Mining Difficulty, Reward Reduction, Break-even Price, Electricity Cost Ratio

Mining Difficulty

Mining Difficulty is a measure of how hard it is to mine a new block, representing the level of difficulty required to find a new block given a target value. The hash value of a valid block must be below the blockchain's target hash. Theoretically, finding a qualifying block requires N computation attempts. The lower the target hash, the higher the mining difficulty, and the more computations are required to find a valid block.

Taking Bitcoin as an example, to maintain an average block time of approximately 10 minutes per block, the network dynamically adjusts the mining difficulty using an adjustment mechanism. The difficulty is adjusted every 2016 blocks (roughly 14 days). The difficulty coefficient for the next period (next 2016 blocks) depends on the time it took to mine the previous 2016 blocks:

• If the time taken was 20,160 minutes (i.e., an average of 10 minutes per block), the difficulty remains unchanged.
• If the time taken was longer than this, the difficulty is decreased proportionally, with a maximum downward adjustment of 75%.
• If the time taken was shorter than this, the difficulty is increased proportionally, with a maximum increase capped at a factor of 4.

Block Reward Reduction

Block Reward Reduction refers to the decrease in the block reward when a blockchain reaches a specific block height.

The most common form of block reward reduction is "Halving", which reduces the block reward by 50%. For example, Litecoin halves its reward every 840,000 blocks. Some cryptocurrencies use other reduction ratios:

• Dash reduces its block reward by 7.14% every 210,240 blocks.
• Ethereum Classic (ETC) reduces its block reward by 20% every 5,000,000 blocks.

Break-Even Price

Break-Even Price refers to the cryptocurrency price at which the electricity cost of mining equals the mining revenue. As electricity is typically the primary operational cost, this metric serves as a crucial reference for miners to decide whether to continue operating their mining machines.

The Shutdown Price is influenced by the miner's efficiency and the site's electricity cost. Different miner models and electricity rates will result in different Shutdown Prices. Generally, if the current cryptocurrency price falls below a miner's Shutdown Price (based on their specific electricity cost and hardware), miners should proceed with caution to avoid losses.

Electricity Cost Ratio

Electricity Cost Ratio refers to the percentage of the total mining revenue that is consumed by electricity costs, given a specific electricity rate and cryptocurrency price. The more efficient the mining machine, the lower the Electricity Cost Ratio. When the Electricity Cost Ratio exceeds 100%, the cost of electricity surpasses the total mining revenue. Since electricity is the primary operational cost for running cryptocurrency miners, the Electricity Cost Ratio becomes a key metric for monitoring mining profitability.