What goes up must come down.

Despite the vicissitudes of the bitcoin price during the last 5 years, the hash rate of the network, the measure of brute force levered against the protocol to secure the fidelity of the consensual ledger, has risen by about 15% per month.

Bafflingly so, the hash rate continues to rise. Currently, the network is uncovering north of 50 million gigahashes per second. To put it in more digestible terms, collectively, Bitcoin miners, rather than seeking a needle in a haystack, are applying the equivalent of the power of the world’s 500 most powerful supercomputers to blow-torch a haystack the size of mount everest in their quest to uncover a needle-sized block reward.

There is a relevant term known as the “miner’s fallacy” which posits that a purchase of mining equipment is inferior to an outright purchase of bitcoin if the expected mining potential of a “rig” is less than the quantity of bitcoins which can be obtained for the same price. Nevertheless, the arms race of acquiring mining equipment entices both the adept and the average. In short, most miners will lose money.

However, the miner, although stuck with his rig (if he received it in the first place), now faces a new economic reality. Despite any disparity between buying bitcoin or mining equipment, the decision which determines whether to not to mine boils down to a simple equation: mining revenue vs. electricity cost.

This implies that an individual who spent 1,000 BTC on a 1TH mining outfit, who may only see 50 BTC over the course of his rig’s life, will continue to mine, provided that his monthly electricity cost is less than his BTC earnings (denominated in fiat).

Only recently has the increased network difficulty risen to a level which pinches this ultimate barrier. Over the last 12 months many individuals have rued their acquisition of mining equipment instead of simply buying the world’s favorite crypto currency, but have continued to mine because it brought in more money than it costed.

It is difficult to call the top, but it will come. At current bitcoin prices we are certainly close. Electricity costs per kilowatt hour trend ever closer to the pooled mining rewards. The author personally knows an individual who plans to shut down a 30-rack of 10 GH mining units in the next 3 months. After all, they are noisy, and hot.

Absent a rise in the price of bitcoin, the attrition of borderline mining rigs will accelerate. Whether this manifests as a gradual decline or an acute one, its effects should be interesting to witness. Although the Bitcoin community has become accustomed to relatively fast transaction confirmations, it should prepare itself for the possibility of a steady march downwards in hashing power. Even though the difficulty will adjust accordingly, it will do so more slowly than it adjusts upwards.

That said, a downward trend in hashing power, although imminent, will probably be temporary. After all, we’re on a trip to the moon.