difficulty gets lower, their mining equipment becomes more profitable. Perhaps it gets so profitable that some of the equipment they turn off is now profitable again, so they turn it back on, which causes the hash rate to increase. The next difficulty retargeting makes it less profitable, which effectively causes people to take machines offline, as the profitability changes. The same thing happens if the price goes down. That pushes a certain class of equipment into non-profitability. As a result, the older equipment in the mining network gets turned off, which then causes the difficulty to drop, which finds equilibrium. Supply and demand are constantly finding equilibrium at exactly the right level of profitability, where the average miner is profitable. How do we know the average miner is always profitable? Because they are still running. If they weren't profitable, they would have turned off. The average miner is always profitable, because the average miner leaves their machines on, which is why we have some of the profit remaining. Some of the miners are not profitable, but they turn them off. Some of the new miners are more profitable, so they turn more machines on. Any time the price moves, that entire equation recalculates, causing the least profit oil to turn off, the most profitable to keep operating, and the difficulty to retarget to keep everything in equilibrium. On average, the profit margin of a miner should be near zero. In economics, a perfect market is where, as supply and demand reach equilibrium, the price approaches the point of cost as closely as possible, and the profit margin goes to zero. If it is above zero, that attracts more people to join the market, which increases the hashing power, which increases the difficulty, which drops it back to zero. It should always, on average, hover around zero. Most miners should be operating just about break, even on average. The problem is, the average is at the center of a bell curve of miners, some of whom are very profitable, and some of whom are about to turn off are very unprofitable. That is how the industry works. The price can never make mining unprofitable, because the unprofitable miners turning off makes the rest of the miners profitable again. Hartford Cafe made a very important comment, which is, I discussed this purely from an operating cash flow perspective, which means that price goes up, price goes down, and you calculate it based on the kilowatts and the current price of Bitcoin. Of course, some miners are going to take risks, and they are effectively going to mine at a loss today, anticipating that the Bitcoin price will increase in the future, and they will make their profits by having access to Bitcoin to invest. This is a very risky proposition, and you can't do it at scale. The reason you can't do it at scale is because you won't have Bitcoin to keep for the future, because you will have to sell all of it to pay for electricity, unless you have another source of income. But on a small scale for small miners, that also applies. James asks, is the ongoing reduction in energy prices a threat to Bitcoin price and Bitcoin mining? No, it's not. Again, these are dynamic markets. As the energy prices change, they don't change everywhere simultaneously. They don't change uniformly, and miners do not operate at the same level of efficiency. So, the miners who gain an advantage due to lower energy prices will be able to make slightly more profit than the miners who don't, which is going to change the market slightly, gradually, and in different places of different times. This doesn't happen all at the same time. A reduction in energy prices probably simply shifts the mining industry to other forms of energy, where there are opportunities to use cheaper energy. The cheapest form of energy we have on the planet is not a particular production method, but rather has to do with supply and demand. The cheapest form of energy is energy that is not being consumed, excess energy, that is being produced but cannot be distributed or consumed. The cheapest form of energy is surplus energy, produced in locations where it can't easily be distributed. We find that miners gravitate towards these sources of energy, because that's where the price drives them. Bitcoin mining, in many cases, acts as a mechanism for monetizing energy that would otherwise not be consumed, but is being produced anyway due to imbalances in production. For example, you have renewable energy that is being produced, whether you need it or not, by wind, by solar, by things like that, hydro, etc. That energy, if it can be distributed, is wasted. It doesn't go anywhere. You still produce it. You can't turn off a solar panel. You can't profit from it anyway. It produces whether you need it or not. That energy is by definition the cheapest, because there is no demand and there is supply, so its price drops to zero. If you don't have mining in the local area, the price remains at zero. What mining does in that scenario is it creates a buyer where buyer didn't exist, thereby increasing the price of that energy from zero to a fraction, and thereby investing in that energy company, effectively amortizing the cost, appreciating the cost of capital and infrastructure for that electricity company. Which, if you think about it, is an investment in renewables. Reduction in energy prices doesn't damage Bitcoin price or Bitcoin mining profitability. In fact, what it does is it increases profitability for miners, but it also increases profitability for electricity companies, specifically in renewables, that have this characteristic of oversupply, and therefore invests in renewable energy, which is great. Lewis asks, after 2140, when the Bitcoin block rewards go to zero and all coins have been issued, should we expect transaction fees to rise as an incentive to maintain and secure the network? Lewis, transaction fees will rise long before. This is a gradual change. With each halving, the profitability of miners changes, and the basis on which the difficulty price and profitability of mining equipment determines whether miners continue to mine or disconnect their equipment, thereby reducing the difficulty, thereby making more efficient miners more profitable, etc., etc., This is a constant calculation. It happens every two weeks for every miner in the world, and based on that, that puts pressure on fees, and it creates both the fee market, the difficulty market, the mining markets, and all of these markets that operate independently, but with some overlap and some price signaling between them. So, fees will be considered as part of this profitability equation. They are considered as part of this profitability equation all the time, and they are considered today. You don't have to go to a zero-block subsidy for miners to consider how much fees are contributing to their profitability. That's part of the equation today, and that equation constantly changes, at least every two weeks, but also affected by other things, like the price of electricity, how efficient the mining operations are, their staffing costs, their ability to install new equipment and remove old equipment, etc., etc. So, we will see transaction fees respond to market pressures, but so many things change between now and 2140, including the subsidy, the capacity of the network, the efficiency of storing transactions, various new technologies, etc., and of course the price of Bitcoin. By the time we get to that point, the number of transactions supported on the network, the nature of the network, how much of it is happening in layer one and layer two, all of these are unknowns, and the market will have long adapted to these new allergies before. It's not like we just go blindly up to 2140, and then something dramatic happens. It's happening today, every single day, by every single miner in a three-mark economy, price discovery, profitability calculations are happening every day. Nothing sudden happens. It's a bit like your 18th birthday, right? You don't suddenly become an adult overnight to wake up the next morning and go, I'm an adult now. Maturity has been building all the way up to that point. It's a gradual process. The milestone, the checkpoint itself is relatively meaningless.