Dynamics of Bitcoin mining

Dynamics of Bitcoin mining

What happens to mining when the Bitcoin price changes, when there are mining supply shocks, the price of energy changes, or hardware technology evolves? We give precise answers based on the technical forces and incentives in the system. We then build on these dynamics to consider value: what is the...

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Veröffentlicht in:arXiv.org 2022-01
1. Verfasser: Semret, Nemo
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Digital currencies
Economic analysis
Feasibility
First principles
Incentives
Invariants
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description What happens to mining when the Bitcoin price changes, when there are mining supply shocks, the price of energy changes, or hardware technology evolves? We give precise answers based on the technical forces and incentives in the system. We then build on these dynamics to consider value: what is the cost and purpose of mining, and is it worth it? Does it use too much energy, is it bad for the environment? Finally we extend our analysis to the long term: is mining economically feasible forever? What will the global hash rate be in 40 years? How is mining impacted by the limits of computation and energy? Is it physically sustainable in the long run? From first principles, we derive a fundamental scale-invariant feasibility constraint, which enables us to analyze the interlocking dynamics, find key invariants, and answer these questions mathematically.
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subjects Digital currencies
Economic analysis
Feasibility
First principles
Incentives
Invariants
title Dynamics of Bitcoin mining
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