The cost of mining a new block of bitcoins is currently $4.5million per block. This cost is predicted to increase in price significantly over the next several years, but it is currently far lower than the cost of creating new bitcoins at the present time. Therefore if you are considering investing in bitcoins now you have every reason to do so.
It seems that the current cost of mining is far too low to be an economically viable activity for miners in the future. But, this is a pessimistic outlook. Currently, the cost of creating new bitcoins is decreasing, due to decreased hash-rate on the network. And with a decreasing market price, more people are buying into the system, which causes an increased demand for the product as well.
In order to understand why the cost of mining may increase, you must first understand what happens when a new block of bitcoins is created. When this occurs, the network’s ability to process new blocks increases, causing the price of bitcoins to go up. And with no additional incentive for miners to add more computing power, the elec-to-total ratio will not be able to keep up with the price increase.
There are two major forces contributing to increasing mining costs. First, competition from cloud computing and the internet businesses that use large amounts of electricity to operate. Second, the decreasing trend of technological improvements. These forces combined will cause miners to have to invest more in equipment and other resources required to stay competitive. In short, the biggest beneficiaries of the increased cost of operating a portion of the cryptographic hash function are the miners that have the most computing power.
The price floor, which marks the point at which the average transaction fee for all miners is reached, has experienced a distinct decrease since the last five years. This decrease is attributed to reduced profit margins for miners, as well as an increase in operating expenses. The lower profit margin means that fewer profit-earners will be able to afford to join the mining industry. This in turn, will reduce the number of miners needed to stabilize the electronic cash rate floor, and consequently, the overall mining operation cost. With less miners needed to maintain the electronic price floor, the supply will be forced up, driving up the price floor.
The increase in market price, combined with the reduced profit margins, is what drives up the cost of running a portion of the cryptographic hash function. This price is then passed onto the buyer of the bitcoins. To keep a lid on the price increase, most miners are compelled to build more mining operations to meet the demand of the marketplace. This increases the demand for transaction fees.
Transaction fees are also used to pay for the collation of new blocks that are generated by the hashing process. The number of transactions required to keep the market price at an acceptable level, and therefore allow the investor to profit from their investment, is determined by the number of computing power that is needed to operate the proof-of-work (apoW). The higher the number of computing power that is needed to keep the market price at acceptable levels, the higher the transaction fees.
The recent trend of an increasing hash rate and decreasing energy costs is predicted to continue for the next two to four years. This trend is called the Halving. The Halving will cause a reduction in the profit that the investor can realize from his investment. Since the increase in the cost of mining results in a reduction in the profit from the transaction fees, the hash rate and the energy costs will continue to decline.