Prediction

Video Transcript:

Hello there and welcome to the HashPower Academy, your place to learn anything to do with Bitcoin. The topic of today’s video is not going to be necessarily about one particular subject. It’s going to be about all the subjects, all the different moving parts across the entire technology commodity chain of the different pieces of the Bitcoin network and the production, consumption, production, consumption, and production of Bitcoin at the end of the chain. And when you observe all of these different pieces and understand them, you get a little bit more understanding about this thing called price and where it charts off to this current bull cycle. That when you understand all of these different pieces underneath the Bitcoin price, well, you can gauge different things about how much it will drop, how much it’s trading at relative to its production floor. So, the Bitcoin price can be more understood as a premium. And yes, it’s very liquid in dollar terms, but that is going to change over time. And so, yeah, let’s dive in. So, firstly, we produce energy from all different sources. Some sources are renewable, some are not renewable, some are somewhere in between. And so the carbon accounting of these different types of energy production technology systems, solar, wind power, hydro dams, which they have more environmental costs with the massive production and distortion of river flow potentially fish and all these sorts of things. So yes, there’s all these other subject areas that we could completely delve off into just this subject, but the important aspect is that it’s part of the discussion. So next piece those different power sources. You can be on the electrical grid or off the electrical grid. Uh a system yes more associated the discussion of the commodity itself and its trading and its price electricity and what you pay at home is very different to what industrial scale Bitcoin miners are trying to find. Because right now a Bitcoin miner can be earning 10 to 11 cent of Bitcoin per kilowatt hour. So what are they trying to do? They’re trying to find power that’s cheaper and that’s their profit margin. If you can find power at 5 cent per kilowatt hour and earn 10 cent for every $1 you pay energy for, you are receiving $2 worth of Bitcoin. But obviously that particular metric has all different moving parts that we will get to. Now those different power sources are very important. If you are interested in Bitcoin mining in terms of hosting, you may want to have different machines with different particular hosts on different power sources, different electrical grids, different countries for sort of geopolitical risk distribution as well, different countries. Um, and that risk distribution just helps you have potentially a better uptime because if you have all of your machines with one computational basket, i.e. with one host and they have downtime of the entire site, you’re going to miss out potential potential bursts of fees and the price going up and capturing revenue if your uptime isn’t as good. Now contailment those that are mining at scale going into a million watts plus a megawatt well that has the potential with the particular right hosts or the right development with the right power contract to do this thing called demand response which is when the grid price is above that 11 cent per bitcoin 11 cent of bitcoin per kilowatt hour that you are earning potentially you have the option to sell the power back to the grid and arbitrage charge more income than what you could have mined and consumed the power for in that process and electricity in of itself that most valuable commodity of the 21st century that Bitcoin is expanding in its market cap in dollarized form of $2 something trillion dollar in size and it’s only growing going to grow bigger but what this means is the energy and compute layers of the network are going to expand more of it’s going to get built. Are you going to own it? Someone else probably will. But if that intention to build out more infrastructure produces more electricity, it actually makes it cheaper relative to Bitcoin. Because if more energy supply is being built, priced against a fixed supply 21 million unit asset by holding Bitcoin in the future, you’ll be able to buy more energy with it. your purchasing power quite literally and physically mathematically will increase cooling systems energy is neither created nor destroyed only transferred so one of the aspects of running Bitcoin mining machines is they produce a lot of heat and there’s different types of cooling systems as well there’s air cooled so if you see this lovely uh professional grade image that I have drawn there’s little fans on the front and Those fans are blowing a lot of air through the computer to cool it down to remove that heat from the chips performing those trillions of calculations per second. So different cooling systems can be air cooled. But there’s also these new other cooling systems using water and other types of immersion fluid which allows you to remove heat more effectively because the density of fluids is of well a thousand times essentially more times more effective than removing heat from those chips and making sure those chips last longer. Because if you purchase a mining machine, if it’s really efficient, it’s going to last a long time. But the key aspect of making sure it lasts a long time is good maintenance. And so cooling systems of a liquid type are very much increasing in terms of the percentage of all the mining machines out there that are using particular cooling systems. The typical easy one is air cooled, but there’s obviously hydrocalling as well. And the main aspect when we start going to this digital side of things is efficiency. that exchange from electricity being consumed into the computer to the output amount of hash rate that you produce. The hash rate finds the blocks or produces the blocks, shall I say, or you sell your hash rate to what is called a Bitcoin mining pool and they essentially pay you for your hash rate and they produce the blocks themselves contending with the luck of how much they can they can produce in terms of block space. So with hash rate, the most important thing from just the computer level is your uptime. It’s all well and great logging into a mining calculator online and potentially estimating that you can earn certain amount. Multiply it by 0.9 at least and you will gauge a sort of estimate amount up of 90% uptime which is fair enough. It could be higher with a good host or at home, but sometimes the machines break or need restarting or a chip or some form of sensor issue or the fan referring to those cooling systems needs replacing. Whatever it is that these are computers, things go wrong and they need they need constant attention. They are needy little children. So the uptime aspect is of fundamental importance because as I said your hash rate is the representation hash power is the representation of you having electricity and compute combined and pro processing um the brute force next block in the chain that could potentially be yours if you find that block or again you’re selling your hash rate to a mining pool. They pay you Bitcoin for your hash rate and they find the blocks themselves because this is where we get into the difficulty adjustment. I’m going to start drawing things in. The difficulty adjustment is always trying to make sure that the gap between the amount of hash rate online is 144 blocks a day. That’s 10 minutes per block. If more of this hash rates come online because more energy sources are having computers deployed that produce hash rate which find those blocks at an ever quicker rate than 10 minutes maybe down to 9 minutes even. Well, it means that more than 144 blocks are going to be found in a day or to what the network looks at trying to look back two weeks to 2016 blocks. If those 2016 blocks are found in less than two weeks, the network tries to make sure it raises the difficulty adjustment to bring it back to two weeks. So the difficulty is always trying to be constrained to the difficulty adjustment is the network’s software making sure that it’s always about 144 blocks of Bitcoin being paid out per day. And the reason for this is because the next piece, the blocks themselves, block rewards being subsidy and fees, which are both a quantity of Bitcoin. Subsidy is that full 21 million Bitcoin being distributed out to the network on those every 10 minutes. But if the network speeds up, difficulties constraining it down to make sure that issuance rate, the inflation rate should we say, of Bitcoin per year is not too too quickly uh distributed. And right now the inflation rate of Bitcoin I believe is8% if you want to go and look up what the calculation is of 3.125 Bitcoin multiplied by 210,000 divided by 4 and and compare that to the current circulating supply and you’ll get a rough estimate of the amount of issuance of freshly mined Bitcoin per year should we say. And the harving comes along every four years, every 210,000 blocks to cut it in half until there’s almost no Bitcoin. And the blocks are entirely fees. Fees are coming from existing Bitcoin that’s already been produced, already in maybe your hands. And when you send a transaction, you are paying to store the information in these blocks that these miners are producing with hash rate. So all these different pieces are all the moving parts across the entire commodity chain of Bitcoin. And then there’s this little thing called price on top when you dollarize the whole lot. And in terms of price predictions, I’m just going to throw out an interesting one. I think it could go to $420,000 this cycle if the price is going to do anything like that. This is the interesting thing. You know how I just discussed all of these different physical infrastructure aspects of the network? The physical side down here and the digital side up here. Well, the digital side can move and you can switch your hash rate to a different pool. There is digital freedom and flexibility in the digital domain. But everything to do with sourcing energy, contracts and curtailment of that power, the cooling systems, these are all physical things. They take time to build. So, if the production floor is still at 60,000, can price and can price take off a lot quicker and dollars flood into exchanges and be printed uh and issued as as Tether tokens and all these sorts of things, can they flood into exchanges and buy up the price of Bitcoin to an even higher dollar rate quicker than physical infrastructure can be built out? The short answer is yes. So how high the production floor can jump, it’s physically constrained versus the price doing so much more of a monumental climb. And that’s essentially when you compare these two the the commodity cycle of Bitcoin production because the price increasing in terms of percentage compared to say difficulty because the difficulty aspect is the dilution of Bitcoin miners rewards. If more miners are plugging in to collect the same amount of fees, each miner’s slice of the rewards is getting smaller, but their energy bill isn’t changing. So the production floor does increase with difficulty as a percentage but obviously the price can increase a lot quicker than production can increase. And that gap is miners profitability not in quantity of Bitcoin but the dollar value of the subsidy and fees that they do earn compared to how much is taken away on their energy bill. I need some water. Thank you for listening. Like, subscribe, share, all that fun stuff. And I will potentially see you in the next video. Goodbye.