Bitcoin & The Economics of Mining

Published on
November 17th, 2020
Duration
59 minutes


Bitcoin & The Economics of Mining

The Interview - Crypto ·
Featuring Marco Krohn, Marco Streng, and Moritz Seibert

Published on: November 17th, 2020 • Duration: 59 minutes

Marco Krohn, CEO and co-founder of Genesis Group, and Marco Streng, founder of Genesis group, join Moritz Seibert, co-founder at Twoquants.com & CEO/CIO at Munich RE Investment Partners, to discuss Bitcoin, Bitcoin mining, and the changing dynamics of mining. Krohn explains how they first got into Bitcoin and how they turned their interest in crypto into Genesis Mining. He explains the electricity price game that miners need to take into account when mining crypto and the impact this has on the economics of mining. Streng touches on the importance of location for energy costs when mining and the extreme competitiveness of the industry over the past several years. They explain what Bitcoin is to them and some potential risks for the industry. Filmed on November 11, 2020. Key Learnings: Bitcoin is secured by miners that receive a reward for their work, and this episode explains the dynamic nature of Bitcoin mining and covers a bit about the economics at play. If you wish to understand at a high level how Bitcoin mining operations work and why the constantly changing dynamic keeps the mining sector extremely competitive, this is an excellent video for you.

Comments

Transcript

  • jl
    john l.
    3 December 2020 @ 05:18
    If the internet goes, Bitcoin goes, however, all digital currency will go with it, all digital communications will go disrupting western civilization as we know it.
  • CW
    Claude W.
    24 November 2020 @ 21:03
    Great interview, and gotta love that German accent :-)
  • mg
    matthew g.
    18 November 2020 @ 20:25
    Does anyone have a good resource for mining cost curves? I read it was around $3,000 in early 2020 and then doubled to $6,000 after the having. But it may be erroneous
    • MC
      Mark C.
      19 November 2020 @ 01:45
      Some miners post this. You can check out Bitfarms website. They post their cost per BTC on their home page.
    • MC
      Mark C.
      19 November 2020 @ 01:46
      And yes. Depending on energy cost it runs around 6K plus.
    • mg
      matthew g.
      20 November 2020 @ 16:44
      (thank you Mark). I am trying to understand if BTC will be forced to increase in price due to future halvings.
    • MC
      Mark C.
      21 November 2020 @ 21:13
      I am not sure that really matters at this point if you believe in the adoption curve. I.e. The supply is fixed and what is left to mine is negligible to the rate of adoption. I think it gets priced in all the time. This would definitely effect the economics of mining.
    • mg
      matthew g.
      23 November 2020 @ 20:36
      Thanks for reply - more relevant question maybe is where does hash rate go and what are mining costs based on network difficulty (as have been referred to above)
  • HJ
    Harang J.
    20 November 2020 @ 03:31
    Great interview! I thought the part about Bitcoin mining supporting renewable energy was fascinating, which is opposite of the common arguments against Bitcoin.
    • DB
      Doug B.
      20 November 2020 @ 10:07
      That's a real stretch. A huge electricity consumer is actually good for renewable energy? Yeah, nah. Times of excess power are fleeting.
  • IC
    Ian C.
    18 November 2020 @ 19:01
    Thoughts on viability of 51% attack as margin pressure reduces the number of miners?
    • MK
      Marco K.
      20 November 2020 @ 09:55
      The amount of capex needed to start a 51% attack(*) is in the billions US dollars (it is not possible to rent these capacities for a short term attack). A successful attack will most certainly mean that the trust in Bitcoin and its value will decline significantly. Economically you will be far better of by not attacking the network. However, you have a good point that fewer players could be more easily controlled by a state. Geographically most of the hashrate is still in China, however, I think this share is declining. (*) selfish-mining strategies could potentially reduce the required hashrate to 30-40%
  • KF
    Kim F.
    19 November 2020 @ 13:52
    Absolutely fascinating. Getting the miner's side of Bitcoin is very interesting. Great interview!
  • MC
    Mark C.
    19 November 2020 @ 02:12
    Great Interview. Thank you!
  • TS
    Thomas S.
    18 November 2020 @ 23:03
    Thanks for the information. Good discussion. I think the term "brutal" was used. This seems correct to me. It is a vicious race ... BTC price goes up, more entrants are attracted, capital is spent on newer equipment to expand hash power and to improve efficiency, new entrants increases difficulty ,,,repeat. Perhaps value is about cashflow generated rather than GAAP earnings. All the capital expenditures really drive up depreciation and just when depreciation runs off, you need to improve efficiency to keep up and you spend more capital and increase depreciation for another cycle. Also, I see that some of the reported "earnings" is coming from revaluation of any BTC that the miner retains on their balance sheet for future uses. Obviously, that only occurs if the price continues to go up and the miner is able to store BTC for the future. Very interesting.
    • MC
      Mark C.
      19 November 2020 @ 02:11
      Really good points you are making. I have been reframing my thoughts on this. In particular under the assumption that BTC will go well beyond their cost to generate for the next 12 months. What is their current hash power? And what kind of expansion plans/capability do they have? I have been thinking the challenge for the miners will be managing the rate of increase. I am not sure power will be the immediate bottleneck in the short term. I feel like it is mining rigs or chips that may be the bottleneck (I dont know yet). They really emphasized time. In anycase the costs are going to go up if BTC adoption continues to gain. You bring up another good observation, some miners are better at leveraging their digital assets instead of exchanging for fiat. Depending on your thesis this could be a good thing.
  • TC
    Timothy C.
    18 November 2020 @ 18:26
    Interesting interview. Would be fascinating to the the architecture of the mining ASICs.
  • RP
    Raoul P. | Founder
    18 November 2020 @ 16:31
    Loved this. Really interesting and enjoyable.
  • DR
    Dan R.
    18 November 2020 @ 12:52
    This is *very* worth listening to.
  • AP
    Alistair P.
    18 November 2020 @ 00:17
    Is there some rule in Munich that finance companies must be started by two people sharing the same name and that that name must begin with an M?
    • MH
      Moritz H.
      18 November 2020 @ 08:12
      It's in the constitution ;)
  • AM
    Alexander M.
    18 November 2020 @ 04:47
    More knowledge on a fascinating subject. Very worthwhile listening.
  • MH
    Moritz H.
    17 November 2020 @ 22:10
    Great interview. I like how the conversation starts flowing once the Marcos talk about the business. Smart guys.
  • VS
    Viktor S.
    17 November 2020 @ 22:04
    Interesting conversation - danke daf├╝r!