What Happens When Bitcoin Goes Below the Cost of Production?

What Happens When Bitcoin Goes Below the Cost of Production? By Bob Moriarty. The price of Bitcoin has dropped to around US$7,000 today.

In all economic systems where the laws of supply and demand function it’s entirely possible for the price of a commodity to sink below the cost of production. It happens with all commodities and is perfectly normal. When the price of a commodity drops below the production cost, growers, miners, manufacturers simply stop until the price recovers. …

I’ve been told that the average cost of producing a single Bitcoin is about $6,000. Since it’s pretty much based on the cost of electricity the price does vary a lot. …

But no one has yet to point out the fatal flaw in Bitcoin. Yes, when the price to produce goes below the cost people are going to unplug their banks of computers and wait out the drought.  …

The math for the blockchain requires people to mine Bitcon. When people stop mining, the value plunges. And when the price drops below the cost of production everywhere your Bitcon is going to have all the value of a slightly used Fax machine or a wonderful Beanie Baby.

If there is no Bitcoin mining then new transactions cannot be recorded on the Bitcoin ledger — so activity using Bitcoin grinds to a halt. No transactions means it cannot be bought or sold.

Here’s how much it costs to mine bitcoin in each US state, by Ryan Vlastelica.

Mining a single bitcoin costs $3,224 in Louisiana … The most expensive state, in contrast, is Hawaii, where the cost of electricity brings mining costs up to $9,483. …

So-called miners perform a crucial function within the blockchain, or the decentralized ledger technology that underpins all crryptocurrencies, by solving complex computational problems to validate transactions on the network. In exchange for this function, which powers the blockchain, miners are rewarded with bitcoins.

Presumably the cost that really matters is the lowest cost of Bitcoin production around the world, which I hear is in Iceland (which has cheap electricity from geothermal).