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Experts Say That Bitcoin Mining Is Still Extremely Profitable
Interested in mining bitcoin, but not sure if it’s worth the investment? With energy prices on the rise, many people are wondering if bitcoin mining is still profitable.
The Bitcoin⚡️ Energy Standard
December 12, 2022
Table Of Content
Content
Conclusion
FAQ
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When Bitcoin first came out, miners could make up to 50 BTC every 10 minutes just by sitting in their pajamas at home.
If you mined one Bitcoin block in 2010 and kept it in your wallet until 2020, it would be worth $450,000.
If you're self-motivated and interested in earning bitcoin passively, you should familiarize yourself with the fundamentals of bitcoin mining before choosing whether or not it's worth your time.
Key Takeaways
In 2022, mining bitcoin is still a lucrative business.
At the moment, Bitcoin miners generate around $20 million in Bitcoin daily. That amounts to $600,000,000 monthly.
Since mining equipment may cost anywhere from $2,000 to $20,000, only seasoned miners can afford to do it.
All proof-of-work blockchains would collapse without mining, and it is possible to characterize mining in terms of three main ideas:
Bitcoin Block Reward
Bitcoin miners get a 6.25 percent incentive. After the halving in 2024, this will drop to 3.125 bitcoins. The first miner who solves the problem receives the payout (plus transaction fees).
Each mining rig on the network goes through this cycle once every ten minutes. Every 2016 blocks (about 14 days), the puzzle's complexity (Network Difficulty) is adjusted such that, on average, a single computer can complete it in 10 minutes.
The amount of hashrate that is added to the Bitcoin network is used to determine the difficulty of the network.
What is Mining Hardware?
Bitcoins are mined via mining gear, which consists of computers designed specifically for that task. The more powerful and energy-efficient your gear is, the more money you can make mining bitcoins.
What is Hashrate?
A miner's hashrate indicates the amount of processing power they are capable of using.
What this means is that as more people join the bitcoin mining fray in the hopes of earning some of the cryptocurrency's coveted digital currency, the difficulty of the challenge rises. Who put it another way, those with the highest computer power (hashrate) will be the ones to mine the most bitcoins.
Generally speaking, a miner's chances of finding solutions (and so earning block rewards) increase in proportion to the computational capacity of their system.
The hash per second (H/s) was the original unit of measure for hashrate in 2009; however, as the mining industry expanded exponentially, the H/s was often prefixed with the SI units.
Let's take a look at the potential earnings from bitcoin mining with 1 TH of electricity to put this into perspective. Because of this, the revenue chart for 1 TH/s looks like this: as the global hashrate increases, the income per TH for each miner decreases.
Nonetheless, the actual scope of the sector becomes apparent when you think about how many TH/s there in the whole Bitcoin network:
85 Exahashes = 85,000,000 Terahashes
There will be around $41 million in daily Bitcoin mining profits in the world by February 2022.
How do Bitcoin miners calculate their earnings?
It's likely that you've read or heard horror tales about the enormous amounts of power required for Bitcoin mining.
The media may be exaggerating the effect, but the truth remains that the primary expense of mining is the energy required to do so. To be viable, mining income must be more than these expenditures and the initial investment in mining gear.
Mining Revenue
In February 2022, based on the price of bitcoin, a single Bitcoin mining machine (also known as an ASIC), such as the Whatsminer M20S, may make roughly $12 USD each day. Bitcoin mining generates twice as much income than Ethereum mining does using the same number of graphics processing units (GPUs) that can be purchased for the price of a single application-specific integrated circuit (ASIC). One Whatsminer M20s is equivalent to thirteen AMD RX graphics cards in terms of price.
The miners function much like a decentralized version of PayPal. ensuring that all dealings are properly documented and providing a little revenue stream for the system's upkeep.
Bitcoin miners profit from the "block reward" and the fees users pay to ensure the integrity and security of the blockchain by recording Bitcoin transactions.
What is the Block Reward?
About once every 10 minutes, a new block is created and rewarded to the owner of the mining equipment that found it first.
Satoshi Nakamoto encoded the future decreases in the mining reward when he first set it at 50 BTC in 2009.
Approximately every four years, the Bitcoin algorithm is set to automatically reduce this dividend in half. It was cut in half to 25 BTC in late 2012 and again in the middle of 2016 to 12.5 BTC.
The most recent halving, which occurred in May of 2020, cut the block reward in half, from 12.5 BTC to 6.25 BTC.
What about transaction fees?
Bitcoin miners also profit from the transaction fees that Bitcoin users pay when sending and receiving Bitcoins.
Indeed, this is one of Bitcoin's many charms. A copy of the immutable blockchain, including all of the transactions, is distributed to each mining device.
Miners are responsible for maintaining the Bitcoin blockchain and are rewarded with a small percentage of all transaction fees.
Taxes on Bitcoin Mining Profits
While making a profit from Bitcoin mining is uncertain, you can be sure that you will have to pay taxes on any Bitcoins you mine that you sell. Using crypto tax software to keep track of everything and make sure you are still producing enough money after you account for taxes is essential for every miner who wants to comply with the applicable tax rules for Bitcoin mining in their jurisdiction.
You may learn more about how to use that program to report and pay taxes on Coinbase purchases here.
How do you know if you can profit from Bitcoin mining?
To begin, Bitcoin mining is really complex. It's for this reason that purchasing bitcoin on an exchange may be the easiest approach to earn a profit. When done properly, however, bitcoin mining may be more lucrative than purchasing and 'hodling' (a term used to describe the act of not selling your bitcoin).
For miners, the Bitcoin price is one of the most crucial factors. It is necessary to mine enough bitcoin to meet continuing expenditures; plus make back the initial investment into the equipment itself if you are paying for your mining gear and power in dollars like most people.
As a result, the price of Bitcoin has an effect on all miners. However, the ability to mine profitably depends on three things: access to cheap power, inexpensive and efficient mining gear, and a reputable mining pool.
1. Efficient Hardware
I've been referring to the Whatsminer M20S as a sample of the mining hardware required throughout this essay. Several different companies produce hardware now, so you may choose whomever you like most.
Hardware costs vary from one vendor to the next, with a lot riding on how efficiently the device uses its power in relation to the computations it can do. More processing power means a greater potential reward for bitcoin mining. The lower your monthly bills are, the more you can save by reducing energy use.
Miners should consider both the machine's potential profits and its expected lifespan before making a purchase.
It all comes down to the pricing per TH, the power consumption per TH, and the hosting fees when calculating whether or not a machine would turn a profit.
The durability of an item relies on how well it was manufactured. It is counterproductive to spend less money on devices that seem to be more efficient if they break down after just a few months of use.
Prioritizing the 'price per TH' above the 'watts per TH' may be advantageous if the hosting cost is low enough, as the savings in operating expenditures (OpEx) will more than make up for the decrease in machine efficiency, and vice versa if the hosting cost is high.
MicroBT, the current maker of the Whatsminer M20S and other Whatsminer models, has the lowest failure rate.
Bitcoin Mining Hardware Turnoff Prices
Thinking about how low the price of Bitcoin would have to go for the hardware to cease being viable is a helpful exercise. You need your mining rig to generate profits for a long time if you want to make more bitcoin from mining than you would have by purchasing the cryptocurrency.
The following table demonstrates that, with a bitcoin price between $5000 and $6000, the vast majority of the most cutting-edge equipment would still generate a profit. Some machinery could function for less than $5,000, if it was powered by energy costing less than $0.05 per kilowatt-hour.
Unfortunately, even in China, most older machines are now unprofitable. The Bitmain S9 has been in use since 2016, and it is noteworthy to note that people in countries like Venezuela and Iran, where energy is so cheap that the benefits outweigh the risks, are still using them. As solar and wind energy infrastructure develops in North America, there may be more reliable sources of sub-2-cents power.
Sending your mining rigs near data centers where power is cheap is your best bet if you want to compete with large mining operations. However, not many farms provide this service.
2. Cheap Electricity
The cost of electricity varies considerably among nations. In addition, several nations provide cheap power to factories so as to spur economic development. As a result, the cost of power for a Russian mining farm is around half that of a U.S. farm. On the other hand, the graphic shows that things are quite different in countries like Germany.
With regards to everyday life. If you live in a country where power costs $0.045 per kilowatt-hour, like China, Russia, or Kazakhstan, then operating a Whatsminer M20S for a month would set you back around $110. Using the data below, you can estimate that you would earn $45 a month in May 2020 if you used the average national power rate of 11.
Profitability with $0.045 kWh electricity
However, it wouldn't make any sense to mine if the cost of power in your house was the national average of $0.12 per kilowatt-hour.
Profitability with $0.12 kWh electricity
However, in the United States, miners are becoming more interested in finding ways to recycle the flare gas produced from oil wells. It wouldn't cost much to collect the energy.
Even so, you will undoubtedly incur losses if you try to mine on your own property.
3. Reliable Mining Pool
These days, everyone who mines must do it via a mining pool. The network of Bitcoin mining equipment is so big that your odds of routinely discovering a block (and therefore collecting the block reward and transaction fees) is extremely low, whether you are mining with one computer or many thousand.
If the total hashrate of the Bitcoin network is 100 EH/s (100,000,000 TH/s), then the odds of a WhatsMiner M20S ASIC miner, which has a hashrate of 68 TH/s, successfully mining a Bitcoin block are around 1 in 1,470,588. The mining of a single block at a rate of one every ten minutes might take as long as 16 years.
Slush Pool and F2Pool are both rather ancient pools. When it comes to Bitcoin mining pools, F2Pool is among the biggest. It now serves as a backbone for around 15% of the whole Bitcoin network.
F2Pool uses a payment technique referred as as PPS+. PPS+ pools eliminate uncertainty for miners by distributing block rewards and transaction fees to them whether or not the pool itself successfully mines each block. It is common practice for PPS+ pools to compensate miners at the conclusion of each day.
Pools that use the PPS+ algorithm determine how much to pay each miner in the pool in this way. Now, for the scientific nitty-gritty...
A WhatsMiner M20S ASIC miner with 68 TH/s will generate around 0.000702 BTC per day before pool fees if the Bitcoin network hashrate is 85 EH/s (85,000,000 TH/s).
68 x 85,000,000 x 144 (number of blocks per day) x 6.25 (miner hashrate) = 0.000702 BTC (block reward).
Let's assume a pool fee of 2.50% (the average is 4.00%), resulting in a net mining profit of 0.00068445 BTC.
At a price of $9,000 per bitcoin, this M20S generates $6.16 in daily income.
In order to earn daily rewards of mined bitcoin from the mining pool, it is crucial that you join the proper pool. Selecting a trustworthy and open pool that provides the optimal set of mining equipment and services is crucial.
4. Fees When Selling Bitcoin
The costs associated with selling Bitcoin are generally disregarded when calculating how profitable mining a certain cryptocurrency may be. It is possible that a small-scale miner will have to list their coins for sale on a retail exchange such as Kraken or Binance. Depending on the charge structure of the exchange and the current condition of the orderbook, your fees may be low one day and expensive the next.
However, depending on the health of the market, professional miners like F2 and Bitmain possibly have very beneficial relationships with OTC desks to sell their coins at low or no costs. Sometimes miners get paid more than the current market value of the cryptocurrency they mine. Regardless, because professional mining companies handle Bitcoin on a massive scale, they have more bargaining power when negotiating favorable terms for everything from energy rates to other supplies.
Utilize our mining profitability calculator to ensure you have the necessary resources to mine economically before you invest time and energy into it.
Professionals vs Amateurs
It is well-known that it is very challenging for private miners to get the most productive mining hardware and the most cost-effective power rates. Large-scale Bitcoin farms take full use of these features to increase their profits.
Due to the rising difficulty of mining bitcoin and the stagnating price, it is more challenging for individual miners to turn a profit.
The key is volume and the ability to negotiate better pricing. New entrants have a hard time competing with well-established mining businesses because they lack the necessary connections.
With the influx of new capital and an influx of new miners, Bitcoin mining is beginning to mirror other sectors. Reduced profit margins are experienced by the whole industry as a result of increasing leverage. Large-scale miners will soon have access to financial instruments that will allow them to hedge their operations, locking in earnings while accepting USD-denominated investments like loans or stock.
The more professional the mining industry grows, the more difficult it will be for amateur miners.
Can you Mine direct to an exchange?
You still need to think about where to keep the bitcoin that you mine even after you've put in the time and effort to learn about mining and choose a place with cheap energy for your devices.
Direct mining from a pool to an exchange is feasible, but we advise keeping your bitcoin in a wallet for which you have the private keys.
Is CPU mining profitable?
And certainly not in the case of Bitcoin, where that condition seldom held. CPU mining has never been lucrative unless you were among the first individuals to mine Bitcoin. Once upon a time, graphics processing units (GPUs) could be used for Bitcoin mining with a reasonable return on investment, but in 2020, you'll need an ASIC and a power purchase agreement to earn any money at all.
Conclusion
It is quite improbable that a home miner would make enough money mining cryptocurrency to cover their mining gear and power costs. Earning money on your own is quite improbable. Once the rate of improvement in ASIC mining gear reaches a certain threshold, the situation may begin to improve. In addition, if retail consumers can acquire access to affordable, sustainable power solutions, Bitcoin mining may once again become lucrative for tiny, individual miners throughout the globe. It would be fantastic for decentralization and Satoshi Nakamoto's original goals if smaller miners were allowed back into the network.
FAQs
Should you invest in Bitcoin mining?
Many individuals are beginning to question whether or not it is still worthwhile to mine bitcoin because of rising energy costs. The quick answer is "yes," but only if you have the proper equipment and join a bitcoin mining pool. However, there are several unknowns, and success is not a given.
Is it still worth it to mine in 2022?
To get to the meat of this piece, know that cloud mining is and will always be the easiest method to generate money without having to purchase expensive mining equipment and pay for other associated expenditures.
When will bitcoin mining stop making money?
When the total number of Bitcoin hits 21 million, mining costs will be eliminated. Instead of receiving a portion of the network's hash power as a compensation for each block they mine, miners will almost certainly rely only on transaction fees to support their operations.
That's all for today, see ya tomorrow! If you want more, be sure to follow our Twitter (@croxroadnews)
DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.
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