Bitcoin miners under pressure as value collapses
Thu 15 Jan 2015
The virtual currency Bitcoin lost 21 per cent of its value yesterday, equating to a total loss this year of 44 per cent.
Reports have suggested that this rapid fall is squeezing computer supporting systems and is raising alarm about its future viability.
According to Coindesk, Bitcoin’s value fell to $179.37 (£117.94), 85 per cent lower than its record peak of $1,165 at the end of 2013. In total, nearly $11.3bn has been lost in Bitcoin’s value since its 2013 high.
“The people who most believed in the long-term value of bitcoin holdings are the people who got hurt the most,” Chase Sechrist, a 22-year old software developer from Austin, Texas told the WSJ. Sechrist placed $30,000, “most of his savings,” into Bitcoin during “the summer 2014 hype cycle.” Having now lost almost all of his savings he said he’ll “be out of bitcoin for quite a while,” however he still said that he strongly believes in the future benefits of the technology.
The staggering decline has raised great concern for bitcoin ‘miners’ who support the transactions made in the digital currency, and whose profits get squeezed as its price falls against traditional currencies.
On Tuesday, Bitcoin mining firm CoinTerra announced that it had defaulted after having been shut out of its C7 data centre in Utah, which accounted for 3 per cent of total Bitcoin mining operations. C7 are suing the mining service for $5.4mn in damages, court fees and related costs.
These disruptions have led to a fall in the ‘hash rate’ – a measure of the total compute power of the mining network. However, industry experts have assured that the rate would have to fall drastically by 90 per cent to cause problems – “It takes huge hash rate changes to noticeably change the block time,” said Gregory Maxwell, a coder charged who maintains the open source operational programme.
Some argue that despite the unease surrounding the digital currency, the Bitcoin market is arriving at economic equilibrium, with those pulling out of the sector driving market share and revenue for remaining miners.