Bitcoin mining efficiency and Botnets

[Krisztián Pintér]

>         "The botnet's Bitcoin operation was only profitable because it used
> stolen electricity:

> What does this say about the future of Bitcoin mining?


if you are interested in the economics of it, here you are:

as an example, grab gold mining. claim: the price of gold in the equilibrium state equals to the cost of mining it. proof: if gold is more expensive than the cost of mining, people will invest in opening new gold mines. this, until the total quantity grows, the price falls, and the equilibrium restored. the opposite happens in the reverse case.

not all gold mines operate the same way, some has better technology, some mines are just easier to mine, some companies perform better structurally. therefore the above statement is true "on the margin". the least efficient miner have cost = revenue, thus barely surviving. if gold demand drops, this mine will close. if gold demand rises, one more mine will be opened that is slightly less efficient, and otherwise would generate loss.

the situation is the same with bitcoins, with the twist that mining is made harder or easier adaptively, so the influx is steady. but that does not change the picture: there will be a marginal miner that makes no profit at all. all the other miners will make profit based on how much more efficient they are than the marginal miner. everyone else jumping in the mining business without consideration will realize loss.

it is a false picture that mining always benefits you, albeit only a little. if you are worse than the marginal miner, you are at a net loss, and this follows from the above simple economic rule.