Hashprice, explained like you're 5

Two articles ago I said Bitcoin mining is a room full of kids racing to guess a secret number. This one is about what the kids get paid.

I asked what mining concept people nod along to without really understanding. Johnny said hashprice, and that he ran machines for years before he could say out loud what it means.

If somebody who ran machines couldn't say it, the rest of us have no shot.

What it actually is

Hashprice is what one unit of guessing power earns in a day. It's a wage for a machine.

The unit is a petahash per second, which is a thousand trillion guesses every second. Hashprice tells you what one of those earns in 24 hours.

Right now it's about $37.

One thing to be clear about, that's revenue, not profit. It's what comes in before you pay for anything.

What that looks like on a real machine

A machine you'd actually buy today does around 200 trillion guesses a second. That's a fifth of a petahash.

A fifth of $37 is about $7.

So a machine running every second of every day, pulling power the whole time, brings in about seven dollars. Then the electric bill comes out of that.

That's the business. Miners aren't printing money. They're working the gap between seven dollars and whatever their power costs, across a lot of machines.

What moves it

Nobody sets hashprice. It comes out of four things.

Bitcoin's price. Miners get paid in bitcoin, so if bitcoin goes up the same work is worth more dollars.

Difficulty. More machines competing for the same prize means your slice gets smaller. That's the thermostat I wrote about last time, and it works against miners when hash rate climbs.

The block subsidy. Every block pays out 3.125 new bitcoin. In 2028 that drops to 1.5625. Your machine doesn't change at all and half your revenue is gone.

Transaction fees. When the network is busy people pay more to get their transaction into a block, and miners keep that.

The fee thing

You hear a lot that fees are the future of mining. Once the subsidy gets small enough, fees are supposed to pick up the slack.

Right now fees are less than 1% of what miners make. About 23 bitcoin a week across the whole network.

That might change one day. It hasn't yet.

Why it matters

Hashprice is the number that decides whether a machine runs or sits there turned off.

If it falls below what your power costs, you shut down, because every hour you keep running you're losing money.

That's what happened in February and again in June. Hashprice dropped, machines went off, and difficulty came down to match. That's where the whole thing I wrote about last time comes from.******

What it looks like when it moves

Earlier this month hashprice was about $32. Today it's about $37.

Nothing about the machines changed. What changed is that some of them switched off. Network hashrate went from about 920 to about 823, and difficulty came down 1.31% to match.

Fewer machines splitting the same pot means a bigger slice each. That's the whole thing, and it happened in about a week.