NY University researchers explain why Bitcoin miners losing money

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A team of two New York researchers, Luqin Wang and Yong Liu, has made commendable observations while putting under scanner the reason behind the increasing number of miners losing money in Bitcoin mining. The research paper titled, ‘Exploring Miner Evolution in Bitcoin Network’, characterizes the evolution of Bitcoin miners’ productivity, computation power and transaction activity by analyzing the full blockchain in Bitcoin network.

Bitcoin miners slug it out with each other to verify the transactions and keep the blockchain in sequence. The miner who successfully verifies the transaction and packs it into a new block is rewarded with some Bitcoins; the current reward being 25 Bitcoins/block.

The research paper elucidates the complete sequence from when a miner starts mining and to the point where his profit margin shrinks to a zero, and if continued, results in huge losses and leads to a pile up of the hardware.

• A user first needs to invest in hardware, and pay the associated operational costs such as electricity bills and maintenance costs.
• The number of Bitcoins that can be each day is set to a fixed value.
• Each miner increases his computational power to outdo the other competitors; as a result, the total computational power of the network reaches a higher level.
• The Bitcoin network increases the difficulty value so that Bitcoins are mined at a steady rate.
• The difficulty value is adjusted every 2,016 blocks relying on the speed at which the previous 2,016 blocks were mined.
• This ‘unfortunate’ yet indispensable tragedy-of-common ultimately results in a lot of miners, who are unable to keep up with increasing network complexity, losing their money and their hardware is then rendered useless.
• Another factor which impacts a miner’s profit margin is the time it takes to successfully validate a block while the operational costs get piled up.

The observations made in this paper should, at least, serve as a guiding light to the candidates interested in mining the Bitcoins.