It's not profitable because the hardware manufacturers are charging 300+% mark up on the hardware. So it's take a friggin year to even breakeven there. By the time you do, another unit comes out and the difficulty goes up by 50% because it has a faster hashing speed.
Then on top of that the units are built in such a way that the electricity used to power the units costs more than the what is generated in revenue; thus unprofitable. The problem is miners are willing to buy the crap the manufacturers made, at the prices set by the manufacturers, so they have no reason to make something significantly more technological advanced and/or priced fairly.
Topic: Economics says that mining should be profitable... So why is it unprofitable? - page 2. (Read 2531 times)
March 23, 2015, 08:18:20 PM
March 23, 2015, 08:12:36 PM
In the very, very early days of Bitcoin mining and markets (i.e. early 2009), there was one miner called NewLibertyStandard who mined bitcoins and then sold them on his website via email. His prices dictated the market at the time and it was based solely on electricity costs:
Because of the way mining works, if the reward exceeds the electricity cost, lots of people will jump in and the network difficulty should adjust itself so that mining becomes more difficult. If reward is lower than the electricity cost, lots of people will jump out and the network difficulty should adjust itself so that mining becomes less difficult. Therefore, the economics suggest that mining should be profitable, but only barely so.
However, the reality today is that most miners do not make a profit - i.e. the above model does not explain why things are the way they are. Does anyone know the reasons for this?
Now if I had to guess, it would be because many miners are not rational actors motivated solely by profit but are either mining for fun or as a hobby. With a large chunk of the hashrate being controlled by miners who don't care whether they are losing money, this messes up the equilibrium and turns mining into a generally unprofitable thing for everybody.
Quote
During 2009 my exchange rate was calculated by dividing $1.00 by the average amount of electricity required to run a computer with high CPU for a year, 1331.5 kWh, multiplied by the the average residential cost of electricity in the United States for the previous year, $0.1136, divided by 12 months divided by the number of bitcoins generated by my computer over the past 30 days.
Because of the way mining works, if the reward exceeds the electricity cost, lots of people will jump in and the network difficulty should adjust itself so that mining becomes more difficult. If reward is lower than the electricity cost, lots of people will jump out and the network difficulty should adjust itself so that mining becomes less difficult. Therefore, the economics suggest that mining should be profitable, but only barely so.
However, the reality today is that most miners do not make a profit - i.e. the above model does not explain why things are the way they are. Does anyone know the reasons for this?
Now if I had to guess, it would be because many miners are not rational actors motivated solely by profit but are either mining for fun or as a hobby. With a large chunk of the hashrate being controlled by miners who don't care whether they are losing money, this messes up the equilibrium and turns mining into a generally unprofitable thing for everybody.
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