Crypto-currency Bitcoin is in a market freefall. Since Decembr it has lost 44 per cent of its value.

Financial experts suggest that short-sellers have abandoned Bitcoin in an effort to cover their costs.

Bitcoin’s value comes from businesses with computers able to solve complicated mathematical problems. Solving these problems meets a need. This need has a value. That value is given a monetary equivalent in the share markets, and that monetary equivalent is able to be traded.

The process of solving mathematical equations for monetary reward is known as ‘mining’.

But mining in the digital world (like mining in the real world) isn’t free. Computers require electricity, maintenance, constant software upgrades and attention.

This isn’t a problem when the tradable value of the data being mined is greater than the expense of mining. But when the value of the currency being mined falls relative to the currency paying for the mining there are problems. The cost of mining rises relative to the return, eating into profits. Eventually the cost exceeds the return and the mining has to be abandoned. Just like in the real world.

Bitcoin’s plunge on the share market has been so dramatic miners are now selling the currency they have converted and banked in order meet their real world repayments – exacerbating the problem.

Unfortunately for Bitcoin they have no Central Bank able to buy up their own currency, thereby artificially propping up its value.

In the real world this is exactly what would happen. Russia, for instance, has recently bought huge amounts of its own roubles to stem the loss of its currency in world markets. Despite coming to the brink of bankruptcy Russia has only lost 3 per cent of the value of its rouble.

Bitcoin has the option of making its currency easier (and cheaper) to mine (effectively devaluing its currency).

However, with already fewer miners online making the adjustment to easier and cheaper currency creation will take time. Fewer miners means less wealth being created; less wealth being created puts pressure on Bitcoin to reduce the value of its currency even further; meaning those who are mining receive less for their labours.

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