Pieter Wuille

It’s in the Proof of Work. The „..difficulty is determined by a moving average targeting an average number of blocks per hour.“ The more nodes, the faster the hash rate the higher the difficulty. Here is a nice (exponential) graph showing difficulty over time since 2010 http://bitcoin.sipa.be

And „The average work required is exponential in the number of zero bits required and can be verified by executing a single hash.“

The difficulty of a unit of work can be practically limitless, the difficulty to verify a unit of work is practically nil. As long as work needs to be performed and as long as the network keeps growing, both the total amount of work and the amount of work per unit of work increase. The required energy of the network increases with them as long as the machines do not get efficient faster, which is highly unlikely.

Currently, the energy footprint of one BTC transaction is estimated to be 612 kWh and the estimated electricity demand increased over 10.000 % between 2015 and 2021. Digital currencies reportedly account for 112 TWh energy consumption per year in the top 10 countries. That is in the ballpark of the total electrical energy consumption of all 41,500,000 German households. (https://www.institutionalassetmanager.co.uk/2021/01/20/294669/global-bitcoin-transactions-cost-usd25m-day-electricity-process, https://digiconomist.net/bitcoin-energy-consumption/ and https://www.cleanenergywire.org/factsheets/germanys-energy-consumption-and-power-mix-charts and…

A typical system with a 5970 consumes just under 500 Watts lets say, including the GPU (some examples here: http://www.bitcoin.org/smf/index.php?topic=3892.0 ).

That's 12kWh at let's say a $0.12/kWh residential electric rate ( http://www.bitcoinminer.com/post/2361900289/where-to-mine-electricity-rates ) that's about $1.44 per day for your electricity.

A 5970 hashes at just under 600 Mhash/s, per http://en.bitcoin.it/wiki/Mining_hardware_comparison
so punch that 600000 number in as khps here:
http://www.alloscomp.com/bitcoin/calculator.php

and it shows that at the current difficulty level, you should generate 50 BTC about every 3 days and 29 minutes.

So in a 24 hour period you get about 16.55 BTC per day.
Converting that 16.55 BTC to USD:
http://bitcoin.1t2l.net/widget/?from=BTC
shows you earn about $15.28 per day with a rig holding a single 5970.

Then to send those BTCs to your PayPal, you use http://coincard.ndrix.com (starting again monday morning) and you lose 3% doing that conversion so you end up with $14.82 in revenue per day. Subtract the $1.44 in electricity that nets you $13.38 a day. If that were to hold, you'ld have the card paid off in well under two months.

That said, ... difficulty is rising (fast! ... http://bitcoin.sipa.be/speed.png ). If the BTC/USD exchange rises more ( it's had quite a run http://bitcoincharts.com/charts/mtgoxUSD#rg60ztgSzm1g10zm2g25 ), then that payout might continue at these levels. Otherwise, the payout from mining will…

It's just law of the market. Bitcoin has limited supply (only 21M will ever be "mined" and even less in circulation due to lost wallets) and ever growing demand. Most recently Chinese got interested in Bitcoin, so the demand grew even more, while the supply stayed the same.

So simply put when there are less people that want to sell than people that want to buy [3], the prices rises.

Also, as other person here suggested, Bitcoin mining difficulty has risen dramatically in past few months [2] thanks to new specialized hardware (ASICs) finally arriving to its buyers. This, while does not affect the price directly, shows that there is much faith put in the system by miners, which in turn encourages people to buy even more.

It's also worth noting that the $400 price is only on MtGox, which is not considered as market leader anymore. What's more, the withdrawals from MtGox are counted in weeks or even months , so it's not a viable trading platform. If you want a reliable Bitcoin price, head over to BitcoinAverage [1] which does what the name implies - averages (and takes volume into consideration) the price over all major exchanges. They even have a button to exclude MtGox price from the calculations, as MtGox is always 10-20% higher than the rest.

As of writing this post, the average price including MtGox is $380.

[1] https://bitcoinaverage.com/

[2] http://bitcoin.sipa.be/speed-lin.png (network hashrate now approaching 5 Terahash per second)

[3]…

You've got it backwards. It's the difficulty which is pegged to the price. If the price went back to $5 now, miners would turn off their equipment and the difficulty would plummet.

On the other hand, if difficulty would shoot 10 times now, it wouldn't affect the price much, because most of the cost of mining would already be sunk in. Miners would sell their bitcoins even with a loss.

Besides that, look at the chart:
https://bitcointalk.org/index.php?topic=7427.0

If anything, it seems that difficulty follows the price (Dec 2010, Feb-March 2011) on the above chart.

And here:
http://bitcoin.sipa.be/
You'll see that difficulty was raising constantly during the past year, while the price stood still for quite a long time, and fluctuated wildly at other times.

Especially this graph:
http://bitcoin.sipa.be/speed.png
Can you show me, from this graph alone, when price increases were due?

I have been mining since Dec 2010. I know what I am talking about, and let me tell you that at this very moment an AMD Radeon HD 7970 graphics card ($400) would mine the equivalent of $400 in 50 days:

600e6 (hash/sec) * 3600 (sec/hour) * 24 (hour/day) * 50 (days) / (2^32 * 7.7e6 (number of hashes to solve a block)) * 25 (bitcoins/block) * 200 (usd/btc) = $392

So it is very profitable to GPU mine right now. In fact, it has never been so profitable since June 2011 (previous Bitcoin bubble). However keep in mind a few caveats: (a) this assumes an exchange rate of 1 BTC = 200 USD which may or may not crash in the near future, and (b) this assumes a difficulty factor of 7.7e6 which is rising quite quickly (see the charts at http://bitcoin.sipa.be/, it rises by about 10-50% every 2 weeks or so, mostly due to ASICs).

Also wrong, 'Can the government shut it down?'

Should be:
Q. Who can shut it down?
A. Anyone who is willing to pay 51% of the monthly operating cost of all miners. Plus an initial investment to manufacture the hardware. Neither of these numbers are out of the range of Governments or Banks. And they probably won't be for a long time. This is the death of Bitcoin scenario that worries me most. And it seems no one is really worrying about it or taking it seriously.

edit: Here are the numbers someone calculated at the height of the first mining bubble [1]. We're currently at less than double the hashing power of then [2]. So a current rough estimate would be to double all those numbers.

[1] http://bitcoin.stackexchange.com/a/1094

[2] http://bitcoin.sipa.be/speed-lin-ever.png