21 Sats on Nostr: Explanation of #Bitcoin mining reward dynamics... The entire world's hashing power is ...

Explanation of #Bitcoin    mining reward dynamics...

The entire world's hashing power is competing for the next block and the 6.25 Bitcoin up for grabs.

The chance of an entity winning the next block is the same as their fraction of the total hashing power.

For example if one entity has 10% of the world's hash power then they have a 10% chance of winning any block.

That means on average they will earn 10% of the Bitcoin that's available per day.

So if this entity is earning 0.625 Bitcoin per day and is spending money on their electricity of a certain amount per day, you can calculate the cost of each Bitcoin earned. For example if they spend $30,000 a day and earn 0.625 Bitcoin then each Bitcoin costs them $48,000.

After the halving, the electricity costs do not change, the number of Bitcoin earned halves (0.3125 bitcoin), and so the cost per bitcoin becomes $96,000.

Because this is above the market price for Bitcoin, it would make sense to switch off miners that are effectively buying bitcoin at $96,000.

As this miner and other miners switch off, The miners that remain and do not change their activity, gradually have a higher share of the world's hashing power. Because of this their cost per bitcoin goes down.

Then there are other consequences, but I'll stop here.