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Bitcoin Price Drop and Its Effect On Miners

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If you have been following the price of Bitcoin since the beginning of the year, it is clear that we have been on a pretty big downhill trend from where we were near the end of last year. The price has been dropping and then stabilizing, in what looks like a pretty solid cycle. Now, however, we have had a much bigger drop and the price of Bitcoin has become volatile like it had been in the past. While this is a bad sign for the holders of the coins, it is an even worse one for those that are mining them. Essentially everyone is losing as the price of the Bitcoins goes down.

Energy Costs Money

Some people like to argue that they get free electricity due to their solar powered systems or some other method. The truth is that all of these still have their costs associated with them. If nothing else, it is wear and tear that will need to be taken care of at some point. Whether someone is creating their own electricity or getting it cheap, the fact is that they are still paying for it in some way or another. This means that mining cryptos costs money. And, of course, if you are doing it for profit, or even just to break even on what you are spending to make it happen, this means that you need to get money back. If the amount of money you are earning is lower than what you are spending, it kills the purpose of mining. Now you are spending both time and money trying to gain some coins.

This is a situation we are slowly (or, as of recently, quickly) making our way towards. As the price of Bitcoin goes down but the rate of mining them keeps going up (meaning the hash rate you have now is constantly becoming less and less valuable), people at the bottom are going to keep being pushed out because it simply is not profitable anymore. On the other hand, as the price of the coins goes up, more people can take part as their earnings will be able to off set their expenses a lot easier.

ASICs and Profitability

If the trend we are seeing continues, it looks like only the ASICs are going to be profitable. Even if they are earning a little amount of coin, they are pretty cheap to run. This is contrary to GPUs and CPUs that take up significantly more energy and mine even less. We are already getting close to the point where these systems are no longer going to be worth running, and it is going to have a major effect on the global hash rate and distribution of wealth (although the former will be compensated for when the more powerful ASICs come out). Essentially the price drop is leading us to a more central system where only those companies with the ASICs are going to be able to actually make money, so they will be in control of the supply and security of the network. This is the complete opposite of what we want to happen, being that the point behind the coins is for them to be decentralized.

What Needs to Happen

The only way to fix the issue of miners not making enough to continue working is to increase the value of the coins. This is becoming increasingly more difficult, though, with so many new alt coins that are based on Bitcoin's value. This is creating waves of wealth going out from Bitcoin to the others, even though they pretty much all require Bitcoin as an intermediary for obtaining cash (or buying in with cash). This is something we have been fighting for a while, and in drops like this it shows even more clearly. While it is Bitcoin itself we are worried about when it comes to the profitability, we need the wealth to stick in the coin. If it is simply moving around to others, the value will constantly go up and down like we have seen in the past. Breaking out of this cycle is the next step, and it is going to be a tough one.

Speculating Prices

As soon as the mining is no longer profitable at the flash prices, people are going to have to evaluate what they think about cryptos. Those who feel they are going to go back up in value are going to continue mining most likely (being that if they go up enough they will be profitable again). Those who do not believe this, however, are going to leave the network. What we are going to see as a result of this is the network hash rates going up and down as well, plus the earning rates. As people jump off the network, those who are on it are going to be earning more money. As people jump back on, those who were on it showing loyalty are going to be losing money again. How exactly this cycle is going to work is still in the air, as it is not something we have gotten to yet. It is definitely going to be something worth watching though!

Bitcoin


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