Is mining difficulty leveling out (Spring 2015)? How does this affect the economics of Bitcoin?

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I'm a newer enthusiast to the world of Bitcoin and Bitcoin mining, but I can try to help answer your questions as best as possible (or more just take a shot in the dark for fun):

My guess is that the cause of this slight loss of momentum in the mining difficulty is because, yes, new miners are becoming discouraged and not joining. In 2015, mining is straight-out not profitable unless you unload a few hundred/few thousand dollars into the best hardware. A hash rate of 100 Mh/s off of a common laptop used to be phenomenal and lucrative. Now, thanks to the influx of people building mining rigs that reach up to terahashes per second, new miners, and even current miners with smaller hash rates are beginning to lose interest in a realm of computational giants. The centralization of mining of the decentralized currency is beginning to discourage people. As I said, people are getting discouraged that only investing tons of money can put you on the map, and therefore less and less...
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(If I may

repeat myself

a bit...) Mining is like having a lot of people throwing weighted coins (such that 1 millionth of the time it comes up heads) and telling you when they hit a heads. If one such "heads" is reported every 10 minutes (600 seconds), you can make a very accurate estimation of how many times per second the coins are being flipped. In this example:

(1,000,000 flips/heads) / (600 seconds/heads) ~= 1,667 flips/second

The network difficulty is how you adjust this 1,000,000 figure so that the 600 figure stays consistent as the network's total hash power (1,667) changes.

I don't know what a hash is either.

When

mining

, your computer creates a block of data, which has a list of all of the transactions it knows about, includes a transaction that pays you the mining bonus, and then hashes that. If the hash happens to be a small enough number (as defined by the difficulty), the block is valid. If it's not, you increment a random number...

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The Bitcoin difficulty level recently increased by 7.09% recently. What is difficulty level and why is is important?

Bitcoin is probably the first decentralized, distributed open source digital currency protocol to gain massive adoption. No sooner the concept of digital currency was introduced by Satoshi Nakamoto in his whitepaper, it garnered a lot of interest from computer scientists and cryptographers. Some of these people had already tried creating a digital currency system with limited success. But Bitcoin offered a solution to many problems that were faced by the researchers until then. These very solutions were the reason for Bitcoin to become one of the widely adopted digital currencies in the world till date.

The main intention behind the creation of Bitcoin was to empower individuals by providing them with an alternative way to conduct peer to peer transaction over the internet without having to go through the middle men or a trusted third party like banking...

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Cryptocurrencies are the only decentralized payment system you can find today. Most of these operate under the same idea. They use an open source protocol. Since these currencies are only present in the digital world, there has to be a way that the currencies are created. Through the process of crypto mining, Bitcoin and other altcoins are created. This is the process of verifying transactions that occur within a network. Miners, which are also users of the cryptocurrency, runs this network. Over the years, mining difficulty increased due to the volume of users joining the market.

Difficulty is a measure of how complicated it is to find a hash below a given target. Created from Bitcoin, which established a global block difficulty, valid blocks must meet a hash below this target. In addition, mining pools also set pool-specific share difficulty setting a lower limit for shares.

Mining difficulty simplified

Mining cryptocurrencies like Alphacoin and Novacoin...

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Bitcoin is like gold in many ways. Like gold, Bitcoin cannot simply be created arbitrarily. Gold must be mined out of the ground, and Bitcoin must be mined via digital means. Linked with this process is the stipulation set forth by the founders of Bitcoin that, like gold, it have a limited and finite supply. In fact, there are only 21 million Bitcoins that can be mined in total. Once miners have unlocked this many Bitcoins, the planet's supply will essentially be tapped out, unless Bitcoin's protocol is changed to allow for a larger supply. Supporters of Bitcoin say that, like gold, the fixed supply of the currency means that banks are kept in check and not allowed to arbitrarily issue fiduciary media. But what will happen when the global supply of Bitcoin reaches its limit?

Effects on Bitcoin Miners

It may seem that the group of individuals most directly effected by the limit of the Bitcoin supply will be the Bitcoin miners themselves. On one hand, there are...

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The Bitcoin difficulty level recently increased by 7.09% recently. What is difficulty level and why is is important? Here the Bitcoin mining difficulty explained so simply even kids can understand once they read this.

Bitcoin is probably the first decentralized, distributed open source digital currency protocol to gain massive adoption. No sooner the concept of digital currency was introduced by Satoshi Nakamoto in his whitepaper, it garnered a lot of interest from computer scientists and cryptographers. Some of these people had already tried creating a digital currency system with limited success. But Bitcoin offered a solution to many problems that were faced by the researchers until then. These very solutions were the reason for Bitcoin to become one of the widely adopted digital currencies in...

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Bitcoin mining is regulated by a difficulty factor which determines how hard it is to mine one block of bitcoin. Recently the difficulty factor was just above 520,000,000,000. Coinidol.com investigates the effects of this rise on the Bitcoin mining activities.

Bitcoin mining difficulty changes every two weeks depending of the amount of computing power measured in hashrate available on the bitcoin mining network. When new miners add in more computing power on the network the mining difficulty increases and when big mining farms withdraws from mining the difficulty reduces.

What does the increase in mining difficulty factor mean to bitcoin miners?

Mike Lorrey, a co-creator of BitGold, a predecessor of Bitcoin, and vice-president at Family Office Venture Capital commented to Coinidol.com:

"Since difficulty is not inversely proportionate to the amount of mining capacity working bitcoin, it stabilizes supply/demand on the production side,...

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Many people wished they had not missed the Bitcoin mining bus before the great Bitcoin boom started back in 2013. Back then you could mine Bitcoins pretty easily at home and make a very nice profit on the exchange rate.

However since then, the mining difficulty has increased immensely and today it is almost impossible to mine Bitcoin profitably at home with your own hardware. The only exception is if you have very low electricity costs and manage to mine efficiently for at least 6 months without any major changes in this competitive landscape.

And that’s one of the reasons cloud mining was born

A seemingly sophisticated way to allow people to jump on the Bitcoin mining bus without the need of costly expenses. With cloud mining you can rent mining equipment from a company that will give you back the profits from your rented mining rigs.

You do not need to deal with the electricity costs, cooling down the miners or storing them, all you need to do is send...

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Flickr/krypto

Paul Krugman set off a new firestorm this weekend with a post about Bitcoin that asked a fairly simple question: What gives a bitcoin its worth?

The post drew a ton of angry reaction from the Internet community and tech people for a couple of reasons.

One is that this question — why is a bitcoin worth anything — is a difficult question to answer. The other is that the post is bizarrely titled "Bitcoin Is Evil" even though the post doesn't say that. But on the Internet, people don't read past the headline and so, outrage!

But back to the question of trying to establish an "intrinsic value" for Bitcoin. It's not simple. The dollar has intrinsic value because you need dollars to pay taxes in the United States. The government accepts no other currency. So if you're going to engage in any kind of commerce whatsoever, you need to use dollars. This creates real value for the currency. Gold has real value...

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Table of contents

General

What is Bitcoin?

Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.

Bitcoin is the first implementation of a concept called crypto-currency", which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a...

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As someone who comes from a physics and engineering background, over the long run I'm not concerned with mining centralization. Physics will ensure it is distributed.

To qualify, I think there will be strong ebbs and flows while we catch up to Moore's law. During the next few years, hardware is simply going to depreciate too quickly.

Around the year 2024, we are expected to hit the quantum mechanical limit, which broadly speaking means we will have perfected the silicon transistor to the atomic level. If we make them any smaller, they become transparent to matter. (Incidentally, I work on replacements for transistors that use the angular momentum of electrons to store data).

As we approach this limit, mining hardware is going to depreciate over years, not months. When this happens, the dynamics of mining investment will substantially change. Mining in Greenland with cheap energy and cool climate will actually be more expensive than decentralization. Actually,...

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Before we start, if you’re new to Bitcoin mining and don’t know what it is watch this short and simple explanation:

“Is Bitcoin Mining Profitable in 2017?“

The short answer would be “It depends on how much you’re willing to spend”. Each person asking himself this will get a slightly different answer since Bitcoin Mining profitability depends on many different factors. In order to find out Bitcoin mining profitability for different factors “mining profitability calculators” were invented.

These calculators take into account the different parameters such as electricity cost, the cost of your hardware and other variables and give you an estimate of your projected profit. Before I give you a short example of how this is calculated let’s make sure you are familiar with the different variables:

Hash Rate – A Hash is the mathematical problem the miner’s computer needs to solve. The Hash Rate is the rate at which these problems are being solved. The more miners...

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There are really a couple of major effects that mining can have on the environment. One is “internal” and one is “external.” The first has to do with deep mining and the empty spaces left behind when coal and waste material is taken to the surface. Some landowners have experience mine subsidence, in which the surface of their property drops because the mine below has collapsed.

This is generally not a major environmental event, though it can be inconvenient and costly for the property owner and the mining company. There are other, more serious, problems that fall under the environmental-effect banner.

Some studies of mining effects begin with two items – water and “tailings.” The waste material and leftover rock from the mines must be stored somewhere. Much of this material, tons of it, don’t remain underground or in the pits of surface mines. For many years, companies simply piled it up, creating mountains of unusable material that sat in the same place for many...

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Jp Buntinx · June 19, 2015 · 7:00 pm

Bitcoin mining is a topic of heavy debate around the world. Not just because the difficulty keeps increasing, making existing mining hardware outdated rather quickly, but also because of the sheer energy consumption. As a result of the lower Bitcoin price and rather high electricity costs, many miners and companies have moved their operations to other parts of the world. But what if the existing wind hardware we have right now – used to generate electricity – could be drastically more efficient?

Also read: The Economics of Bitcoin Mining Centralization

Alternative Energy Sources for Bitcoin Mining

Electricity costs are rather high in most parts of the world. With the average price per kilowatt-hour ranging anywhere from $0.06 to $0.35, it is nearly impossible to break even if you are mining at home, let alone...

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You probably know that mining is the only way that Bitcoin comes into the world. You buy them, you exchange them for something else, and you earn them or even steal them. You send them per global network like mail. Thousands of coins trade hundreds of transactions per single second. However, someone created every single Bitcoin in the past. It may be a huge data center with hundreds of coolers and chips, it might be a self-miner, or it may be a mining pool with thousands of members around the world. Every solved block creates 25 Bitcoins at a time. How much time does it take to mine at least one of them? That is an important question.

Factors

To answer this question, we need to understand what factors affect the duration of mining Bitcoins and its success.

We won’t discuss solo mining because until you have a lot of the latest ASICs, it’s almost impossible to solve a block. Even if you have the newest ASICs, it’s still too difficult.

That’s why we’re...

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If “mining” sounds like a process which extracts value from Bitcoin, nothing could be further from the truth!

Miners are the backbone of the Bitcoin network:

Without miners, the network would collapse and lose all value.

The role of miners is to secure the network and to process every Bitcoin transaction.

Miners achieve this by solving a computational problem which allows them to chain together blocks of transactions (hence Bitcoin’s famous “blockchain”).

For this service, miners are rewarded with newly-created Bitcoins and transaction fees.

The Blockchain

To understand mining, it’s first necessary to understand the Bitcoin blockchain.

It works like this:

All Bitcoin transactions are recorded in the blockchain, in a linear, time-stamped series of bundled transactions known as blocks.

The blockchain is essentially a public ledger, which is freely shared, continually updated and under no central control.

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Arvind wrote yesterday about the availability of chips that do super-fast Bitcoin mining. I want to follow up by unpacking the economics of Bitcoin mining, to see what the effect of the new chips will be, and more generally what the future of Bitcoin mining looks like.

For those unfamiliar with Bitcoin, here is a one-paragraph summary: Bitcoin is a digital currency that operates without any centralized issuer. It’s a “real” currency, in the sense that it can be converted readily into traditional currencies such as dollars. Logically, a Bitcoin has a serial number. You can give a coin to someone by adding an entry to the global Bitcoin log, saying that you gave them that coin. The clever part of Bitcoin’s design is how the global log works. The log consists of a chain of “blocks,” each memorializing a bunch of transactions. To create a new block, you have to solve a difficult cryptographic puzzle which can only be done by randomly trying guesses until you find one that...

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