Why you should not invest in mining endeavour? The efficiency of BTC mining under current market conditions

Małgorzata Jabłczyńska, Krzysztof Kosc, Przemysław Ryś, Robert Ślepaczuk, Pawel Sakowski and Grzegorz Zakrzewski
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Małgorzata Jabłczyńska: Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw Labyrinth HF project; Circus Consulting Group
Krzysztof Kosc: Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw Labyrinth HF project; Circus Consulting Group
Przemysław Ryś: Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw Labyrinth HF project; Circus Consulting Group
Grzegorz Zakrzewski: Quantitative Finance Research Group, Faculty of Economic Sciences, University of Warsaw Labyrinth HF project; Circus Consulting Group

No 2018-18, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: The main aim of this paper is to analyse the efficiency of BTC mining under current market conditions. After thorough analysis of initial assumptions concerning the (1) price of mining machine and its effective amortization period, (2) difficulty and hash rate of BTC network, (3) BTC transaction fees and (4) energy costs, we have found that currently BTC mining is not profitable, except for some rare cases. The main reason of this phenomenon is the fast and unpredictable increase of difficulty of BTC network over time which results in decreasing participation of our mining machines in BTC network hash rate. The research is augmented with detailed sensitivity analysis of mining efficiency to initial parameters assumptions, which allows to observe that the conditions for BTC mining to be efficient and profitable are very challenging to meet.

Keywords: cryptocurrencies; mining; bitcoin; blockchain; investment strategy; efficiency of financial markets; new asset class; VC and PE (search for similar items in EconPapers)
JEL-codes: C15 F30 G11 G12 G13 G14 G15 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2018
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https://www.wne.uw.edu.pl/index.php/download_file/4530/ First version, 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2018-18

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