Cryptocurrency Mining and Game Theory
Cryptocurrency mining is an excellent example of the so-called game theory where dynamic market price and average cost when mining are the main "players". Increasing the market price of the mined coin will increase profitability. According to this, it is expected that more participants will enter mining as they see an opportunity to make money. On the other hand, by reducing the market price, it also reduces the profitability for the individual. According to this, it is expected that miners with high costs will be forced to leave the network because their mining is no longer profitable. The temporary gap between the market price and the average mining price can be overcome with the help of other network members, in the long run. The bigger the gap, the more likely it is that an individual would rather mine than buy. Market demand will be reduced and it is very likely that the miner will sell part of his reward, which will increase the amount of sales on the market.
Mining profitability and its main parameters
Profitability can be determined by looking at the net mining price and the market price of the mined cryptocurrency. The main parameters that determine the profitability of cryptocurrency are:
The market price of cryptocurrency
Daily issuance of mined cryptocurrency
Daily income
Daily energy consumption by mining equipment
Total hashrate of network participants
The price of electricity used for mining
Utilization of mining equipment
Mining profitability calculation based on main parameters
1. Net profit can be defined as the difference between the market price and the mining price. These two parameters create the following equation:
Net profit [USD / SFX] = market price [USD / SFX] - mining price [USD / SFX]
2. The price of mining per coin is defined by the daily price of electricity and the daily reward in safex cash, which leads us to the following equation:
Mining price [USD / SFX] = daily electricity price [USD] / daily safex cash reward [SFX]
3. The daily price of electricity can be obtained from the price of a kilowatt of electricity per hour and energy consumption by mining equipment. I guess the mining equipment works 24/7 and from there we can get the third equation:
Daily electricity price [USD] = price per cradle-hour [USD / kWh] x daily consumption [kW] x 24h [h]
4. The daily reward in the form of safex cash can be obtained with the help of daily broadcasting of cryptocurrency (block reward), daily earnings from transaction fees (transaction fee revenue), hashrate of your mining equipment and hashrate of the entire network. A miner can plan his mining strategy using a hashrate diagram and using the result of the fourth equation:
Daily Reward [SFX] = (Daily Coin Issue [SFX] + Daily Transaction Fee [SFX]) x your hashrate [hr / s] / total hashrate [hr / s]
5. Finally, we will get the daily profit from the net price of mining and the daily reward. Based on this result, a weekly, monthly or annual profit can be concluded under the assumption that all parameters are relatively constant.
Daily profit [USD] = net profit [USD / SFX] x daily reward in safex cash [SFX]
The term mining is still not completely clear to me and these articles help me learn more