Good morning to everyone as summer is officially getting underway. Pretty wild times out there with markets falling apart and I wanted to take a second to talk about what bitcoin thinks about everything and take a look under the hood to see how the network is operating. With bitcoin dropping from a high of $69,000 to now currently touching $19,000 your stomach churns a bit, I can feel it too. That’s called emotions and lets us know that we are human. Let’s dive in.
What does bitcoin think?
Nothing. It doesn’t think. That’s the best part. Bitcoin is just math and code remember? The underlying bitcoin network is void of human emotions and thinks absolutely nothing about how us humans value it. It just keeps operating and those that are most efficient survive. Those that are wasteful perish. Let’s take a look at Clark Moody’s Dashboard for some insight into the network.
Just over 19,000,000 bitcoin have been mined on our way to 21,000,000
The price has dropped, but the amount of sats you get for every dollar has gone up! I don’t know about you but I usually shop at the clearance rack. Welcome to the clearance rack! Shop if you want.
Bitcoin is still making new all time highs in block height. This happens on average every 10 minutes.
Some of this may sound confusing but let me try to simplify it. When you send a transaction on the bitcoin network it gets put into “blocks.” Miners are competing to find the key to said block and if they do, they get rewarded with newly minted bitcoin plus any transaction fees. These blocks which contain transactions are then connected to the prior block and the prior block and the prior block creating our “blockchain.” It is a digital ledger of all transactions timestamped into the universe for all to see. Bitcoin has been stacking blocks for 13 years now and has amassed a blockchain of (look above) 741,273 blocks - that’s a lot since, remember, they are designed to come in on average every 10 minutes. Bitcoin’s price has been hypervolatile since it’s existence but one thing remains true… blocks of transactions continue to come in on average every 10 minutes. How is this possible? The amazing difficulty adjustment which, as you guessed, adjusts the difficulty for the miners to find said key to each block.
Every 2016 blocks (2 weeks if you multiply 2016 x 10 minutes) the network adjusts according to how many miners are currently competing to solve the block. Mempool.space gives you a cool visual of transactions and blocks coming in in real time.
As the price of bitcoin goes down the margins of miners are SQUEEZED. If you aren’t efficient in your operation you can’t compete. The main driver of efficiency is cost of power. If you can harness cheap or otherwise wasted energy sources you can be competitive at almost any bitcoin price. Think natural gas flaring on oil fields, think geothermal, hydro, nuclear, solar, wind you name it. There is a lot of wasted or stranded energy in this world and bitcoin is here to find it. Compare that to the people mining in places where cost of power is expensive… you can no longer afford to keep your machines running, you probably have to sell bitcoin to pay for overhead expenses, and if the price stays suppressed you go out of business, plain and simple. NO BAILOUTS. They sell their mining machines at fire sale prices to eager and more efficient participants and the world goes forward. This is called capitalism.
Sorry, kind of went of on a tangent there… we were talking about the difficulty adjustment. From above you can see it is estimated to be negative at -2.7%. I would reckon it drops even further and when this adjustment takes place it makes the miners that are still on the network more profitable because they are more easily able to find a block. A good indicator of network health would be to look at the trend in difficulty as well as hash rate (which is a fancy word for how much computing power all miners are directing at the network). We would hope to see these numbers trending up.
The current difficulty is:
I lost my Texas Instrument calculator the day I graduated high school but that’s a HUGE number. Let’s look at the trend and then look at the odds for winning the lottery and how they compare.
As this number continues to grow I will continue to save my money in bitcoin without question.
What’s the difficulty to win the lottery? 1 in 176,000,000.
For comparison, and I had to google how to calculate this, the difficulty of solving a new block is 30.3 x10^12 = 30,300,000,000,000.
Now divide this by your odds of winning the lottery and it is 172,159 times LESS LIKELY to solve for a block on the bitcoin blockchain. *insert wide eyed emoji*
Conclusion
Bitcoin is money outside the control of humans and this is precisely why we love it. Precisely why we NEED it. Look at that bitcoin price and tell yourself how shitty that makes you feel. You start to doubt yourself, you might be mad, this thing sucks, it is going to zero, I should have sold a long time ago. These emotions are real but they have absolutely no place in managing the money supply. Bitcoin still has a fixed monetary policy and humans aren’t going to change that no matter who’s emotions are hurting that day.
Our current fiat money is highly emotional and an unelected group of bureaucrats gets access to the printing press. They create massive booms, which are always followed by massive busts. Since 2008 though, they can prevent these busts by propping up the system with the printing of money. Nobody has to suffer anymore. This is like giving the heroin addict more heroin so they don’t have painful or deadly withdrawals. Notice how the amount of heroin (money) needed keeps increasing.
These bureaucrats get to print money which in turn devalues our savings, devalues our time, and inflates our prices. This whole money for nothing thing is driving society insane and it needs to stop. Opt out and start hodling and using bitcoin. Offer to pay your pool boy in sats versus dollars. Ask your customer to pay in you in sats. Save in sats.
Value your bitcoin not in its dollar price, but rather in how many satoshi’s you own. What is your piece of the pie? What percentage of the 21,000,000 bitcoin do you hold? That is all that matters because that number cannot be manipulated. My goal is always to own more sats at the end of each month than the beginning.
Hodling is not easy but when we go through all time highs once again people will tell you how lucky you are. Stay humble and stacks sats.