- 1 Hash Rate
- 2 Overhead Costs (Energy Costs, Cooling Costs, Mining Pool Fees)
- 3 Bitcoin Price
- 4 Changes in ASIC Technology
- 5 How Long You Will Mine Bitcoin
- 6 Mining Profitability Calculator
- 7 Conclusion
There are a lot of ways to get involved in the Bitcoin ecosystem. You can invest in Bitcoin. You can trade it. You can use it to buy things. You can accept it as a merchant. Given that Bitcoin is currency, you can use it in just about any way that currencies are traditionally used.
Another way in which you can get involved with Bitcoin is by mining it.
Simply put, Bitcoin mining is the process by which Bitcoin transactions are confirmed. When a Bitcoin transaction is broadcast to the Bitcoin network, miners are responsible for grouping transactions into blocks and then adding those blocks to the blockchain, which is the chain of all blocks, or record book of all Bitcoin transactions.
Miners do this by competing with each other to first find a new block’s nonce, which is a string of random numbers. This nonce, when found, allows a new block to be added to the block before it.
An easy way to think about this is imagining finding the correct nonce to being like finding the correct Lego piece to connect a new block (a Lego piece) to the one prior (another Lego piece).
Finding the correct nonce requires a lot of resources, namely computing power and energy. For their efforts, miners are rewarded with newly minted Bitcoin if they are the one to find the correct nonce for a new block.
However, while this sounds like a great way to earn some Bitcoin, the mining landscape has changed drastically since Bitcoin’s inception in 2009 and in this piece, we’ll explore whether or not Bitcoin mining is worth it.
Bitcoin mining requires a lot of computing power because the more computing power you have, the higher your hash rate. Hash rate is important because the higher your hash rate, the more times per second you can guess at the correct nonce to mine a new block.
In Bitcoin’s early days, people were able to mine Bitcoin using personal computers and even their phones. Unfortunately, this is no longer the case as personal devices like desktops, laptops and smartphones simply don’t have enough computing power to offer a hash rate that is even remotely competitive.
As a result, Bitcoin mining now requires specialized mining devices called application-specific integrated circuits (ASICs). While these ASICs offer higher hash rates than personal computing devices, this hash rate comes at a cost and good ASICs can be quite expensive.
For example, the Antminer S9, a popular Bitcoin ASIC device, is currently listed on Amazon.com for over $1,000 (April 13, 2018). For many, that might be too high of an upfront investment cost to get involved in Bitcoin mining.
Potential miners should also keep in mind that purchasing just the device might not be enough. For example, the S9’s power supply unit is sold separately and adds an additional $120 or so to the device’s price.
Not only that but mining by yourself with one Antminer S9 likely won’t result in any profit despite the fact that the Antminer S9 is one of the most powerful miners on the market.
That is because Bitcoin mining is no longer a game for hobbyists but a game that has a lot of professional, large-scale operations such as “mining farms” in places like China, that are hard to compete with as a solo miner.
Even if you have a hash rate of 14 TH/s (the hash rate for an S9), mining pools, which are groups of miners that mine together and split profits, have hash rates as high as 7.64 EH/s (BTC.com mining pool hash rate as of April 13, 2018).
1 TH/s is 1 trillion (1,000,000,000,000) hashes per second, whereas 1 EH/s is 1 quintillion (1,000,000,000,000,000,000) hashes per second.
If BTC.com (the biggest Bitcoin mining pool) has a collective hash rate of 7.64 EH/s and you, as a solo miner using an Antminer S9, have a hash rate of 14 TH/s, that means the BTC.com mining pool has (7,640,000,000,000,000,000 / 14,000,000,000,000) = 545,714.286 times more hash rate than you. In layman’s terms, the mining pool are MUCH more likely to guess the correct nonce than you are.
Unless you can buy tons of Antminer S9s or other mining devices, which most people can’t afford, you simply cannot compete with large-scale mining pools and operations like BTC.com.
This hash rate limitation alone makes Bitcoin mining not worth it unless one joins a mining pool. By joining a mining pool such as BTC.com, miners can benefit from a higher collective hash rate and see more consistent mining rewards.
For example, as a solo miner using an S9, you might guess at the correct nonce once in a blue moon. However, the Bitcoin you earn every now and then (or more likely, never) would not be enough to make Bitcoin mining worth it because of overhead costs, such as electricity.
On the other hand, by joining a mining pool, with its higher collective hash rate, you might guess at the correct nonce more often. You will only be rewarded with a small amount of Bitcoin each time, as the pool shares the profit amongst its members. How they share the profit can vary as there are different payout models.
According to a review for the Antminer S9 on Amazon, by joining the right mining pool one can make up to 0.003 BTC (likely an optimistic figure) per day using an Antminer S9. At a Bitcoin price of $7,888.34 (April 13, 2018), that is about $24 a day or $720 a month.
While that sounds like some decent profit for Bitcoin mining, one has to keep in mind that overhead costs, such as energy costs, cooling costs and mining pool fees, could eat into that profit significantly or even make that profit into a loss.
Therefore, hash rate requirements alone could make Bitcoin mining less profitable or even unprofitable since one would have to purchase unbelievable amounts of hashing power to find nonces (as a solo miner) or join a mining pool (which would result in more consistent but smaller profits, unless one also contributes a lot of hash rate in a hash rate contribution-proportional payout system).
Overhead Costs (Energy Costs, Cooling Costs, Mining Pool Fees)
The upfront investment costs in computing power via hash rate alone could make Bitcoin impractical for many.
Another important factor that can determine whether or not Bitcoin mining is worth it for you is overhead costs, namely energy costs, cooling costs and mining pool fees (if you join a mining pool).
Bitcoin Mining Energy Costs
Bitcoin has received a lot of criticism lately because of how much energy Bitcoin mining consumes.
In November 2017, estimates put Bitcoin mining’s power consumption higher than that of the country of Ireland. The same article states that in 2018, Bitcoin mining will consume more energy than countries like Hungary and New Zealand. Another way to picture this energy consumption is that Bitcoin mining uses the same amount of energy per year as would be used by 1 million transatlantic flights.
Over the years, more and more people have tried to mine Bitcoin in an attempt to benefit from the boom in Bitcoin prices. However, as more and more people become miners, the difficulty of Bitcoin mining increases.
Indeed, the rise in Bitcoin price more or less correlates to the rise in Bitcoin mining difficulty. This is what has made Bitcoin mining require more and more computing power over the years, which also results in more and more energy consumption required to power that heavy computing.
Bitcoin’s insane energy consumption (and subsequent energy costs) is why most Bitcoin mining is based out of countries like China, where electricity is much cheaper than in other countries, especially more developed countries like those in Europe.
If you live in a country with high electricity costs such as South Korea, Bahrain, Denmark, Germany or Belgium, that factor alone could make Bitcoin mining not worth it.
However, if you live a country such as Venezuela, Paraguay, Ethiopia, Egypt, Serbia, Ukraine and Myanmar, where electricity is cheaper than in the countries listed above, Bitcoin mining could be worth it. Another alternative is using lower cost renewable energy, such as solar, wind and hydroelectric energy.
For example, as of December 18, 2017, it cost $3,224 to mine 1 Bitcoin in the American state of Louisiana. On the other hand, in the state of Hawaii, it cost $9,483 to mine a single Bitcoin. Even within a country, energy costs can vary greatly.
Bitcoin Mining Cooling Costs
Even if you live in a country where energy is cheap, another factor that could impact your Bitcoin mining profitability is cooling costs.
Given that Bitcoin mining devices perform very large amounts of computing, they run extremely hot when running at full power.
If you live somewhere that isn’t cold, you will likely have to invest in large amounts of cooling, such as air-conditioning and fans, which also have their own costs, both upfront and ongoing. Thus, cheap energy could be offset by hefty cooling costs.
This cooling requirement for Bitcoin mining has led to some mining operations moving to places, such as Iceland, which are naturally cool.
Mining in a naturally cool country can reduce Bitcoin mining overhead costs not just by eliminating the need for cooling solutions but also by lowering domestic heating costs, as the heat from Bitcoin ASICs can be redirected to heat homes and other places where people congregate.
Another benefit of mining in a cool region is that computer processors run more efficiently when they aren’t hot, further increasing the chances of mining profitability. Advanced miners take this one step further by undervolting or overclocking their ASICs, which can increase hash rate even further.
Bitcoin Mining Pool Fees
Bitcoin mining pool fees (if you join a mining pool) are another factor that could determine whether or not Bitcoin mining is worth it.
Though you can benefit from joining a mining pool by enjoying more consistent (albeit smaller) payouts, mining pools charge pool fees for their services.
These fees of course can eat into any Bitcoin mining profits and usually range in the 0-5% (of payouts) range.
Bitcoin’s price is another factor that affects profitability. 2017 was a huge year for Bitcoin as the price of a single Bitcoin increased about 20 times, from about $1,000 at the beginning of the year to a near $20,000 near the end of the year. Everyone who had Bitcoin benefitted, including Bitcoin miners.
Such large increases in Bitcoin prices could help offset Bitcoin mining overhead costs, such as energy costs, cooling costs and mining pool fees. Conversely, if the Bitcoin price drops, Bitcoin miners could suffer.
Furthermore, the Bitcoin mining reward per block is currently 12.5 Bitcoin for the lucky miner or mining pool that finds the correct nonce for a block. However, this mining reward halves every 210,000 Bitcoin blocks that are mined. The next time the mining reward is expected to half is around 2020.
This means that around the year 2020, Bitcoin miners will only be rewarded 6.25 Bitcoin per block that they mine. If Bitcoin’s value does not increase in proportion to the continuously lower Bitcoin mining reward, Bitcoin mining could no longer be worth it.
Indeed, as of April 13, 2018, the price of a single Bitcoin is $7,888.34 as mentioned. This price is a sharp decline from the near $20,000 price that Bitcoin reached towards the end of 2017.
If Bitcoin’s price continues to decline and/or does not increase, Bitcoin mining will be less and less profitable or perhaps not even profitable at all (at least for most involved).
Changes in ASIC Technology
While this factor can’t accurately be taken into current considerations unless you have insider information on ASIC technology developments, changes in ASIC technology can certainly have an effect on whether or not Bitcoin mining is worth it.
To elaborate, if ASIC technology improves and a new generation of ASICs is released that is more energy-efficient, amongst other things, the chances to profitably mine Bitcoin would increase.
In fact, the release of ASICs themselves changed the mining landscape completely by allowing miners to benefit from significantly increased hash rates.
Before ASICs became mainstream in Bitcoin mining, most people mined using graphics processing units (GPUs) or graphics cards (and before that central processing units or CPUs).
Even the best graphic cards at the time could only mine at a hash rate of 500 MH/s to 1 GH/s while using anywhere from 200-400 watts of electricity.
The first ASIC released by the company Avalon in 2013 completely shattered this graphics card paradigm as it could mine at a hash rate of 67.5 GH/s while using 600 or so watts of electricity. ASIC technology was a breakthrough in Bitcoin mining that increased mining hash rates by an order of 67.5 to 135 times overnight while barely increasing energy consumption!
While it’s improbable that such a huge breakthrough in Bitcoin mining technology will emerge again, it’s impossible to know and further advances in technology could have a positive effect on Bitcoin mining profits. In fact, current ASICs are more than 200 times more powerful than the early ones.
However, getting a higher Bitcoin mining hash rate in the form of improved mining devices would only further increase the Bitcoin network’s mining difficulty, which could offset such improvements in technology. Furthermore, improved mining devices might make older models obsolete, meaning that miners would have to invest in new technology, which of course costs money.
How Long You Will Mine Bitcoin
The amount of time you mine Bitcoin also plays a role in determining whether or not mining is worth it. For example, if you only mine for a few days, you’re not going to recoup the costs of buying a Bitcoin miner or Bitcoin miner(s).
Generally speaking, the longer you mine, the more Bitcoin you’ll earn in the long run, which plays a role in determining Bitcoin’s mining viability, as you’ll be able to recover mining investment costs and perhaps make lots of money down the line if the price of each Bitcoin increases greatly.
Mining Profitability Calculator
Now that you know the factors that affect Bitcoin mining’s profitability like hash rate, overhead costs, Bitcoin price, potential changes in mining technology and timeframe, it’s a good idea to estimate Bitcoin mining profits using mining profit calculators if you are considering becoming a miner.
While the calculators aren’t 100% accurate, they can give you a ballpark figure of what your Bitcoin mining profits (or lack of profits) may look like given factors, such as the Bitcoin mining difficulty, hash rate, Bitcoin price, Bitcoin block reward, mining pool fees, Bitcoin mining device costs, Bitcoin mining device energy consumption and energy costs.
We recommend comparing figures from all 3 calculators to get a more holistic picture of whether or not Bitcoin mining would be worth it.
There are a lot of factors such as hash rate, overhead costs, Bitcoin price, changes in technology and length of mining that all affect whether or not Bitcoin mining is worth it.
For most, Bitcoin mining isn’t worth it without acquiring large amounts of hashing power and cheap or free energy. In fact, many argue that an easier solution would just be to buy some Bitcoin and hope that the price goes up.
Alternatives one could consider include mining other cryptocurrencies such as Litecoin, Ethereum, Monero, Bitcoin Cash and others, which might show more of a profit, or cloud mining.
With cloud mining, instead of having your own physical mining operation, you pay a company to do the mining for you.
The more hash rate you pay to rent, the more expensive it is. Other companies may charge a monthly fee. Some may even require you to sign contracts, locking you into a cloud mining commitment.
However, cloud mining is rife with scams, and high costs may eat into profits (or even make your investment unprofitable). Indeed, most cloud mining operations aren’t even profitable. As such, it’s important to do due diligence before investing in any cloud mining operation.
Regardless, Bitcoin mining has changed significantly since the founder(s) Satoshi Nakamoto mined the first Bitcoin block, known as the genesis block, back in 2009.
What was once an activity open to hobbyists or individuals with some spare computing power has turned into a technological arms race with very serious players. Thus, you should really consider all the factors including hash rate, overhead costs, Bitcoin’s price, the technological landscape and mining time frame before deciding whether or not Bitcoin mining is worth it for you.