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Bitcoin [BTC]’s unprofitability forcing miners to find refuge with alternatives such as Zcash [ZEC]

Jibin M George



Bitcoin [BTC]'s unprofitability forcing miners to find refuge with alternatives such as Zcash [ZEC]
Source: Pixabay

Since the highs of last year, the cryptocurrency market, in general, has bled out and is now struggling to reverse the significant downtrend. Bitcoin, the world’s largest cryptocurrency isn’t immune to it either and its losses have forced miners to quit Bitcoin mining activity. However, Zcash [ZEC] could emerge as a worthy mining alternative for many.

Since Bitcoin hit an all-time high of $19,783 in December, the cryptocurrency has seen a genuine tumble, especially after mid-2018. Presently, Bitcoin is down by over 80%, when compared to its all-time high price. This suggests that profit margins have also fallen for many miners and mining pools who count on high BTC prices to keep their business running.

Furthermore, high electricity and equipment costs associated with keeping the mine in business are cutting into these profits too, forcing many to quit mining Bitcoin. In fact, mining is such an expensive process that it currently surpasses the value of 1 BTC which is around $3,600. Each of these factors has forced over 100,000 miners to shut down shop because of unprofitability, according to a report last month.

In such an environment, alternatives such as Zcash have been welcomed. Miners have been reportedly fleeing to the Zcash scene because it offers a greater reward for each block mined, guaranteeing a greater profit margin. Zcash, a cryptocurrency that ensures a fixed supply of coins over time and launched in 2016, is presently two halving periods behind Bitcoin. Furthermore, what has attracted miners to Zcash is the exponential growth in hash rate the cryptocurrency has witnessed since the beginning of last year. According to some estimates, it is as high as 400% over the past year, contributing to its larger pay-offs and profitability for miners.

Another asset factors into the advantage Zcash may hold in 2019. Hit by several hacks and thefts, the cryptocurrency industry is on the lookout for a coin with very strict privacy options. Zcash could be one of them as it has features protecting confidentiality and privacy. This would be especially convenient for the rich, who would like to hold their assets in completely anonymous wallets with the utmost privacy. In a world of growing income disparity, it is more likely that the rich hold their riches in the form of coins such as Zcash which are privacy-enabled.

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Is the scarcity principle a factor in Bitcoin’s valuation or is it just crypto white noise?

Biraajmaan Tamuly



Is Bitcoin being scarce changes the way we put forward its valuation or is it just Crypto white noise?
Source: Pixabay

The aspect of scarcity is fundamental to the Bitcoin community, with its limited availability often seen as a virtue in a world where governments have unlimited power to print fiat currencies. With the value of Bitcoin increasing day by day, the virtual asset is getting close to its saturation point.

At press time, 17,763,712 BTC were in supply, very close to the 21 million Bitcoin supply cap. However, the last BTC will be minted on 7th May 2140. That is almost 100 years from now. So, there is still a significant period of time before Bitcoin’s production halts for good.

Many in the community have suggested that Bitcoin’s scarcity has genuine value because it makes the virtual asset “deflationary.” In light of Facebook’s announcement of “Libra” coin, it has been argued that it will not generate any circumstantial threat to Bitcoin, solely on the fact that Bitcoin was scarce and Libra was not.

A recent Medium article released by Forbes summed up the scenario. It stated,

“It will take time, but Facebook will greatly accelerate the pace of teaching people about cryptocurrencies. And when this happens, more people will turn to bitcoin for one simple reason — bitcoin is scarce, while Facebook’s cryptocurrency is not.”

Another aspect that explains the importance of Bitcoin’s scarcity value is its comparison with Gold, which is also a scarce commodity. A key model that explains Gold’s intrinsic value in the market is the Stock to Flow ratio.

The S2F ratio of a commodity explains the scarcity value as it is the amount of an asset that is available to the amount that is produced annually. Moreover, the higher the S2F value of an asset, the lesser the inflation rate attached to it. At press time, Gold had the highest S2F value, but Bitcoin was close behind and it was stated that by August 2020, Bitcoins S2F’s value would be 55.2 to Gold’s 62.

However, a significant counter-argument against Bitcoin’s scarcity in the community was put forth, with none other than legendary investor, Warren Buffet, claiming that Bitcoin had no “intrinsic value.”

Recently, Peter Schiff, CEO at Euro Pacific Capital, explained that Bitcoin was not scarce due to the availability of other crypto-assets which made Bitcoin’s scarce value quite redundant since crypto assets, with better properties and characteristics, could be created anytime.

The argument was widely opposed by a majority of the community, with certain crypto-enthusiasts deciding to respond to the post. Twitter user, @Sisko8, said,

“The Mona Lisa is not really scarce, as there is an infinite supply of other paintings with identical or superior painting techniques that can be created out of 3$ paint and canvas, including photocopies of the Mona Lisa.”

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