Bitcoin Price Crash Is Making It Too Expensive To Mine

Bitcoin prices are taking a hammering once again. Right now, bitcoin price has fallen below $200. Investors are worried about the future of the crypocurrency. Bitcoin—which saw levels above $400 in November and topped out at $1,150 in 2013—briefly fell as low as $170 in Wednesday morning trading before edging back a few dollars. Bitcoin is notoriously volatile, but its swings are often linked to news about the technological ecosystem that supports it. This time, however, the source of the day’s 22 percent drop is less obvious.

Bitcoin

Bitcoin had fascinated many investors one year back and there was a lot of buzz online that this was the future currency of the people. But then a number of scandals have plagued this cryptocurrency. Mt Gox saga last year was definitely one of them that put a serious dent in the reputation of the currency.

A U.S. agent investigating Silk Road told jurors at a trial of accused operator Ross Ulbricht that he believed in 2013 that the former chief of the Mt. Gox bitcoin exchange, Mark Karpeles, may have been the mastermind behind the black market website.

Questioning of Jared Der-Yeghiayan, a U.S. Department of Homeland Security special agent, showed Ulbricht’s defense was seeking to cast doubts over the allegation that Ulbricht was Silk Road’s operator, known as “Dread Pirate Roberts.”

Ulbricht’s lawyer Joshua Dratel pointed to Karpeles, who was CEO of Mt. Gox. The company filed for bankruptcy a year ago after saying it lost nearly half a billion dollars worth of virtual coins.

“Our position is he set up Mr. Ulbricht,” Dratel said outside jurors’ presence.

MIT Technology Review has published an interesting article on how Bitcoin falling price is testing the self correcting economics arguing that a crash in bitcoin price has forced many miners to stop mining the cryptocurrency as it has become too expensive for now.

The low price threatens the operations of the “miners” who use powerful computers to mint new bitcoins—and whose activity is also needed to confirm and process Bitcoin transactions. As the value of new coins has tumbled, the cost of the computers and electricity needed to mine them have not—a similar problem to the one that has stranded some oil companies as the price of crude has dropped.

Central Banks are there to look after their currencies during times of sudden financial shock. There is no central authority to regulate this cryptocurrency. So its automatic mechanisms have a limited ability to respond to a sudden financial shock. Watch this video also that compares Bitcoin with the Federal Reserve System.

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