It costs $62M to put 22,800KG into LEO with Falcon 9. But if all I'm sending up is a block of concrete, that isn't going to have much monetary value to anyone. Indeed, it might have negative value (particularly if, when it drops out of orbit, it lands on someone's house).
But there's no feedback to the market if, for instance, power prices go up and mining becomes more expensive. The least efficient miners must simply either mine at a loss, or drop off until difficulty readjusts downward and those who are left are back in profit. More expensive power wouldn't affect the market price of a bitcoin.
--edit-- Because it doesn't affect the supply, the same number are created either way.
This seems intuitively wrong. Production and marginal costs are always factors.
If power goes up in value, it becomes more expensive to produce new Bitcoins as well as process transactions. That would feed into prices, fees and usage. The strength of this signal might be obscured by noise, but that doesn't mean it isn't there.
But it's still correct - there is no link there.
> If power goes up in value, it becomes more expensive to produce new Bitcoins as well as process transactions.
No it doesn't, because the number of bitcoins produced is a constant regardless of price, and they can only be sold at market price. If people stop mining because it costs too much, the supply to the market is entirely unaffected.
The cost of power has absolutely no bearing on the transaction fees or the transaction processing capabilities of the network either. Only congestion affects transaction costs, and the transaction capacity of the network is not connected to the number of miners online or the hash rate, it is roughly constant and dependent on protocol factors.
--edit-- - Replying to the child post here as I am rate limited :(
> If power costs go up 10x, the cost of operating the rigs that verify transactions goes up. Miners who find processing transactions unprofitable will remove themselves from the system
If those miners remove themselves, it has no bearing on the rate at which transactions can be processed or the price of a transaction.
They are all trying to validate the same transactions in parallel. The network does not get more capable as you add mining capacity.
> until transaction fees rise to a level that pays the bill.
What mechanism would cause the fees to rise?
(--edit-- last edit - I think what you're missing is that as the number of miners decreases, each miner gets a bigger share of block rewards and fees)
If power costs go up 10x, the cost of operating the rigs that verify transactions goes up. Miners who find processing transactions unprofitable will remove themselves from the system until transaction fees rise to a level that pays the bill.
There will be some short term effects as you describe until the difficulty adjusts.
Difficulty is adjusted every 2016 blocks based on the timing of previous blocks. So in the long term, the rate of block creation stays constant, averaging 1 block per 10 minutes.
Consider Bitcoin if there were a single miner running a single rig. They sink costs into the rig, and then run it, paying for electricity as it hums. The rig has to produce at least as much income to this miner as she pays out in electricity costs. Otherwise, it's more profitable to turn it off. So if electricity prices go up, income has to as well. If it doesn't, the rig goes off. This is fundamental to profit being equal to revenue minus costs.
In a networked state, there are more interaction effects but the fundamental relationship holds. Every miner must pay, directly or indirectly, their electricity costs. (More than that, every user has to pay electricity costs. If electricity prices skyrocketed, an electronic currency--whether digital dollars or Bitcoin--becomes fundamentally uncompetitive relative to paper.)
Constant-rate production dampens this effect, but does not remove it. At the end of the day, somebody is paying for the electricity the network consumes. Those somebodies aren't doing it for free.
What that means is that the threshold would be about ten times lower if electricity prices were ten times higher globally.
As you can understand, this is a big big waste - which is why alternatives to proof of work are researched heavily.
This change in threshold would flow into pricing. Also, energy costs are a factor in equipment costs, network access costs and the cost to end users. One would be hard pressed to find a single priced good or service on this planet that doesn't respond to energy prices.
You don't have to look further than Bitcoin. The cost of producing Bitcoin is primarily the cost of wasted energy - how much energy should be wasted is determined algorithmically. Too low and you get arbitrage opportunities; too high and people stop mining.
Bitcoin pricing is not at all related to energy prices in the middle-to-long-run.
> Every miner must pay, directly or indirectly, their electricity costs.
But they have no mechanism to pass this cost on. There is no change in the levels of production. They cannot increase fees as fees are voluntary and users only set them to improve their processing priority.
If a miner finds that mining is not profitable, they must indeed switch off. The hash rate of the network falls. The remaining miners get a bigger share of the daily block payout. Users though, are entirely unaffected, and so is the open market.
There is literally no mechanism by which mining costs can affect price in BTC. It's the other way around. Price affects the number of miners fighting for a share of the spoils. If it's no longer profitable, they stop. The hashrate drops, those left behind get more of a share.
I'm not sure how else I can explain this to you - the cost of mining cannot add value to the system (other than securing it) because there is no mechanism to pass on higher fees, the supply is unaffected by the number of miners, the transaction speeds are unaffected by the number of miners... there's a complete disconnect in that direction.
When bitcoin started there was basically one computer mining and the difficulty level reflected that and the cost of a bitcoin was less than a cent.
Now that there is billions of dollars worth of hardware dedicated to mining, the difficulty level goes up until the rate of block creation is one every 10 minutes. But now the 12.5 bitcoin reward every 10 min has to support billions in capital investment hence the price needed being higher, of the order of $2000. I guess if the price fell well below that to say $100 then there would be a lot of mining hardware repurposed or sold on eBay and we could get cheap graphics cards again.
re The speed of transactions? The price of transactions? The creation of new coins?
The speed remains about the same, the price of transactions tends to go up, the creation of new coins is not effected as it is hard coded in the bitcoin software. (https://www.anythingcrypto.com/guides/bitcoin-mining-block-r...)
None of the above. More miners means more people splitting the block rewards, and more network security against 51% attacks. Literally nothing else is affected.