This is a big year for Bitcoin (BTC), not in the least because the famous cryptocurrency has seen its third halving ever since its release. What does this mean? For professional miners, the reward for solving transaction blocks halved from 12.5 to 6.25 bitcoin on May 11, 2020.
This “halving” is a process that occurs every four years with Bitcoin and, alongside the limited total number of bitcoins (21 million), is a way to safeguard its value and incentivize long-term adoption.
Had you mined bitcoin in 2010, you would have gotten no less than 50 coins for each verified transaction. In 2012, the 25-bitcoin reward became the operative number. Not bad, considering that mining was done with regular computers back then. Even though the next halving did not take place until 2016, things changed with the introduction of ASIC (application specific integrated circuits) miners in 2013.
Although important, professional mining hardware and the reward for completed blocks are just two pieces of the puzzle. The equation is a bit more complex and I’ll get into it below. Overall, mining is just not worth it anymore, not at the current value of BTC. Read the full story to find out why.
Crash Course on Bitcoin
Unless you’ve been living completely off the grid, you’ve likely heard about cryptocurrencies, perhaps even about Bitcoin in particular. The discussion on Bitcoin is extensive and complex, so I’m going to give you the rundown.
My summary won’t replace the tens of articles you’d have to read to understand how bitcoin really works, but it should be enough to give you an idea of what’s going on at the moment. In addition, it will help you get a better grasp of how Bitcoin mining profitability is calculated.
Although BTC has a definitive value, it’s not money in the same way that the US dollar, the Euro, or the British Pound is. It is a decentralized digital currency or, in other words, a cryptocurrency. At its basics, cryptocurrency is made of software and the promise that someone is willing to trade you something for it. By contrast, fiat currencies are made of paper plus the promise of a central bank that you can get something of value for it.
Launched at the end of the 2000s, it is speculated that BTC was a direct response to the 2008 financial crisis, since it offered an alternative to central financial institutions.
Instead of going through a bank, exchanges are done in a peer-to-peer manner and updated throughout by the entire network. If a transaction occurs, it is added to the record of BTC transfers, also referred to as the blockchain ledger, through the process of verification.
This is done in a quantitative manner, which means that, in theory, someone who controls at least 51% of the Bitcoin network could rig the system to spend the same amount of money twice. But 51% attacks are very unlikely given the total computing power of the network at this point and in the future. The Mt. Gox incident in 2014 can be seen as an example of this, since the Bitcoin exchange was handling over 70% of all transactions at the time.
Maybe if we get someone from the USS Enterprise to come back from the future with a quantum computer. I’ll leave that possibility out there. Outside of Mt. Gox, bitcoin theft usually only occurs because of wallets lacking in security.
Another implication of peer-to-peer cryptocurrency is that, even if you somehow destroy all traces of the BTC blockchain, the entire history of transactions will still exist so long as there’s one copy of it stored on one machine. And since the ledger is public, anyone can download it at any time.
Calculating Bitcoin Profitability
Some analysts predicted that the value of bitcoin would crash with the halving, since the cost of producing the same amount of the currency has effectively doubled. This was not the case. As it happened with the previous two halvings, there has been a continued worldwide demand for BTCs.
Bitcoin mining is the process of validating Bitcoin transactions. This is done by solving computational math problems. If a machine happens to solve a given series of transactions, it can add them to a ledger as a group (i.e. block), thereby contributing to the blockchain. To incentivize people to use their computing power in this manner, each successful completion of a block gives you a number of bitcoins, which is 6.25 as of right now.
Given the current value of BTC – roughly $9,340 – the notion may sound alluring. However, the more machines are involved in the process of mining, the more difficult it gets. To give you an idea of where the crypto started and how far it’s come, today it’s roughly 16 trillion times more difficult to mine than it was back when it was first released.
Before the introduction of ASIC miners, you could easily participate to the Bitcoin blockchain with your personal computer using your GPU or CPU resources. What makes miners different from regular PCs is the fact that their chips are designed to perform a single task, i.e. solve the calculations required by specific crypto currencies.
The specificity of ASICs allows for greater efficiency and mining power. Before you take money off your card, know that these intensive miners go from several hundreds of dollars up to $10,000 for the latest releases.
That said, how can you calculate Bitcoin mining profitability for your own circumstances? Well, it’s quite simple. You deduct the cost of mining from the price of Bitcoin. Other factors to consider include:
Cost of mining hardware if you buy a miner, which you absolutely should. Alternatively, with an RX 5700 XT GPU, you’d be making an average of $0.000004 per day and that’s if you pool your computing power with others. This is why ASICs changed the game.
Cost of power. Electricity is not affordable everywhere. Rates change from region to region, and even based on season. Consider your regular energy bill and see how much you have to pay for a kWh (kilowatt-hour). Miners from Southeast Asia and the Middle East, are advantaged by highly competitive prices.
Efficiency. Not all rigs are as efficient. Some provide better computational power per kWh.
Difficulty of mining. The more people mine bitcoins, the more difficult it is, which means it takes longer to solve a block, even for a factory full of professional machines.
Value of the crypto. Once you’ve got your bitcoins, it’s time to cash them in. The more money people are willing to spend for them, the more profitable the venture is.
If you’re looking for an example, the affordable (yet outdated) Antminer S9 will cost you an average of $8,000 at $0.04 per kWh until it yields 1 bitcoin, on average. Given that you can trade one for over $9,000, Bitcoin mining is still theoretically worth it.
However, in practice, the algorithm’s complexity is growing in leaps and bounds.
The odds of actually getting some for your investment are marginal unless you join one of the big pools (F2Pool, Poolin, BTC.com, etc.). Unfortunately, these will also charge a participation fee, usually 2%.
Is There Any Takeaway?
If you have a lot of capital to invest – and I mean the kind it takes to establish a mining mega center (in the lines of $500,000) – Bitcoin mining is still worth it. It’s difficult to say for how long, since the value of the crypto continues to fluctuate. In my opinion, the scarcity will only see it appreciate over time, but this means that you shouldn’t expect to see a good return on your investment anytime soon.
Otherwise, you’re better off waiting for a better price to buy some bitcoin yourself as an investment and sell it at a later date. But don’t take this as financial advice, because it’s not. It’s more of a Wall Street bet based on personal experience.
For the remainder of people who don’t have tens of thousands of dollars running through their pockets every month or those already in the game, Bitcoin mining is no longer worth it.