The Price of Mining 1BTC

There’s some really weird commons / arms race dynamics underlying Bitcoin.

A few thought experiments:

1. Suppose the large miners all collided to proportionally decrease their hash rate. The cost to mine would drop while they would still earn roughly the same amount of Bitcoin, as long as the large miners colluding still represent the vast majority of the network’s hash power.

This would make new entry cheaper and thus it’s likely to spur new competitors to enter, defeating the purpose.

But it seems like things are pointing toward a ceiling like that - where minimum hash to have even a chance of earning BTC is so high that there will be no more entrants, and at that point there’s no reason for the extant miners to increase their hash rate.

It seems like a real catch-22: the network design is meant to decentralize the ledger such that no one can control it, but the rapidly increasing cost of mining leads to consolidation and centralization of mining, which at some point becomes a major threat to the network.

2. Suppose Bitcoin were regulated (impossible in the real world) such that no one was allowed to mine at more than some low hash rate, and also in order to have a wallet it had to mine. Thus every holder of Bitcoin would be mining just a little and the hash power would be far more distributed.

As far as centralization goes, such a network would be more secure. But would the total hash power be as high, and therefore would the network be as secure against outside parties launching 51% attacks? Hard to guess.

I’m long on Bitcoin, but I do wonder where it’s going as mining becomes more and more expensive, and the majority of Bitcoin use is more like commodities trading than decentralized use as currency.