Today, everyone involved in cryptocurrency mining wants to know for sure: “Is mining dangerous?” Blockchain experts build completely different theories about the correlation between bitcoin’s price and the complexity of its network. In May 2019, experts from the DataLight analytical platform announced that they had found a link between these indicators and even put forward 3 hypotheses on this issue. The analysts reported that in the first half of 2018, a 3-fold increase in the complexity of the asset’s network was a precursor to the rapid rise in the price of the first digital currency. Of course, this may well be a mere coincidence. According to one theory, bitcoin’s hashrate and network complexity increase immediately after its value. This happens because the market becomes more suitable and more and more people start mining. M. Kaiser, a former trader, thinks differently. The expert believes that everything happens the other way around: first, mining rates increase, and only after that the bitcoin coin rate rises. According to the most neutral hypothesis, there is a formula that is determined independently after studying the history of changes in the complexity and price of digital gold. But at the moment, no one has derived it. It has become clear that users who want to mine profitably and safely need to understand whether there is any regularity between changes in these parameters. Is there a correlation? V. Pershikov, chief analyst at Mine cryptocurrency corporation, believes that there is an indirect connection between the price of bitcoin and the complexity of its mining. He also believes that there is an interdependent chain: “Blockchain stability – high network complexity – expensive coin.” The expert explains: “Increasing the complexity of bitcoin mining can cause a limitation of the coin supply, which increases the market price with a corresponding supply and demand. Therefore, an increase in the complexity of mining leads to an increase in the price of Bitcoin, and this is exactly what we have been seeing for the last 2-3 months.” The expert claims that the developers have imposed restrictions on cryptocurrency mining due to the complexity of mining. After all, if a coin is in high demand, then more miners will be interested in mining it: they will connect to a network of computing facilities, thereby increasing its hash rate and, at the same time, the complexity of mining. S. Arestov, co-founder of BitCluster, has a similar opinion. He believes that the increasing complexity of the network pushes not only the exchange rate but also the commission for bitcoin transfers to grow. Arestov says, “If the commission increases, it means that the number of transfers is increasing, and people are willing to pay much more to avoid crowding in lines.” He also emphasized that the correlation is not mandatory, although it often happens that a rapid increase in the hash rate can lead to an increase in the Bitcoin rate. However, a rapid rise in price is followed by a significant decline in value, so there is no direct correlation between these indicators. The real value of bitcoin Dmytro Zakomolkin, CEO of Bitbaza, recalled that at the end of 2018, the price of bitcoin fell to $3,200. It did not go lower only for the reason that this mark is considered the cost of mining the first digital currency. He also explained: “It was the price of mining one coin on 10.2009 that was taken into account by the world’s first cryptocurrency exchange called New Liberty Standard in order to create a market rate for this digital currency. At that time, according to the crypto exchange’s estimates, it took 0.1 cents to mine one Bitcoin, which is why this value was used as the basis for setting the value of the digital asset.” The expert explained that the bitcoin exchange rate is directly dependent on a large number of different circumstances and factors, but mining rates are still considered the fundamental lower threshold. Mr. Zakomolkin also believes that there is always an indirect correlation between the difficulty of mining the first digital currency and its price. Additional important factors M. Khudokormov, founder of Lets Trip Ecosystem, also believes that there is a certain correlation between these criteria. However, he claims that it is impossible to predict exchange rate fluctuations relying only on the complexity of the network. The expert reminded that after the hashrate increased to record highs in September last year, the collapse of the digital asset was followed by a crash. The expert explains, “In reality, the rate is influenced by a combination of factors, and a full analysis of the number of transfers in the mempool, halving, trading volumes, news, the number of new wallets, fundamental and technical factors is always required. V. Petrov, Vice President of RAKIB, outlined several reasons that have a real impact on the rate of the first digital currency:
- FATF recommendations as a factor of market regulation;
- development of the stablecoin market;
- the development of trade wars between the United States and other export-oriented economies;
- entry of such global giants as JP Morgan and Facebook into the cryptocurrency market;
- the emergence of IEO as an alternative to ICO.
Petrov argues that against this background, the influence of hashrate and mining indicators should not be taken into account. In the mining sector, it is much more important to expand the business with the possibility of real earnings from its new forms. The most important criterion is the introduction of an inexpensive consensus mechanism: delegated PoS, PoS. It can be said that almost all of these experts in this field believe that there is a certain correlation between the value of bitcoin and the complexity of its mining, but it is still not worth making any predictions. According to the experts, the most realistic prospect is the possibility of creating a specific formula that will allow us to analyze the market situation in the future, but so far it is only at the level of theories, assumptions and hypotheses.
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