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Most energy we use comes from exhaustible fossil fuels that are meant to raise prices following the decrease in their quantity and are sure to go to affect bitcoin mining
Recently in a report, the World Bank said that the global prices are expected to remain high at a historic level until 2024. The international financial institution assumed that energy prices would rise by more than 50% by this year. Keeping in mind that the only direct cost is energy when it comes to bitcoin mining and its network, the question is pretty obvious: what might these rising prices mean for the proof of work mining’s future?
While asking about the same XBTO Managing Director Mas Nakachi, he said that the global energy price surge would lead to more tight profit margins for people involved in bitcoin mining, lowering the overall incentive for mining bitcoin.
The Bitcoin network’s security mostly relies on the maintenance of the hash rate, which in layman’s terms is the total sum of the computing power assigned for mining new blocks. A reduction in the incentives of bitcoin miners would directly lead to such miners leaving the network. As the world saw last year, when China shut down the crypto operation, and miners had to stop their bitcoin mining activities, bitcoin’s hash rate had dropped significantly upto 40% in just a single month.
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Apparently, this is among the hotly debated issues by bitcoin maximalists and proponents. As the market had shown strange effects in the past, as in October 2020, even after the hash rate drop, the bull run did not stop that came just after and not even after the drastic hash rate drop seen in June 2021, where price not even remained steady but later moved to hit an all-time high after few months.
So, markets usually do not panic in case of hash rate drops as bitcoin’s code has an inbuilt safeguard that makes it prone to such a situation called the mining difficulty. To put it straight, difficulty kicks in if there is a drop in the number of participants in the network, and so does the power amount required to block mining. This makes it prone to attack the network due to an influx faced suddenly in mining power or any unprecedented event that causes many miners to leave the network, as seen in China.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
