- The profitability of Bitcoin mining depends on the mining equipment, the cost of electricity and the price of the cryptocurrency.
- The mining difficulty of Bitcoin has led to various mining equipment becoming obsolete, especially if they have a high electrical consumption.
- Bitcoin mining at scale has a higher probability of profitability given that it accesses more computing power.
One of the most difficult topics to digest when first entering the cryptocurrency market is mining. Especially since some technical knowledge is required to understand the activity and, beyond that, there is an unlimited amount of information on the subject.
It’s easy to get lost in the sea of information available on the Internet, especially when you don’t have the slightest idea about the subject, which is why at Bitcoin Mexico we offer you a detailed guide with the minimum information necessary to start learning about Bitcoin mining. (BTC).
What is cryptocurrency mining?
Cryptocurrency mining is the process by which new coins are created, but additionally it is also through which cryptocurrency transactions are validated on the blockchain and added to the distributed ledger.
However, not all cryptocurrencies available on the market require the mining process to fulfill these tasks. Only those cryptocurrencies that are in a Proof of Work (PoW) consensus blockchain need to be mined, for example, Bitcoin requires mining, while Solana does not, the reason lies in the blockchain of each cryptocurrency.
Briefly, the Proof of Work, or PoW, is the consensus by which each transaction is validated and included in the blockchain’s distributed ledger. The PoW algorithm requires an effort or work that, the greater it is, the more secure the network is.
Then, complex but doable work is required to be executed, which is set through a level of difficulty. This is where the mining teams come in that must use great computing power to encode the block data and find a solution, for this reason, lBitcoin mining requires sophisticated hardware to solve the computational math problem. Then the first mining team to find a solution to the problem receives the next Bitcoin block and the process starts again.
This means that, in Bitcoin mining, the computing power of the mining equipment used is essential. The higher the power, the more accumulated equipment or the better technology, the more chances the miner will have to receive the reward.
Yes, many people find Bitcoin mining attractive because they receive rewards in BTC, however, theMining is not necessarily the best option for all investors, therefore, before investing, it is essential to evaluate the decision depending on the individual context.
How to start mining Bitcoin?
The ability to mine Bitcoin will directly depend on the mining equipment being used and your ability to solve complex math problems to complete each block.
In the early days of the Bitcoin blockchain, it was possible to mine the cryptocurrency using a simple CPU chip in a regular home computer. The reason this was possible back then is because there were very few miners and therefore the hash rate and mining difficulty was much lower. So less competition resulted in a higher mining success rate.
In fact, the same thing that happened with CPUs, they experienced with GPUs. At the time, GPUs replaced CPUs in the leadership for Bitcoin mining. However, since 2015, ASIC miners started to lead.
For those who are unaware, ASIC miners are specially designed equipment with a single goal in mind: mining, therefore they have a higher computing power than the GPU.
Bitcoin has evolved and attracted the attention of the world, therefore, as the popularity of BTC increased, so did the competition in mining.
This can be clearly seen in the graph above. The mining difficulty has increased over the years. As a consequence, As the difficulty increases, miners will require specialized equipment with greater computing power to be able to carry out the activity profitably.
Thus, there is currently a debate about whether or not it is possible to mine Bitcoin profitably with a GPU. Some users say no, while others still believe it is possible.
How to determine the profitability or not of mining BTC?
There are 5 factors to consider when evaluating the profitability of mining Bitcoin:
- The market price of BTC and how its fluctuations affect profitability
- The cost of electricity
- maintenance fees
- The cost of the mining equipment and the time it will take to recover the investment
- How long said mining equipment will stay competitive against increasingly powerful miners. And thus, how often you’ll need to acquire new, more powerful gear.
In this sense, yes, Bitcoin mining is profitable, but especially for those who have been mining cryptocurrencies in recent years. However, for new miners it can be more difficult to achieve profitability, especially if you cannot access the ideal mining equipment or low-cost electricity.
A very useful tool are profitability calculators, such as the NiceHash. So, for example, assuming an electricity cost of $0.1 cent per kilowatt-hour, let’s see what the benefit would be depending on the mining equipment:
- MicroBT Whatsminer M30S: According to the tool, the approximate income is $11.5 dollars per day, but its cost, in the official websiteis approximately $13,000 dollars.
- BITMAIN AntMiner S19 Pro: According to the tool, the approximate income per day would be $15.65 dollars. Its price is around $10,000 dollars.
- BITMAIN AntMiner S9: According to the tool, this ASIC equipment would generate a daily cost of $0.28 dollars, so instead of being profitable, this equipment generates losses. It costs approximately $900 dollars.
The Bitmain AntMiner S9 is an illustrative example of why it is necessary to take into account the computing power of the equipment that is purchased and how long it could take to become relatively obsolete.
The AntMiner S9 was released in September 2017 and, until recently, was a relatively low-yielding rig, but still within positive margins. However, the reality is that the current market situation makes it a relatively obsolete equipment, especially due to its high electricity consumption.
In addition, An element that affects the profitability of mining equipment is the price of Bitcoin, with volatility being an element to take into account. Depending on the price of BTC, the team break point is set and of course the network difficulty is also volatile. Reducing it makes the extraction process easier and increases profits. However, the situation can quickly change.
scale mining
An essential aspect of mining is that it benefits from scale; that is, as you concentrate a greater number of mining equipment, greater probability obtains of accessing a higher return. This is why home miners generally make less profit per miner than a professional mining company that concentrates high computing power.
Additionally, professional mining crews often jump from jurisdiction to jurisdiction to access cheap electricity, negotiate deals with local power companies, produce electricity of their own, and quickly dispose of obsolete mining equipment.
Mining pool, an alternative to mining at home
If you still, despite all the risks, want to somehow dabble in Bitcoin mining, Bitcoin mining pools can be an alternative to solo mining at home.
Mining pools allow miners to join forces to increase the chances of discovering new blocks and generating profits, but, as is evident, the profits are distributed among the participants.
Therefore, when deciding which mining pool to join, you need to consider the following: How does the pool share payouts? What fees do you deduct? Generally, deductions range from 1% to 10%.
The most popular mining pools are BTC.com, Slush Pool and AntPool. To participate, it is necessary to connect the mining equipment that you have to the pool. So, you will still need to purchase an ASIC miner, but by connecting it to the pool you gain access to more computing power which will give you a higher chance of getting rewards.
final thoughts
The profitability of mining Bitcoin comes and goes depending on different factors, such as the price of the cryptocurrency, electricity prices worldwide, mining difficulty, among others. Therefore, the decision on whether to invest in this activity or not cannot be taken lightly.
An investor who wishes to mine BTC must evaluate the electrical costs of the city in which he is located, the legislation for mining, the cost and maintenance of the mining equipment and the risks.
It is essential to understand that there are other cryptocurrencies that can be mined and, perhaps, more profitable than Bitcoin.
But, if what you want is to increase your cryptocurrency holdings, it is essential to know that Bitcoin mining is not the only option. It is possible to invest in cryptocurrency and earn interest on most of the available crypto exchanges.
You might be interested in: