Litecoin’s price plunge in recent months has whittled away the profitability of mining the cryptocurrency, leading to a shakeout among computer operators on the network seen as a faster and cheaper but less secure version of bitcoin. 

Prices for litecoin, created in 2011 just two years after bitcoin, have fallen to about $45, from a peak around $140 in June. And under the network’s original programming design, rewards for mining new blocks of data were slashed by 50 percent on Aug. 5, an every-four-years event known as a halving.

The combination of factors has cut the profits of mining litecoin using the popular Innosilicon A6+ computers to $1.68 per 24 hours, from $2.65 in mid-June, assuming a standard electricity cost, according to f2pool. That’s a slim margin for a machine that costs $3,000 new, according to the manufacturer’s website.

Operators using the older-model and less-powerful Antminer L3 computers are currently getting a negligible profit of just 6 or 7 cents a day, f2pool's mining profitability calculator shows. 

So, many smaller litecoin miners are now simply choosing to drop off the network, evidenced by a decline of more than 70 percent since July in the network’s hash rate, which measures the combined computing processing power of all operators. On Nov. 30, litecoin’s hash rate touched 149.6 terahashes per second, the lowest in a year. 

“If miners are underwater, or running non-economical gear, most likely they will decommission that equipment,” said Greg Cipolaro, co-founder of the cryptocurrency analysis firm Digital Asset Research in New York. “Hash rate follows price, not the other way around.”

The new dynamic in the litecoin market offers a lesson in the emerging economics of the fast-growing cryptocurrency and blockchain industry, which relies on networks of computers to confirm and record transactions, using a combination of incentives. Key inputs include the speed and efficiency of the data-mining computers, local electricity costs and even the ambient temperature; cold climes are considered ideal because less power is needed to run cooling fans for the computers, which typically run 24 hours a day, seven days a week - that is, when it’s profitable to do so.  

Many operators on the litecoin network have been using the L3 machines, and the recent market move has “tested the shutdown price,” Steve Tsou, CEO of RRMine, a bitcoin-focused asset-management and trading platform, said in a LinkedIn message.

It’s likely that some miners in China dropped out of the market recently as the rainy season tapered off in regions where they’re relying on supplies of cheap hydropower, he said.  

Under the litecoin protocol, mining new units of the cryptocurrency automatically adjusts to become easier when the hash rate falls, a mechanism designed to lure operators back in following a sharp price drop or a cut in the rewards. 

And that’s what’s happening now: Litecoin’s mining difficulty - reassessed every 2,016 blocks, or roughly every 4 days, to keep block-production times around 2.5 minutes - is now at is lowest in a year. 

So despite the cut in the size of the reward for mining a new block, it should now be easier for operators who are still in the market to mine new blocks, helping to mitigate the damage to profits, according to Ryan Alfred, president of Digital Assets Data.

A price recovery could woo miners back into the market, as could a further easing in the difficulty of mining new blocks, Alfred said.