Let’s start with the basics. Cryptocurrency mining is the process where computers compete and “work” to solve mathematical puzzles in order to add new transactions to a distributed ledger. In return for helping secure the network and confirm payments, miners earn newly created coins and transaction fees. The mechanism behind this is called Proof-of-Work (PoW), and many coins use it, including very popular ones like Bitcoin, Monero, and Litecoin. We would say anyone can be a miner, but that really depends on their resources. Bitcoin is especially difficult to mine at this point: you’d need specialized machines called Application-Specific Integrated Circuit (ASICs), which can cost thousands of dollars each. Besides, mining is an energy-intensive process. Your electricity bill will skyrocket fast, not to mention that the ASICs also need cooling systems. Bitcoin is especially difficult to mine at this point: you’d need specialized machines called Application-Specific Integrated Circuit (ASICs), which can cost thousands of dollars each ASICs ASICs Mining can be very expensive, but so far, it’s been very profitable in many cases. Currently, a Bitcoin block offers a reward of 3.125 BTC, equivalent to around $212,500 —and there’s a new block to solve every ten minutes, more or less. Other networks offer different rewards, and you can mine more than one coin at the same time. However, what happens if you shrink the bounty? That’s what the code of some currencies will do eventually. Why Mining Can Become Unaffordable Bitcoin and many other coins were designed with a maximum supply already ingrained into their code. This means only a certain number of coins will ever exist, and for that to happen, they can’t mint new units forever. Instead, they have halving events every so often (approximately every four years) in which the block reward is reduced by half. For example, the initial reward on Bitcoin was 50 BTC per block in 2009. After four halvings every four years, we have 3.125 BTC. halving events halving events https://youtu.be/Ye9ckbN_lqc?si=SP6aqcKJgitRVvuA&embedable=true https://youtu.be/Ye9ckbN_lqc?si=SP6aqcKJgitRVvuA&embedable=true So, for miners, it’s like your salary decreases by 50% every four years. But they’d still need to pay for electricity, hardware, and everything else. And let’s talk about mining difficulty, which adds another layer of complexity. This is a parameter that controls how hard it is for miners to solve the puzzle needed to add a new block. If many miners join, difficulty rises to keep blocks steady, and a greater difficulty means that your current machines could no longer work to mine properly. Smaller operators with older machines are often the first to unplug. So, for miners, it’s like your salary decreases by 50% every four years. A Future Problem A Future Problem That’s for today’s overview. Eventually, in cases like Bitcoin or Litecoin, there won’t be newer coins to mine. This will happen around the year 2140; a little far from here, but still planned. From that point forward, miners will earn only transaction fees. The issue is that, at least to date, fees are only a smaller portion of total miner revenue compared to the block subsidy. In Bitcoin, they’re at around 0.02 BTC per block ($1,360), against the six figures in minted coins. per block per block Will miners stay, anyway? Well. If users compete for limited block space, fees rise, and miners remain motivated to secure the network. If demand stays low and fees remain modest, many miners may power down, reducing total hashrate (mining power) and thus, also network security. But at least mining difficulty will decrease, too. The fewer miners, the lower the difficulty —and the lower the cost to mine. If demand stays low and fees remain modest, many miners may power down, reducing total hashrate (mining power) and thus, also network security Difficulty adjustment will keep blocks coming, but security depends on the economic cost of attacking the chain. Lower rewards mean lower protection unless fees compensate. Despite this, there’s a reason why Bitcoin (and similar coins) were designed this way: the supply, planned to be fixed in the future, aims to create scarcity and reduce inflation. It’s not just a random whim, so it’s very unlikely that this parameter will be changed. create scarcity create scarcity Not All PoW Networks Are Equal Among the coins that have halvings, besides Bitcoin and Litecoin, we can mention Zcash, Ethereum Classic, and Nervos Network. But not every single PoW coin is the same. Developers from other teams have thought of this reward problem, and they’ve decided to apply different mechanisms to avoid it. Monero, for example, has a “tail emission” of 0.6 XMR per block after its main issuance, destined as a permanent reward for miners. This way, fees become an extra layer of compensation rather than the only source. Zcash, Ethereum Classic Zcash, Ethereum Classic tail emission tail emission Dogecoin went fully inflationary, issuing roughly 10,000 DOGE per block indefinitely. That’s good for predictable rewards, but not so much for increasing the token price in the long-term. Grin is similar, with no supply cap, and linear emission with constant rewards. Namecoin and Litecoin do have a capped supply, but they also support merged mining with other coins. This allows miners to secure both networks with the same work, which can increase total revenue without additional energy expenditure. issuing issuing with no supply cap with no supply cap merged mining merged mining These design choices show two philosophies: one prioritizes scarcity and a fee-driven future, while the other treats ongoing issuance as the price of long-term security. Who’s right? We can't really know at this point. Maybe they're just different, and both will work out in the end. These design choices show two philosophies: one prioritizes scarcity and a fee-driven future, while the other treats ongoing issuance as the price of long-term security. What about Non-PoW Networks? Not all PoW coins are equal, and not all cryptocurrencies use PoW. This concern about unaffordable mining only applies to systems that rely on computational work, but we have to admit that most currencies have their own version of block producers or similar, and they expect some kind of compensation or benefit for their work. Ethereum, for instance, uses Proof-of-Stake (PoS). In this type of system, “validators” are selected instead of miners to approve transactions, based on the amount of ETH they stake. They earn transaction fees and new coins for their job (there’s no fixed supply), while misbehavior will cost them their stake. Neither PoW nor PoS is the most decentralized method, though. Miners and “validators” can still cherry-pick and censor transactions, and, in the worst cases, they can collude and take over the entire network. Neither PoW nor PoS is the most decentralized method, though. Miners and “validators” can still cherry-pick and censor transactions take over the entire network take over the entire network Obyte eliminates both and includes a fixed supply. In this crypto network, new transactions are linked to earlier ones by its own users, not some powerful intermediaries, and a set of community-voted Order Providers (OPs) helps establish ordering just by running a special node. Users pay small fees, and a portion of those fees is reserved as a reward for OPs —but that shouldn't be their reason to participate. OPs must be reputable individuals or organizations, willing to support the ecosystem. Most importantly, they can't block or censor transactions, just help with the order. Obyte Obyte Order Providers Order Providers As we’ve seen, a moment when no one can afford to mine or, in any case, partake in the security of crypto networks is unlikely. There are many different methods to attract participants, although some are more cost-efficient, decentralized, and sustainable than others.
