Curriculum·J313 Mining, Validating, and Running Infrastructure·about 43 min
Proof of Work economics
By the end of this lesson you can
- →Explain how difficulty adjustment converts a competitor's exit into your revenue
- →Compute a machine's daily margin and its break-even electricity price
- →Show why the electricity price is the business and everything else is detail
- →Identify the four risks a mining operation carries that a holder does not
Junior · enrolled learners
This lesson opens with The China mining ban, May to July 2021.
- What happened
- On 21 May 2021 the Financial Stability and Development Committee of China's State Council called for a crackdown on bitcoin mining and trading, followed by provincial orders through June. China had been the largest mining hub: by the Cambridge Centre for Alternative Finance's estimates its share of global hashrate was 75.5 percent in September 2019 and 46 percent in April 2021, and The Block cites about 65 percent as of April 2020. By The Block's data network hashrate fell from about 168 exahashes per second on 15 May to nearly 86 by 23 June, a reduction of nearly half. Until the difficulty caught up, blocks slowed, with the time to produce one reported at more than 20 minutes against a ten-minute target, and in July the difficulty fell 28 percent. Miners relocated operations abroad, with Kazakhstan a popular destination and the United States the largest hub by January 2022, and a machine in transit earns nothing. The network continued producing blocks throughout, and once difficulty adjusted downward the remaining miners earned proportionally more. By Cambridge's estimates hashrate had almost fully recovered by 21 December 2021 and set a new high in February 2022.
- The decision point
- The protocol was indifferent. Blocks slowed and kept coming, difficulty fell, and once it did the surviving miners earned about 1.39 times as much per unit of hash. What failed was a set of businesses whose assets were physical, whose location was a license somebody else granted, and whose revenue was set by a global difficulty they could not influence. Mining is a business with jurisdiction risk, and the protocol prices that risk at zero.
What you will be able to answer
- →What does difficulty adjustment do?
- →What happened to a surviving miner in 2021?
- →What is the break-even electricity price?
- →What four risks does a miner carry that a holder does not?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://hashrateindex.com/blog/bitcoin-mining-ban-china-hashrate-migration/
- https://www.caixinglobal.com/2021-07-02/chinas-bitcoin-crackdown-sets-up-record-tweak-to-mining-puzzle-101734907.html
- https://www.jbs.cam.ac.uk/insight/2021/new-data-reveals-timeline-of-chinas-bitcoin-mining-exodus/
- https://www.coindesk.com/business/2022/12/21/core-scientific-one-of-the-largest-bitcoin-miners-files-for-bankruptcy-protection
- https://www.cnbc.com/2022/12/20/bitcoin-miner-core-scientific-filing-for-bankruptcy-will-keep-mining.html
- https://www.theblock.co/post/360320/bitcoin-mining-difficulty-sees-biggest-drop-since-2021-china-ban-hashrate-slump
- https://www.theblock.co/post/109315/bitcoin-hashrate-declines-50-percent-china-mining-crackdown
- https://www.theblock.co/post/105708/china-bitcoin-crackdown-usdt-otc
- https://www.jbs.cam.ac.uk/2022/bitcoin-mining-new-data-reveal-a-surprising-resurgence/
- https://cases.stretto.com/public/X217/12024/PLEADINGS/1202412212280000000051.pdf
Confidence high·Volatility high·Reviewed 2026-08-06·Owner unassigned
Contested
The machine parameters in part two, being 100 terahashes per second at 3,250 watts, a 600 exahash network, a 3.125 bitcoin subsidy and a $60,000 price, are stated inputs chosen so the arithmetic can be re-run rather than current figures. Transaction fees are left out, so revenue is the subsidy alone. Hashrate, price, subsidy and hardware efficiency all move continuously and the subsidy halves on a schedule. The method is the durable part and the numbers are not.
Estimates of China's pre-ban share of hashrate vary with the source and the month: Cambridge put it at 75.5 percent in September 2019 and 46 percent in April 2021, The Block cites about 65 percent as of April 2020, and Hashrate Index wrote of roughly 50 to 60 percent. The hashrate decline itself is not in dispute, but hashrate is estimated from block times and its size depends on the estimator: The Block's series runs from about 168 EH/s on 15 May to nearly 86 on 23 June, Hashrate Index gives a peak of 171 and a 41 percent drawdown by 23 June, and Cambridge a trough of 57.47 EH/s on 27 June. The lesson uses The Block's series for peak and trough so that both come from one source, and uses the 28 percent July difficulty cut (27.94 percent by most trackers), which is set by the protocol rather than estimated, for what a surviving machine actually earned. The Core Scientific figures (over $200M of construction, more than $70M of past due invoices and asserted mechanics liens, about $29,000 a day of tariffs Celsius refused to pay) are from its first-day declaration in the Southern District of Texas.
F101-02 owns hashpower as a security property, being what a confirmation costs to undo. This lesson owns mining as a business. Keep the split.