Analysis | Using hash rate trends to predict Bitcoin mining cost price after halving

Author: Village Head Two Old

In Bitcoin, the block reward is halved every 210,000 blocks. On average, the basic block generation time is about 10 minutes, and the time for 210,000 blocks is 4 years.

It can be calculated by a simple formula: 210000 x 10min÷60min÷24h÷365day=3.995 years

210,000 x 50 + 210,000 x 25 + 210,000 x 12.5 + ...

=21 million

Taking the limit of this geometric progression also shows that the total amount of bitcoins is approximately 21 million.

The current news in the market says that the long-awaited halving is about to happen. From the above formula, we can deduce that 210,000 times 3 is 630,000 blocks, which means that the reward will be halved at the 630,001th block height. This halving will occur in May 2020.

From this point in time, that is, from this block height, the Bitcoin mining reward will drop from 12.5 Bitcoins per block to 6.25 Bitcoins

This is the picture I used when I wrote about the Bitcoin mining industry in December 2019 (you can search for "Three Articles on Mining" to find previous articles).

The calculation results in December 2019 are as follows:

Cost formula: 3kw x24hx 0.33 ÷73T = 0.325 Unit: Yuan per ton per day

Sales formula: 1T/ (93x10^6T) x 12.5 x 6 x 24h x50000= 0.9677Unit : Yuan per T per day

To briefly explain the above content, a 3-kilowatt machine running for 24 hours a day consumes several kilowatt-hours of electricity. Multiply it by 0.33 yuan, and you get the electricity bill for that much electricity. Divide it by 73T, and you get the electricity bill for one T a day.

1T computing power divided by the total network computing power 93E, the unit needs to be converted, 1E=10^6T, the current Bitcoin block reward is 12.5 coins, about ten minutes a block, one hour is equal to 6 ten minutes, so multiply by 6, and then multiply by 24 hours a day, we can get how many BTC can be mined with one T computing power in a day, and then the price of Bitcoin is about 50,000 yuan per coin, so we can get how much the coins mined with one T computing power in a day are worth when they are sold.

Profit formula: 0.9677-0.325=0.64 yuan

This is the money that 1T computing power earns in a day.

What we are going to calculate today is what the mining cost will be after the halving in May?

By calculating with the same formula as above, we need to know: which parameters are uncertain, which are basically certain, and which are uncertain. According to this principle, they are divided into three categories , as listed below:

Of course, there is also physical information that is completely certain, such as one block every ten minutes, 60 minutes per hour, and 24 hours per day.

Let’s take a look at the computing power.

(Information source: BTC.com)

The above data is simply plotted as a trend chart, with the horizontal axis representing the unit time interval of four weeks and the vertical axis representing the computing power. It can be seen that the overall trend is upward, with a slope of 5.9655, which means that the computing power increases by 6EH/s every four weeks, that is, starting from June 2019.

Some people say that the computing power has been increasing, which is actually not true. The computing power in November and December was a little more than 92E, which was lower than in October. There are two reasons for this. The price of the currency is not good enough, and the old mining machines need to be slowly replaced with new high-computing-power mining machines. The old ones have gone down, and the new ones have not arrived yet, so the computing power has not been added in time .

If we look at the overall trend, the average increase in computing power is 6E per month, which is obvious, but it is still possible to rise or fall due to the influence of the currency price. However, the computing power of mining machines is relatively stable, and generally there will not be a month-on-month (between two months) increase or decrease of 10%+. Combined with the layout rhythm of mining machine capacity, the average increase in computing power of 6E per month can basically be used as a reference.

What is the computing power in May ? 130E . According to the current pace, 105.76E is the computing power in mid-January 2020. By mid-May, 106+4*6=130EH/s

When the total network computing power is halved, it will be about 130E+. Considering the recent good price of coins and the increase in shipments of new generation mining machines, the actual number is likely to be greater than 130EH/s, reaching 140E and 150E.

Still taking S17 pro, one of the most common high-computing mining machines, as an example,

Computing power 73T, power 3kw (or 2.92kw)

The power consumption is 40W/T. As long as the power consumption remains unchanged, the computing power has little effect on the payback period.

Calculate the cost and sales per T of computing power per day.

Let’s do some calculations first, compare them with the data calculated in my article in December, and make adjustments to the current situation.

In December, the daily profit of a single T was 0.64 yuan, and now it is 0.7 yuan, an increase of nearly 10%. The daily profit of an S17 pro is 0.7*73T=51 yuan. You can check the price of this mining machine (about 14,800 yuan per unit), so it will take more than 280 days to recover the investment. However, as the computing power increases, the block reward will be halved, and the profit will be continuously squeezed.

If the price of the currency remains unchanged, then calculate the profit (the algorithm is shown in the whiteboard picture above):

A mining machine earns 0.1332*73T=9.7 yuan a day, which means it earns less than ten yuan a day. It is obvious how long it will take to get back the investment.

However, this calculation has a bug , which is one of the key points of today's article, the price of Bitcoin. Let's calculate, for S17pro (a mining machine with a power consumption of 40W/T) if the profit is 0, what is the price of Bitcoin after halving, corresponding to 130E computing power? Please see the figure below.

The cost price of Bitcoin: 45,700 yuan, or 6,500 US dollars.

If the hashrate is 140EH (which is also very likely), just install the ratio multiple calculation directly.

140E/130E* 45700=49000 yuan, or 7000 US dollars.

Because computing power has grown rapidly recently, it is very likely that the computing power of the entire network will be reached or exceeded when the halving occurs.

Let's look at it again. Is there anything unreasonable in the above proof?

First, is the total network computing power of 130E or 140E underestimated?

Second, what else is going to happen besides the halving in May?

Third, the profit calculation formula does not take into account costs other than electricity costs, and does not take into account transaction fees in block rewards.

To answer the first question, today is February 5, 2020, and the total network computing power is as follows:

114EH/s.

Answer to the second question:

When the electricity price was halved in May, the flood season came, and the electricity fee of 3.3 yuan was estimated to be relatively high. According to the average price of 0.25 yuan per kWh (i.e. 1kwh ), it was reduced by 32% , and the corresponding Bitcoin cost price (i.e. shutdown price) was about 4,800 US dollars. According to 0.22 yuan per kWh, it was reduced by 50% . The shutdown price was directly cut in half, 3,500 US dollars.

If the flood season comes, the electricity will be cheaper and more machines will be connected. I will not elaborate on the adjustment of the balance parameters. In this article, I still insist on the assumption that the total network computing power of 140E in May will not change. Even in the flood season, from a global perspective, the electricity fee of 0.33 yuan is a reasonable estimate for the whole year.

Answer to the third question:

The transaction fee does not exceed 1% of the block reward and can be ignored (this will have to be taken into account in a few years). The cost of relocating the mining machine and the hosting fee (excluding electricity costs) are the main costs of Bitcoin mining, and other costs can be ignored.

In summary, this article predicts that after May 2020, when the Bitcoin block reward is halved, the total network computing power will be 140EH, and the cost price of Bitcoin (that is, the shutdown price of Bitcoin) will be 6,000-7,000 US dollars. Of course, this is based on the logic of the manufacturing industry to judge that the sales price of the product must be higher than the cost price. The real world price is determined by supply and demand, which is another topic.

A glass of wine in Jianghu, encrypted Erguotou. That’s all for today’s article.

Note: 1. The trend line of the total network computing power in the article is obtained by simply drawing a graph in an Excel table. If you want a more detailed graph, there are two methods: A. You can fill more data into the Excel table to obtain a more detailed graph; B. You need to refer to the estimated shipment volume of the mining machine manufacturer;

2. For the convenience of writing, the computing power units EH/s and TH/s are sometimes abbreviated as E and T in this article. Please note.