Money 2.0 Stuff: Say no to Sudoku derivatives

One rather astute way of thinking about the Bitcoin mining process is keeping your car idling 24/7 to produce solved Sudokus you can trade for heroin. That’s really all there is to it, I promise! Miners, armed with specialized hardware and electricity, compete in probabilistic lotteries every 10 minutes, aiming to find numbers that, combined with block data, produce another number that starts with a lot of zeros. Almost miraculously, these lottery prizes are actually quite valuable: somewhere on the order of $17 million is doled out on a daily basis. Annualized, that’s about $6.2 billion! And so now we have a dedicated, sophisticated mining industry. 

But life as a miner isn’t so simple. While Bitcoin issuance is deterministic, one can think of market value as a very random walk in a very random park. In a, like, normal manufacturing industry — let’s say chemicals — a company will make some fairly mundane revenue forecast and adjust capital investment accordingly: “based on these assumptions demand for chemicals should grow somewhere on the order of 5%.” OK, good. “Our current capacity is X chemicals per year. If we invest $Y we can produce Z chemicals and still maintain $M margins.” Fine. Sure, forecasts might not be entirely accurate but for an industry as mundane as chemicals they are unlikely to be off by a factor of 50%, 100%.