What is normal mining loss (mining industry scale determination standard)

What is normal mining loss? In the field of cryptocurrency, the correlation between mining costs and returns is increasing.

In order to measure the actual earnings (i.e. profits) of Bitcoin, we need to value and adjust the mined coins. Due to limited computational power, this can give miners higher rewards while decreasing their mining efficiency. Therefore, if a miner sells their hash power at a lower price to earn income, they must bear high costs to continue operating; when they do not have enough time or capital to support the network, it may result in greater market volatility and losses. According to studies, Bitcoin miners may reduce a portion of their budget to maintain operations due to a decrease in hash rate.

In general, “ordinary” users usually invest their digital assets in other blockchain ecosystems, such as Bitcoin wallets like Coinbase, Tether, Bitfinex, or purchase these tokens through exchanges and other third-party platforms, which leads to the collapse of the “mining pool economy.” However, this situation is not necessarily a bad thing. On the contrary, for those who want to transact with Bitcoin, they can charge some fees from the mining pool to increase their earnings. As mentioned in our previous research article, “most people think they own Bitcoin, but they don’t understand it and cannot comprehend whether it can be a store of value.” So what causes such results? The first consideration is that the decline in Bitcoin price is not driven by mining blocks themselves – this is because mining companies cannot determine how the required output quantity grows over time. However, this indicator starts to rise and constantly change over time. Although the average block time of Bitcoin is about 12 minutes, in some cases it only takes about 1 hour, which results in significant mining output. In addition, currently, one of the main driving forces behind the production of mining equipment is to reduce power consumption, rather than using cheap hydropower to improve the profitability of the proof-of-work system. Of course, there are also factors that affect this level, including many large mining companies such as GPU and ASIC chip manufacturers developing new hardware products to meet market demand. One of the most popular products is the Antminer S9, which has obtained a market capitalization of over 1 billion dollars. However, only a small fraction of mining farms have completely phased out ASIC models. Nevertheless, there is still a possible phenomenon: in certain periods, ASICs are more susceptible to hacking attacks than traditional GPUs. On the other hand, if ASICs become too expensive, it can lead to a 51% attack. Even during the most recent large-scale upgrade, ASICs suffered heavy losses and even triggered a new round of 51% attack incidents. Therefore, miners should pay attention to the following points:

1. Miners must pay high fees. Otherwise, they will have difficulty finding appropriate methods to compensate for their mistakes, such as using a large amount of energy to deal with problems/failures.

2. Miners have to pay more than 90% of the fees (at least from the current perspective).

Mining Industry Scale Determination Standard

According to China Electric Power News, recently, State Grid Corporation of China issued the “2018 China Renewable Energy Mining Industry Scale Determination Standard”, which mainly categorizes China’s Bitcoin mining industry. According to this regulation, under the existing international and domestic electricity price system, companies or organizations that price their services in cryptocurrency, have high investment efficiency, and can provide stable profits will be considered; evaluate and verify the total income, expenses, and related information technology and services generated by enterprises/organizations that meet the relevant regulations, and evaluate the economic benefits obtained by their business activities; through statistical analysis of data, a rapidly growing industrial chain has been formed in the current market, including blockchain technology service providers such as BTC.com, mining pools, hosting institutions, banks, and securities companies, which have also established joint venture subsidiaries to undertake corresponding functions.