Hash rate and estimated bitcoin price
In data mining, the concept of hash rate is a security measure. The higher the fragmentation strength, the higher the security and resistance to external attacks. A hacker attacking a computer in your home is a different matter, but a different case when a hacker tries to attack tens of thousands of computers worldwide at the same time.

The increase in hash speed is associated with an increase in the processing power of mining servers, which also means an increase in the cost of mining Bitcoin (BTC). A simple rule of thumb is that a particular activity must be financially viable in order to be sustainable over time. Whoever extracts oil from the ground must sell it at a price that is higher than the cost of producing it, and whoever produces electricity must sell it at a price that is higher than the cost of production, and so on.

The same rule applies to bitcoin mining, where the cost of electricity, the consumption of increasingly powerful servers, etc. must be less than the income generated by bitcoin that receives the activity performed.

Related topics: Is Bitcoin a waste of energy? Pros and cons of Bitcoin mining

Therefore, the increasing difficulty of bitcoin mining must be met from an economic point of view.

In the first months of 2010, Bitcoin miners paid around $ 10,000 a month. Today, thanks to the rise in the price of bitcoin, a fortune of over $ 500 million is distributed every month over the network of miners around the world, and this value will continue to rise.

The figure is enormous, although it is partly proportional to the consumption of electricity, but it allows us to understand what kind of wealth this “social experiment” can create. As the graph shows, the growth in the retail tariff exceeds the growth in monthly wages. Therefore, in order to estimate the correct bitcoin price based on the hash rate, one must first understand the trend of the reward for each hash over time.

As we can see, the dollar hash reward is falling sharply. This means that security increases almost exponentially over time, but security costs decrease exponentially over that time.

For a better understanding, when the wages of each block increase – despite or due to a halving that increases scarcity – the difficulty of disrupting a new block increases faster, at least for the time being. Therefore, the price / hash ratio is reduced because the denominator grows more than the counter.

Therefore, to assess the (non-linear) trend of reducing the hash-rate reward, the function that best represents this trend is, as always, a power function, as shown in the following figure.

Once you get this job, by multiplying two steps by the hash rate and a paid job by a hash rate, you can finally get a job that roughly equals your monthly salary in US dollars.

This result does not correspond to the value of the price of a bitcoin, but corresponds to a monthly reward that increases over time, as shown in the previous graph.

To estimate the price of bitcoins adjusted according to this hash rate calculation, you must divide this value by the average number of bitcoins mined in a given month. By doing this we get the typical trend-to-current gradient trend described earlier.

We can conclude that although strong volatility and seemingly incomprehensible price movements, the three main factors influencing the price of bitcoin – scarcity, demand and cost of production – may actually be useful in understanding bitcoin price movements.

It can be said that there are long-term basic value trends that can help to see Bitcoin as a “strategic asset class” for investments.

Ruggiero Bertelli and Daniele Bernardi are co-authors of the article.

Source: CoinTelegraph