Mining vs Buying: Accumulation Today and Tomorrow | Bitcoin Education

Video Transcript:

hello there and welcome to the Hashpower Academy my name is Jake Scandan i’m the lead educator here at the academy and this is a place for you to learn anything and everything to do with Bitcoin and its underlying network of technologies and commodities and what is underneath the Bitcoin price and Bitcoin in of itself it’s got its blockchain it’s got compute power Bitcoin mining electricity and energy production and all of these different technologies and commodities expand out into all manner of different subjects but the topic of today’s video is just going to delve into a direct comparison about the two paths to the same destination do you grow your own food or buy it in the shop do you mine your own Bitcoin or do you purchase it from an exchange platform or I don’t know a friend um and so the first key comparison to understand here is that Bitcoin mining is an exchange rate converting electricity through a computer into Bitcoin and there’s a reason I’ve said exchange rate and we’ll get to get to that at the end of the video it’s a very interesting way of understanding Bitcoin that not many people talk about and the other side of things the fiat to Bitcoin exchange rate with dollars or pounds or all these other different national currencies where you just log into a platform and buy Bitcoin that is a transfer of ownership in space and Bitcoin mining is a yield accumulation strategy of Bitcoin over time and so let’s draw that key comparison in between mining and buying so what I have here is on the x- axis time say one year two year three year and the quantity here is uh the amount of bitcoin one bitcoin here is this dashed line and bitcoin is a form of money on a database the blockchain which is timeless it’s only updated by additional blocks found by bitcoin miners and they are moving around uh the bitcoin that people instruct them to move around that’s the settlement aspect of the Bitcoin blockchain the data inside these blocks um are transactions and those pay fees that’s one component of miners revenue the other component is subsidy everyone’s heard of that full supply of 21 million units well it has to be distributed in approximate 10-minute blocks until that full supply of 21 million is distributed and so Bitcoin miners earn a quantity of Bitcoin over time and for example let’s just say you purchased one Bitcoin’s worth of Bitcoin mining machines well you would start with zero Bitcoin in time maybe an X amount of months so it wouldn’t be exactly from from day one you would uh earn a quantity of Bitcoin and that objective goal to mine Bitcoin versus buy is to accumulate a greater quantity than what you could have just purchased in Bitcoin in the first place this is why producers produce they want to have a lower cost of acquisition or sell it into the market so to speak and if you are the producer you are effectively being more efficient and that’s the key thing here with Bitcoin mining you need access to electricity under 8 76 5 cents per kilowatt hour you need to purchase machines in relative amount of size you need to look at the electrical billing uptime uh in terms of if you are doing it hosted who are you hosting it with if you’re doing it yourself do you have the technical electrical knowledge to learn do you want to start with a smaller item like a a Bitcoin mini miner like a Bitax or one of these home miners which are sort of very plugandplay but those are the sort of things that are um hobby miners where they’re not the price is never you’re never going to achieve this and so they are more educational tools when it comes to larger scale institutional mining they are doing economic mining which is buy energy low and sell it high as Bitcoin or hold it and so let’s look at some of the the comparisons between the two so the first the first thing to understand is Bitcoin is timeless timeless but Bitcoin mining machines it’s a physical good it eventually breaks it’s replaced by newer versions of its of its own machines the difficulty adjustment is continually making the the percentage of the pie of network revenue that you earn smaller and smaller and this is because more competition is joining the network so to speak and the the quantity of Bitcoin per block per day even is getting less and less and so you’re essentially experiencing as a Bitcoin miner this transition uh of earning a smaller quantity of Bitcoin but has a higher dollar and electrical value in terms of its cost and fiat premium price and the other interesting thing about Bitcoin mining is that this line here is a demonstration of profit so that’s to say that you’ve produced a quantity of bitcoin and uh paid the electrical bill by selling bitcoin that is one option where uh the demonstration of that is you’ve mined x quantity of bitcoin and you’ve sold whatever percentage of that to pay the energy bill so to speak the other option is you pay that with additional dollars and that would be keeping the entire quantity of revenue of all the bitcoin you mine and paying the bill with dollars which essentially means you purchase more bitcoin so this this one bitcoin analogy of spending one bitcoin on mining machines every month of billing you’re continually increasing this uh threshold so to speak and so with profit you’re you’re obviously gaining a greater quantity of Bitcoin because you’ve purchased you’ve effectively purchased the Bitcoin by paying the bill with dollars and this also means that Bitcoin mining provides the opportunity of DCA dollar cost averaging essentially where you are also buying the Bitcoin you would have had to sell to pay the electrical bill which means that mining has the benefit of being able to buy Bitcoin through the electrical bill without fees there’s no fee you’re not going into a platform KYC AML and all the other bits and layers and 24-hour cooling down period and whatever else no and what you would have is in effect is this curve would be even steeper but you would be chasing this upper bound line and that intersect is when you’ve effectively mined more Bitcoin than what you could have just purchased in the first place and you’ve got to understand that Bitcoin miners are the hardest believers of Bitcoin because they don’t buy Bitcoin directly they invest in the network they plant their computational seeds and uh wait for wait for the fruit to bear so to speak um and to hold it over time and so yeah the one of the key takeaways here is you’ve got this acquisition method of buying which is the straightforward 99% experience of the majority of people which is to log into a platform pay a small fee and buy a whole Bitcoin as this example goes which is over time that does not change you’ve bought it in space and it preserves value over time when you produce Bitcoin as a minor you’re earning Bitcoin as a yield an intrinsic source of yield from the network itself by settling transactions and earning that freshly mined Bitcoin the subsidy and that benefit of Bitcoin mining is that you are able to buy some Bitcoin without a fee by DCA buying the the the essentially paying the electrical bill with dollars so that you keep the entire stack of Bitcoin that you’ve mined and another interesting thing to understand of why at the beginning I said that Bitcoin mining is an exchange rate is because say for example gold mining is spending1 to $2,000 processing rock to get that 1 ounce of gold which is maybe $2 to $3,000 even more or you know the profit margin between processing a load of rock to earn and extract an ounce of gold you can’t reverse that process you can’t sell that rock for its uh gold value but with Bitcoin you can it’s a reversible trade bitcoin miners are buying energy producing Bitcoin and selling it as a commodity producer you grow tomatoes you sell tomatoes to continue your operation but this is the interesting thing bitcoin mining is an economic user of the energy and the fact that it’s a it’s electricity being converted into a quantity of money this creates a direct exchange rate because these are mathematically connected energy comput and finance are mathematically connected and if you’re interested in this sort of stuff go into the other videos on this channel they delve into the mathematics side of this and the other way round is well if the electricity on the local grid is worth more by consumers that want to pay to buy the energy why mine the Bitcoin sell the power and switch it off to to deliver that power back to uh buyers now in the future on a Bitcoin unit of account what do you think the best currency to trade transact and settle uh payments for electricity will be when you’ve got a consumer of energy Bitcoin miners that are continually seeking to sell their power that arbitrage revenue rate of producing Bitcoin it’s going to be Bitcoin miners why well it’s because Bitcoin miners are delving deeper and deeper into the energy sector seeking to produce their own power as the scale of this industry of Bitcoin mining is in the gigawatt scale we’ve all seen the reports of Bitcoin mining consumes and wastes the energy of an entire nation no there’s an an entire country’s worth of electrical infrastructure built out across the planet and if people don’t think that that’s at least half valuable and that the next sta stage of that is that they branch out and build their own electrical grids and define the price on a Bitcoin unit of account where Bitcoin in of itself has a production cost that continually goes up over time flip it the other way around if you can use your Bitcoin as a consumption commodity to pay for electricity well it means that buyers hold an asset which can buy electricity from the miners that seek to convert the electricity into Bitcoin i’ll say it again bitcoin allows you to buy electricity from comput from miners the capacity of energy they have available and Bitcoin miners have the ability to have that capacity of consuming energy to produce Bitcoin it’s a circular system of energy compute with energy and finance with compute as that internal medium of exchange between these two very important worlds right i’ve gone on a bit of a tangent but the overall gist here is that mining is very specific to people with the technical electrical and financial uh access to do so if you want to start with mining start with a very simple thing like a Bit Axe mini miner or one of these plugandplay ones that may have it connected to a node and go through the process go through it in an educational approach and then start delving into the economics aspect of scaled mining if you’re interested in that sort of thing drop me a message if you want to delve into the economic approach of mining or trying to ask questions about hosted mining or the public miners uh I’m open to questions on those sorts of things and on the buying side is uh we’re seeing the reserves on exchanges continually in decline uh I do have a concern that they’re going to take more risk because if their reserves are continually in decline because people pulling the Bitcoin off not your keys not your coins as they say which is that that harsh lesson that many people have learned that if you trust other people with your Bitcoin that uh well they have the ability to spend it and you don’t because you need to be holding your own private keys that most important piece of data which allows you to unlock that little uh digital encrypted vault defended by energy on a planetary scale thank you for listening i hope you enjoy like subscribe send it to the group chat and I will see you in the next one goodbye