Who Pays for Bitcoin Mining?


Of all the properties of Bitcoin, the one that always seemed the most magical was how miners got paid in Bitcoin seemingly out of nowhere. Abracadabra!

As the value of Bitcoin (or any other proof-of-work crypto) goes up, so too do the rewards. It’s like being able to print your own money, right?

Just one problem: the value of the crypto that miners make has to come from somewhere. And if you’re a hodler, guess where that value is coming from?

Your pockets.

It’s a simple matter of supply and demand. Just as increasing demand for any asset increases its value, increasing its supply decreases its value. Adam Smith may have died in 1790, but his invisible hand is up to its elbow in crypto.

If it weren’t for hodlers holding onto their crypto and the criminals who have built their entire economy on the stuff, we’d be left with a balance of buyers and sellers – and where there’s a balance, we might expect the price would move up and down in a narrow range, that is, if we were talking about normal assets.

But not crypto. If a balance of buyers and sellers were trading that coin, then the price would steadily go down – because miners would be processing those transactions and selling their profits for fiat to cover their mining expenses, thus continually adding more crypto to the market.

Sure, people expect all the Bitcoin to be mined sometime around 2140. But that pesky invisible hand will have driven its value to zero long before that ever happens.

Jason Bloomberg neither owns, nor plans to own, any cryptocurrency or other cryptotoken, either long or short.

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