<p>You are talking about two very different investment options. One is investing cash into a type of commodity that has shown extremely high volatility; the other one is investing low amount of cash, but significant amount of time to create ("mine") additional units of the same commodity.</p>

<p>Sure the outcome of both are tied to the price of BTC. But ask yourself this: if you have a crystal ball that tells you, tomorrow BTC will double in price, will you borrow as much as you can to buy spot BTC, or buy a bunch of rigs to mine? </p>

<p>For how long it takes to mine 1 bitcoin, see this
<a href="https://bitcoin.stackexchange.com/questions/13161/how-long-does-it-usually-take-to-mine-a-bitcoin-block">https://bitcoin.stackexchange.com/questions/13161/how-long-does-it-usually-take-to-mine-a-bitcoin-block</a></p>

<p>You also implied that the intrinsic cost of a bitcoin is the same as the marginal cost of mining an additional unit. That is probably the theoretical equilibrium point where mining bitcoin is fruitless, but the value itself isn't defined this way but rather, like @abelenky said, by what you can do with it (and what people <em>think</em> that they can do with it). In other words, the marginal cost should continue to rise up to the point where it converges to the value of a bitcoin, as approximated by its market price (not a good proxy tho IMHO).</p>

<p>EDIT: This bitcoin mania looks a lot like the gold mania back in the 70s. And interestingly, OP's question and my answers also apply there. (Why isn't the gold price the same as the cost to mine an ounce of gold?)</p>

<p>Here is some food for thought - Gold price adjusted for inflation</p>

<p><a href="http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart" rel="noreferrer">http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart</a></p>

CC BY-SA 3.0
2017-12-22T16:12:21.580Z
2017-12-22T16:19:18.140Z
xiaomy
<p>Most people have no interest in buying, setting up, and operating a mining rig.
It may be beyond the technical ability of many people, and simply isn't how they would choose to spend their time.</p>

<p>If someone wants to use Bitcoin, perhaps for an illicit purpose (see: Silk Road) or to move funds across international borders without detection, then they don't really care what the price of bitcoin is:  If they buy BTC for $15,000 in Hong Kong, and can re-sell it at a similar price for USD in San Francisco, then the Bitcoin served their purpose, and the mining costs are not relevant to that transaction!</p>

<p>If someone is truly focused only on owning as much Bitcoin as possible, then it is true that mining is a cheaper route than buying.  But the end result would be that they own a pile of ones-and-zeros, which Bitcoin critics are always quick to point out have no intrinsic value.</p>

<p>The value of BTC is not owning it, it is what you can do with it.</p>

CC BY-SA 3.0
2017-12-22T15:24:20.507Z
2017-12-22T15:24:20.507Z
abelenky
<blockquote>
  <p>Shouldn't the price of bitcoin be very closely tied to the price of
  producing bitcoin?</p>
</blockquote>

<p>You have it backwards: the price of producing bitcoin is actually tied to the price of bitcoin.</p>

<p><a href="https://bitcoin.stackexchange.com/questions/2154/why-does-mining-profitability-tend-towards-zero">https://bitcoin.stackexchange.com/questions/2154/why-does-mining-profitability-tend-towards-zero</a></p>

<p>As bitcoins become more valuable, more people use more miners, invent more efficient ASICs, etc. As more hashing power comes online, the new coins being mined at a constant rate get spread out thinner. Eventually the cost of mining approaches the value of the coins mined. When that happens, people collectively stop adding more hashing power.</p>

<p>If and when bitcoins become less valuable, it will stop being worth paying for the electricity to run existing miners. Hashing power goes offline. Those that stay in get rewarded with larger shares of the new coins.</p>

<p>It's possible for there to be temporary situations where the cost of mining a coin would be nontrivially less than its value; however, by the time you go buy an ASIC off ebay and get it running, that inefficiency will have already evaporated.</p>

<p>Your second misunderstanding is a corollary to the first: Your estimate of the cost of mining one bitcoin is off by an order of magnitude. It's astonishing how the cost of mining a coin has kept up with the value of coins, which have been doubling every month or so, but that just shows you how efficient this market is.</p>

CC BY-SA 3.0
2017-12-22T23:04:35.797Z
2017-12-22T23:04:35.797Z
stannius
<p>Assuming that there's an infinite number of bitcoins and assuming that you can "mine a bitcoin" quickly, yes, you would be right.<br>
There's one block mined every 10 minutes (on average) with a set payout per block. If you decided you want to invest in bitcoin and go ahead and mine a few bitcoins you would have your bitcoin in a year, depending on how much you want to invest.<br>
You also have to take into account that none of the bitcoin miners want to break even. They don't spend thousands of dollars on mining rigs so that they can sell the bitcoins near the price it would take to mine them. The up-front cost is extremely high at this point. (You could just spend a hundred bucks on a USB miner and have your bitcoin in a few decades....)</p>

<p>Similarly you could be asking why the price for electricity is so high when you could just build a nuclear power plant that generates a kWh of electricity for fractions of a penny.... </p>

CC BY-SA 3.0
2017-12-22T20:52:17.960Z
A "few decades" with a USB miner is optimistic.  At current rates, even the best USB Miners would take roughly 12,000 years to earn a single BTC.
abelenky
CC BY-SA 3.0
2017-12-23T00:17:59.427Z
That is far longer than I thought, but I was just making a point of "it's too long to be worthwhile"
xyious
CC BY-SA 3.0
2017-12-22T19:34:20.970Z
2017-12-22T19:34:20.970Z
xyious
<p><strong>Mining:</strong>
It's a lot of trouble and expensive to set up a proper rig and the return on investment can take a long time when mining. It's <strong>not as cheap or profitable to mine the coins as you make it seem</strong>.</p>

<p>This online calculator:</p>

<p><a href="https://www.cryptocompare.com/mining/calculator/btc?HashingPower=12&amp;HashingUnit=TH%2Fs&amp;PowerConsumption=1300&amp;CostPerkWh=0.15" rel="noreferrer">https://www.cryptocompare.com/mining/calculator/btc?HashingPower=12&amp;HashingUnit=TH%2Fs&amp;PowerConsumption=1300&amp;CostPerkWh=0.15</a></p>

<p>allows you to enter electricity cost, energy consumption and hashing power of specific rigs to figure out how much you'd make. It takes into account total network hashing power, average block time etc.</p>

<p>For example:</p>

<p>An antminer S9 (currently viewed as being the best pro-sumer miner on the market) has a hashing power between 12 and 14 TH/s and consumes between 1200 and 1400 Watts of power. at an average electricity price in the US of $0.12 per kW/h (and Europe's avg price is between 12 and 18 cents) you can expect to profit just a little under $500 per month on the machine.</p>

<p>Those machines are sold out direct from the manufacturer but you can find them from resellers on amazon or eBay for between $5000 and $7000 depending which batch they were from. It would take you a year to make your money back on your investment, and since the nature of that playing field is that a piece of equipment's yields reduce over time it will most likely take a lot more than one year to break even from the purchase of that miner.</p>

<p>Most miners are pretty much the same or take even longer to pay back; feel free to play around with that calculator and input different mining rigs you find on the internet.</p>

<p><strong>Renting Servers:</strong> this site, the top result in a google search,
<a href="https://www.nicehash.com/buy" rel="noreferrer">https://www.nicehash.com/buy</a> will rent you 50TH/s of hashing power, for 24 hours, for ~$94USD (they charge in Bitcoin). Using the calculator I linked above 50TH/s and an electricity cost of $0 would yield $2447/month worth of bitcoin or just over $81/day. So you'd be giving them $94 for $81 worth of Bitcoin.</p>

<p><strong>Bottom Line:</strong> the reason people don't easily mine it for a tenth of the cost is because it's neither easy nor much cheaper to mine it.</p>

CC BY-SA 3.0
2017-12-22T19:43:31.237Z
@user1721135: When the price is measured in BTC, that doesn't help either.
Ben Voigt
CC BY-SA 3.0
2017-12-23T01:11:24.377Z
@stannius It can be much more profitable to be renting your miner than to actually mine, because first when you rent you get more available money (If you buy a piece of hardware, you can immediately sell a 2 year contract at the price you paid it and than buy another one). This allows you to expand much faster. Mining is not always profitable and if you rent contracts you'll make sure that you are profiting from your investments.
Cedric Martens
CC BY-SA 3.0
2017-12-22T16:38:22.283Z
2017-12-22T16:43:43.617Z
Aubreal
<p>For the sake of this question let's assume bitcoin was useful and had value beyond speculation.</p>

<p>Why would you ever buy bitcoin above mining price?</p>

<p>I have heard various estimates of what it costs to mine a bitcoin. </p>

<p>One answer on the topic on quoara suggests the electricity costs around 400$ (this is from late August 2017).</p>

<blockquote>
  <p>Source:
  <a href="https://www.quora.com/How-much-does-it-cost-to-mine-1-Bitcoin-in-the-US" rel="noreferrer">https://www.quora.com/How-much-does-it-cost-to-mine-1-Bitcoin-in-the-US</a></p>
</blockquote>

<p>Let's say with equipment investment and increased difficulty it now costs 1000$ or even 2000$ to mine a bitcoin.</p>

<p>Given that it is relatively cheap to mine bitcoin and there are even managed server solutions you can rent, is there any logical reason to buy bitcoins at a higher price, than they cost in production? Why are people mortgaging their houses in order to buy bitcoin at 17.000$ per coin when they could simply buy computers and electricity and pay only a fraction per coin?</p>

<p>Shouldn't the price of bitcoin be very closely tied to the price of producing bitcoin?</p>

CC BY-SA 3.0
2017-12-22T15:28:57.623Z
Bitcoin is not mined by normal "computers".  It requires specialized ASIC rigs that are extremely power-hungry and generate a lot of heat and noise.  You probably do not want one in your bedroom, and the electricity bill would eliminate most profits.   Cloud-mining is a possibility, but individual mining makes very little sense.
abelenky
<mining-profitability>
Is there a logical reason to buy bitcoin for more than it costs to mine it?
user1721135
# Is there a logical reason to buy bitcoin for more than it costs to mine it?

(Asked by: username_0 on 2017-12-22)

For the sake of this question let's assume bitcoin was useful and had value beyond speculation.

Why would you ever buy bitcoin above mining price?

I have heard various estimates of what it costs to mine a bitcoin.

One answer on the topic on quoara suggests the electricity costs around 400$ (this is from late August 2017).

> Source:
> <https://www.quora.com/How-much-does-it-cost-to-mine-1-Bitcoin-in-the-US>

Let's say with equipment investment and increased difficulty it now costs 1000$ or even 2000$ to mine a bitcoin.

Given that it is relatively cheap to mine bitcoin and there are even managed server solutions you can rent, is there any logical reason to buy bitcoins at a higher price, than they cost in production? Why are people mortgaging their houses in order to buy bitcoin at 17.000$ per coin when they could simply buy computers and electricity and pay only a fraction per coin?

Shouldn't the price of bitcoin be very closely tied to the price of producing bitcoin?

**Tags:** mining-profitability

> **Comments:**
> **username_1**: Bitcoin is not mined by normal "computers".  It requires specialized ASIC rigs that are extremely power-hungry and generate a lot of heat and noise.  You probably do not want one in your bedroom, and the electricity bill would eliminate most profits.   Cloud-mining is a possibility, but individual mining makes very little sense.  

---

## 5 answers

### Answer by username_5 on 2017-12-22. Score: 16 | Accepted answer

**Mining:**
It's a lot of trouble and expensive to set up a proper rig and the return on investment can take a long time when mining. It's **not as cheap or profitable to mine the coins as you make it seem**.

This online calculator:

<https://www.cryptocompare.com/mining/calculator/btc?HashingPower=12&HashingUnit=TH%2Fs&PowerConsumption=1300&CostPerkWh=0.15>

allows you to enter electricity cost, energy consumption and hashing power of specific rigs to figure out how much you'd make. It takes into account total network hashing power, average block time etc.

For example:

An antminer S9 (currently viewed as being the best pro-sumer miner on the market) has a hashing power between 12 and 14 TH/s and consumes between 1200 and 1400 Watts of power. at an average electricity price in the US of $0.12 per kW/h (and Europe's avg price is between 12 and 18 cents) you can expect to profit just a little under $500 per month on the machine.

Those machines are sold out direct from the manufacturer but you can find them from resellers on amazon or eBay for between $5000 and $7000 depending which batch they were from. It would take you a year to make your money back on your investment, and since the nature of that playing field is that a piece of equipment's yields reduce over time it will most likely take a lot more than one year to break even from the purchase of that miner.

Most miners are pretty much the same or take even longer to pay back; feel free to play around with that calculator and input different mining rigs you find on the internet.

**Renting Servers:** this site, the top result in a google search,
<https://www.nicehash.com/buy> will rent you 50TH/s of hashing power, for 24 hours, for ~$94USD (they charge in Bitcoin). Using the calculator I linked above 50TH/s and an electricity cost of $0 would yield $2447/month worth of bitcoin or just over $81/day. So you'd be giving them $94 for $81 worth of Bitcoin.

**Bottom Line:** the reason people don't easily mine it for a tenth of the cost is because it's neither easy nor much cheaper to mine it.

> **Comments:**
> **username_6**: @username_0: When the price is measured in BTC, that doesn't help either.  
> **username_7**: @username_3 It can be much more profitable to be renting your miner than to actually mine, because first when you rent you get more available money (If you buy a piece of hardware, you can immediately sell a 2 year contract at the price you paid it and than buy another one). This allows you to expand much faster. Mining is not always profitable and if you rent contracts you'll make sure that you are profiting from your investments.  

---

### Answer by username_2 on 2017-12-22. Score: 8

You are talking about two very different investment options. One is investing cash into a type of commodity that has shown extremely high volatility; the other one is investing low amount of cash, but significant amount of time to create ("mine") additional units of the same commodity.

Sure the outcome of both are tied to the price of BTC. But ask yourself this: if you have a crystal ball that tells you, tomorrow BTC will double in price, will you borrow as much as you can to buy spot BTC, or buy a bunch of rigs to mine?

For how long it takes to mine 1 bitcoin, see this
<https://bitcoin.stackexchange.com/questions/13161/how-long-does-it-usually-take-to-mine-a-bitcoin-block>

You also implied that the intrinsic cost of a bitcoin is the same as the marginal cost of mining an additional unit. That is probably the theoretical equilibrium point where mining bitcoin is fruitless, but the value itself isn't defined this way but rather, like @username_1 said, by what you can do with it (and what people *think* that they can do with it). In other words, the marginal cost should continue to rise up to the point where it converges to the value of a bitcoin, as approximated by its market price (not a good proxy tho IMHO).

EDIT: This bitcoin mania looks a lot like the gold mania back in the 70s. And interestingly, OP's question and my answers also apply there. (Why isn't the gold price the same as the cost to mine an ounce of gold?)

Here is some food for thought - Gold price adjusted for inflation

<http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart>


---

### Answer by username_1 on 2017-12-22. Score: 4

Most people have no interest in buying, setting up, and operating a mining rig.
It may be beyond the technical ability of many people, and simply isn't how they would choose to spend their time.

If someone wants to use Bitcoin, perhaps for an illicit purpose (see: Silk Road) or to move funds across international borders without detection, then they don't really care what the price of bitcoin is: If they buy BTC for $15,000 in Hong Kong, and can re-sell it at a similar price for USD in San Francisco, then the Bitcoin served their purpose, and the mining costs are not relevant to that transaction!

If someone is truly focused only on owning as much Bitcoin as possible, then it is true that mining is a cheaper route than buying. But the end result would be that they own a pile of ones-and-zeros, which Bitcoin critics are always quick to point out have no intrinsic value.

The value of BTC is not owning it, it is what you can do with it.


---

### Answer by username_3 on 2017-12-22. Score: 1

> Shouldn't the price of bitcoin be very closely tied to the price of
> producing bitcoin?

You have it backwards: the price of producing bitcoin is actually tied to the price of bitcoin.

<https://bitcoin.stackexchange.com/questions/2154/why-does-mining-profitability-tend-towards-zero>

As bitcoins become more valuable, more people use more miners, invent more efficient ASICs, etc. As more hashing power comes online, the new coins being mined at a constant rate get spread out thinner. Eventually the cost of mining approaches the value of the coins mined. When that happens, people collectively stop adding more hashing power.

If and when bitcoins become less valuable, it will stop being worth paying for the electricity to run existing miners. Hashing power goes offline. Those that stay in get rewarded with larger shares of the new coins.

It's possible for there to be temporary situations where the cost of mining a coin would be nontrivially less than its value; however, by the time you go buy an ASIC off ebay and get it running, that inefficiency will have already evaporated.

Your second misunderstanding is a corollary to the first: Your estimate of the cost of mining one bitcoin is off by an order of magnitude. It's astonishing how the cost of mining a coin has kept up with the value of coins, which have been doubling every month or so, but that just shows you how efficient this market is.


---

### Answer by username_4 on 2017-12-22. Score: 0

Assuming that there's an infinite number of bitcoins and assuming that you can "mine a bitcoin" quickly, yes, you would be right.  
There's one block mined every 10 minutes (on average) with a set payout per block. If you decided you want to invest in bitcoin and go ahead and mine a few bitcoins you would have your bitcoin in a year, depending on how much you want to invest.  
You also have to take into account that none of the bitcoin miners want to break even. They don't spend thousands of dollars on mining rigs so that they can sell the bitcoins near the price it would take to mine them. The up-front cost is extremely high at this point. (You could just spend a hundred bucks on a USB miner and have your bitcoin in a few decades....)

Similarly you could be asking why the price for electricity is so high when you could just build a nuclear power plant that generates a kWh of electricity for fractions of a penny....

> **Comments:**
> **username_1**: A "few decades" with a USB miner is optimistic.  At current rates, even the best USB Miners would take roughly 12,000 years to earn a single BTC.  
> **username_4**: That is far longer than I thought, but I was just making a point of "it's too long to be worthwhile"  

---

