Paying the Electricity Bill

It is a built in feature of crypto-currencies that it gets more and more difficult to calculate new tokens. While the first ones are relatively easy to calculate, the last ones are extremely difficult and time demanding to find. As the number of registered tokens increases, it takes an increasing amount of computer power to find new ones.

A consequence of this is that more and more electricity is consumed in order to calculate new tokens. Since the calculations are a race among "miners" in which the fastest has the most chance to find the most tokens, the computers used are of the fastest possible kind. As such, they are veracious power consumers.

At this point, with Bitcoin fetching almost 9000 dollar per coin, the profitability of mining, and the need to be fast, has pushed up power consumption for mining Bitcoin to the equivalent of Irland's total demand. That's about 1.5 billion dollar per year. This electricity bill has to be paid, and it is the people "mining" for Bitcoin that have to pay these bills. With huge bills to pay, they have to sell some of their tokens to finance their operation.

The result of this is that the supply of Bitcoin will go up. Keeping in mind that value is a function of perceived utility and scarcity only, we see that the increase in cost of "mining" crypto does nothing to increase the value of such tokens. All that the increased cost does as far as the crypto tokens are concerned is that it pushes up supply. The increasing supply of crypto from "miners" will put downward pressure on these currencies.

Also, having invested in hardware dedicated to find crypto tokens, the "miners" will create new variations on crypto tokens so that they can continue their profitable business. The supply of crypto will increase dramatically until prices for crypto meet the production cost. As long as production cost is lower than the market price, new tokens will be generated.

Each crypto-currency may be limited in number. However, there is no limit to the number of currencies that can be created. There used to be only one crypto-currency, namely Bitcoin. Today, there are more than 1000 different ones. That's inflation at at a truly staggering scale, and it's only going to get worse. By the time supply finally meets demand, there may be many thousand crypto currencies, and their price will reflect the price of production, not of Bitcoin, but of the cheapest one available.

Value is after all utility and scarcity. With nothing much separating crypto-currencies as far as utility is concerned, they must be viewed as a whole. It is not the price of mining the final Bitcoin that will limit the supply, but the price of mining the first few tokens of a future crypto. That price is way less than a dollar per unit.

Cryptocurrency mining farm

By Marco Krohn - Own work, CC BY-SA 4.0, Link