During a Question and Answer section on YouTube, Andreas Antonopoulos, author of
Mastering Bitcoin gave his opinion as to whether it can be profitable to mine Bitcoin given its current price. The Bitcoin proponent’s response was tied to a difficulty re-targeting algorithm.
Difficulty Re-targeting Algorithm to Determine the Profitability of Miners
According to Antonopoulos, whether a miner will be unprofitable at a given time can be tied to the difficulty re-targeting algorithm. The algorithm creates a relationship between the behavior of miners and how Bitcoin is generated. Generally, miners turn off less efficient machines when the difficulty is higher and turn it on when there is a drop in hash power and this creates a ripple effect each time.
The author goes on to explain that if a person owns a warehouse or factory and is running their own mining farm, then they will have a variety of machines, a majority of which are more efficient than others.
In his opinion, the machine’s efficiency is determined by the “certain cost and number of hashes [generated] per kilowatt of energy consumed.” Thus, there will be less efficient and more efficient machines, where the former will be the unprofitable one since it will require more kW/h to produce the network’s hash power.
Less Efficient Mining Machine is Turned Off
As a consequence, the less efficient machine will most likely be turned off. The author gave an instance where thousands of miners on a daily basis are turning off some machines or replacing it entirely. As such, there is a ripple effect which reduces the hash power and allows more Bitcoin to be produced using the same amount of electricity.
That being the case, the mining business becomes more profitable and the less efficient machine has the potential of becoming profitable. It then means that if it is turned on, it will put another load on the network and at some point, the machine will be unprofitable again and will need to be turned off.
According to the author:
As the difficulty lowers, their mining equipment becomes more profitable, perhaps so profitable that the equipment they turned off is profitable again, so they turn it back on. This will cause the hash rate to increase, so by the next difficulty retargeting it will be less profitable again.
Antonopolous’ Work on The Internet of Money Gains Popularity
Antonopolous is also popularly known for his book, The Internet of Money. He outlines how Bitcoin is changing the world of finance and its potential of becoming even more than a digital currency.