Starting from the Bitcoin shutdown price, how should the economic model be designed?

Start with the Bitcoin shutdown price

Recently, as Mt. Gox began to pay Bitcoin and the German government frequently sold Bitcoin, the price of Bitcoin once fell below US$54,000 (now it has risen back above US$60,000), touching Some Bitcoin mining machines have "shutdown prices".

According to the survey agency, if Bitcoin reaches 54,000, only ASIC mining machines with an efficiency of more than 23W/T will be profitable, and only 5 models of mining machines can struggle to support it. This means that if the price of Bitcoin falls below the shutdown price, some miners with low risk resistance will seek to exit and stop losses. When these miners quit, they often sell their Bitcoins for cash and sell mining machines at reduced prices, causing the price of Bitcoin to fall further. This phenomenon is known as miner capitulation.

The so-called shutdown price is actually the cost price of Bitcoin mining machine mining. So how is this cost price calculated? In order to answer this question, we must first understand Bitcoin’s economic model and PoW mechanism.

Bitcoin is pre-programmed with a total supply of 21 million, with a block mined approximately every 10 minutes, rewarding miners with a number of Bitcoins. The amount of the reward was 50 Bitcoins per block at the beginning of Bitcoin, and then the reward will be halved every 210,000 blocks (approximately every four years). The most recent halving event occurred on April 23, 2024. The half-time block height is 840,000, and the reward is reduced to 3.125 Bitcoins per block. In addition to block rewards, miners will also charge handling fees for packaged transactions. The handling fees for each transaction are generally between 0.0001 ~ 0.0005 Bitcoin. The handling fee is regulated by the market. The more users use Bitcoin to transfer money, the busier the miners will be. If the transaction fee is set too low, the transaction will be ignored by the miners.

When transactions occur in the Bitcoin network, these transactions will be put into the memory pool (mempool). The miner then selects a set of transactions from the mempool and attempts to form a new block. To do this, miners need to find a specific value in the random number and combine this specific value with the block data to generate a hash value that meets the network's difficulty target. This process is "mining." Whoever calculates the hash value that meets the conditions first will obtain the accounting rights, that is, the mining will be successful. The difficulty target is a dynamic value that adjusts every 2016 blocks (approximately every two weeks), keeping Bitcoin’s average block time around 10 minutes. Therefore, the greater the computing power of the entire network, the greater the difficulty target will be.

The computing power mentioned above is the mining ability of the Bitcoin mining machine, that is, how many hash collisions it can do per second. The current unit of computing power is generally TH/s, which is 10^12 hashes per second. , the computing power of the entire network is about 630 EH/s, that is, 6.3*10^20 hashes per second, so each T of computing power can theoretically mine 8*10^(-7) Bitcoins per day. For miners, in addition to the purchase of mining machines and mine operation and management expenses, the other expenses are mainly electricity costs for mining. Taking the Antminer S19 pro mining machine as an example, the rated computing power is 110 T and the rated power consumption is 3250 W. It can be calculated that The daily power consumption per T of computing power is 0.709 kW, and electricity costs vary greatly in different countries and regions. Calculated based on 0.055 u/kw, the cost of one Bitcoin is about US$50,000. The picture below shows F2Pool’s Bitcoin mining data, which is basically consistent with the author’s estimate.

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