Is Bitcoin Mining Profitable?
Bitcoin mining is one of the fastest growing industries and billions of dollars is being spent on it annually.
But what is Bitcoin mining, and is it profitable?
There are many companies offering Bitcoin mining deals, such as cloud mining contracts and other web-based mining, but the truth is, they’re not worthwhile and will never make you a profit.
Bitcoin mining can seem daunting to the lay person, but a small investment of cash, and time to learn it with proper mining equipment, and anybody can make a profit mining Bitcoin.
What Is Bitcoin?
Before we look into Bitcoin mining profitability, it’s good to know exactly what it is we’re mining: Bitcoin.
Bitcoin is a decentralized layer of trust: an open ledger with every single transaction validated and immutable once added to the blockchain.
There is no central authority and the miners and nodes are the ones that control the decision making. Anybody can own a miner and node and help secure and validate Bitcoin.
There can only ever be 21 million Bitcoin and each one is worked for by the miners (as we discuss below), and each part of Bitcoin value is stored on data in private addresses known only to the owner.
Anyone can send any amount of Bitcoin anywhere around the world and nobody can stop the transaction being sent. There is no need for a central authority like a bank to verify the transaction because the miners and nodes do that.
Once a Bitcoin transaction has been sent and added to the blockchain, it cannot be reversed. This immutability ensures the integrity of the Bitcoin network, as it makes it impossible for any entity to manipulate, replace, or falsify data stored on the network.
The immutability can be audited at anytime, as the Bitcoin ledger is open for anyone to cheack any transaction throughout the entire history.
The Bitcoin Mining Process
Bitcoin mining devices are connected to the Bitcoin protocol, and they look for transactions that have been broadcast to the network.
Miners pick up the transactions, run them through the hash function SHA-256 twice and add them to the latest block.
Each block has a capacity of 1MB and takes about 10 minutes before it’s ready to be added to the blockchain. Depending on any data added to a Bitcoin transaction, any block can contain as little as one transactions, or up to a few thousand transactions before filling up.800
Once a block is ready it’s sent to the nodes, who need to reach consensus that the block is legitimate. Once they agree, they send it back to the miners, who try to win the Block reward by frantically trying to discover a complex mathematical puzzle.
The first mining device to discover the answer will win the Block Reward, which is currently 6.25 BTC for every block.
This Block Reward is halved every 210,000 blocks, or roughly every four years. The last one was on 11 May 2020, and the next one will be sometime in 2024.
This is known as the Bitcoin Halving (or Halvening), and it will take place roughly every four years, and will keep going on until the last fraction of Bitcoin is mined in around the year 2140.
Is Bitcoin Mining Profitable?
Miners earn money from Bitcoin transactions and the Bitcoin Block Reward, but only one device can win it at a time.
And because the competition for the Block Reward is so fierce, the chances of a mining device discovering the answer first is about 16 trillion to 1.
Of course, this would take a long time, but the more powerful a mining device the faster it will process away and try discover the answer.
Even still, a miner mining alone would still have close to zero chance of earning some BTC. So, any solo miner really has to join a Bitcoin Mining Pool.
A Mining Pool is basically a consortium of miners joining forces to greater their chances of winnng the Block Reward.
The combined hashpower of the Mining Pool makes it much more likely any solo miner will earn some BTC.
The rewards are paid out differently with each Mining Pool but basically you will earn a percentage share of the Block Reward for the amount of hashpower you contribute.
What Can Affect Bitcoin Mining Profitability?
Mining Bitcoin isn’t always profitable, and it depends on a few factors – the price of Bitcoin being the biggest factor.
Obviously the higher the price the more profitable it will be, and at today’s prices of $11,600, miners with the cheapest electricity are just about making a profit.
The cost of electricity is a big factor when it comes to Bitcoin mining profitability. Obviously it depends on your location.
The average cost of electricity is about $0.14 KW/h, but this varies a lot around the world. For example, if you live in Germany, you pay about $0.35, whereas in Russia the cost is $0.06 KW/h.
The cost of electricity to mine a bitcoin isn’t as easy to work out, because it will change every 2016 blocks, or every two weeks roughly.
This is because there’s a Bitcoin Mining Difficulty Adjustment, which changes the difficulty of the cryptography of the Bitcoin protocol.
For example, if more miners join, they will naturally discover the answer to each block quicker, so it will speed up the block production.
If this happens then the Difficulty Adjustment will make the complex puzzle even harder. This in turn means your mining device will use more electricity for doing the same thing.
However, if more miners leave because the costs have gone up too much and the block production slows down, the Difficulty Adjustment will make it easier, which ultimately means less electricity to produce each block.
The Difficulty Adjustment takes place every 2016 blocks, or roughly every two weeks, and it ensures that new bitcoins can’t ever be minted too quickly or too slowly.
Then we have the cost of your device. To be the most competitive, you should get the best devices, but of course these are the most expensive. The Antminer S19 Pro costs about $3600, and there are cheaper mining devices, but their hashpower is less so you will earn less BTC.
And another thing to consider is the Bitcoin Block Reward. Right now it’s 6.25 for every block, but with each Bitcoin Halving this will be cut by 50%.
Like the Difficulty Adjustment, it’s coded into the protocol, and ensures Bitcoin’s inflation will continue as planned until the last piece of Bitcoin is mined.
Is Bitcoin Mining Profitable?
Bitcoin Mining profitability depends on a few factors, but the average cost at the moment is about $12,500.
Of course this depends, and changes with every Difficulty Adjustment, but a rough estimate for the average electricity costs, and we need Bitcoin to be around $12,500 to make mining Bitcoin profitable.
Bitcoin isn’t run by any single entity but can be owned by everybody. Anybody can take part and everybody can do his or her bit for the network.
Mining profitability varies around the world, but if you don’t need to sell right now to cover your costs, you will earn BTC.
If that is the case, it all depends on your time frame, because as the price of Bitcoin goes up, so will your Bitcoin mining profits.