An analysis indicates that historical events have affected the costs on the network. People could consider Bitcoin as another financial instrument.
A user of the Hashr8 website, called Ambroid, recently released a report seeking to assess the evolution of costs on the Bitcoin network.
An article by Yo-Der Song and Tomaso Aste, which is titled “The Cost of Bitcoin Mining Has Never Really Increased,” led Ambroid to wonder whether there was a relationship between transaction volumes and the actual costs of producing Bitcoin.
This cryptocurrency trader adds that Song and Aste tried to establish a possible relationship between the daily transaction volume and spot price of Brent oil, as the basis for world electricity prices. He notes that the article succeeds in establishing a correlation between the mining costs based on the price of oil. The authors compare these costs with those of the transaction volumes on the blockchain; thus, determining an ordered range that oscillates around 0.14%.
However, Ambroid believes that Song and Aste’s study is a case of randomized deception. He explains that it is not possible to establish such a relationship between the price of oil and Bitcoin’s production costs. For this reason, he considers that the authors of the article only established an accidental correlation.
He says that it is possible to establish another type of correlation, based on the evolution of Bitcoin. To do this, the operator used information from blockchain.com about hash rate data, estimated transaction volumes, and miners’ revenue in US dollars. It also considered the list of the most efficient mining equipment, assuming that the average price of electricity for mining equipment is USD 0.05 per kW/h.
Bitcoin as a Financial Instrument
The report notes that, regardless of the price of the cryptocurrency since 2018, Bitcoin itself has experienced major production cost disruptions, in addition to fluctuations in the amount of money traded on the chain. A graph shows how production costs have grown over time, compared to revenue as the mining business has become increasingly mercantilist.
Ambroid adds that, following Bitcoin’s financial bubble in 2017, mining is a more established industry. Therefore, he considers that since that time the cryptocurrency has become a financial instrument.
Bitcoin has become increasingly popular, which establishes its mining as an industry. For this reason, he considers that it is very unlikely that the costs on the network will exceed the profits of miners for producing Bitcoin. He also reminds that, due to the reductions in the programmed rewards (halvings) on the network and the increase in transaction volume, Bitcoin is not at risk of uncontrolled inflation.
In early May, an engineer released a report suggesting that the BitMEX platform is making the Bitcoin network more expensive. The researcher discussed the need for the cryptocurrency derivative exchange to use more efficient technologies for conducting transactions. He considers that their implementation would allow users to save up to about 1.7 BTC worth of fees per day.
By Alexander Salazar