The Cost of Mining

Bitcoin mining is an investment, weighing the cost of energy and hardware against the expected returns. Mining pools, or groups of miners, tend to be located in regions where electricity is inexpensive. These miners also follow different virtual currencies, mining the cryptocurrency that they expect will have the highest return. It is a well-known fact that mining is expensive. Not only does it require high-end hardware that can easily cost in the tens of thousands - it also consumes a tremendous amount of energy. As BBC reports, mining bitcoin consumes "more electricity than Argentina'. Additionally, with a bitcoin halving occurring every four years, the rewards for miners are also reduced. Initially, the number of Bitcoins a miner received for solving a hash was 50. In 2012, this number was halved and the reward became 25. In 2016, it halved again to 12.5. In May 2020, the reward halved once again to 6.25, which is now the current reward. The difficulty of mining has also increased - and by a mind-blowing margin. When bitcoin was first launched, the difficulty of mining one block was 1. As of May 2020, it is more than 16 trillion. The price of mining hardware has skyrocketed while at the beginning a decent PC was enough to mine 50 BTC on a regular basis, today, the situation is entirely different. From CPU mining it transitioned to GPU mining, due to the much higher computing power of graphic cards. GPs were so popular for cryptocurrency mining that from Q2 2017 there were reported stock shortages and price hikes. This wasn't the first time GPU prices went up due to mining- the price of AMD Radeon cards were significantly inflated in 2013 already. As a result, companies had started to mine Bitcoin in a considerable amount to make a profit, leaving out smaller miners. It is evident that mining has become much more difficult for traditional home miners. The consequences of this are evident - the larger share of mining is done by large mining pools, most of which are located in areas with very low prices of electricity and property such as Asia This results in the dangerous tendency of centralization instead of the desired decentralization in mining, putting the advent of digitization 4.0 in danger, which is greatly underpinned by immutable ledgers, such as blockchains.

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