Cryptonomics 101 : Is Bitcoin Mining Profitable?

Each person intending to go into the Bitcoin mining world who is asking this will get a slightly different answer since Bitcoin mining profitability depends on many different factors, such as electricity cost, the cost of their hardware, exchange rates, and other variables.

Until May 2017, when the price of Bitcoins was still relatively low at around USD1.5k – USD2k per BTC, many non-enthusiasts have chosen to stay away from the crypto market and remained skeptics. The notion of mining Bitcoins out of ‘thin air’ was just unthinkable and still baffles a lot of non-crypto enthusiasts even till this day, often asking questions like, “How can cryptocurrencies have any value?”

Yet, everything changed when Bitcoins shot up in record-breaking spikes unprecedentedly from May to August by a whopping 233% to break USD5k at the height of its sharp climb. This caused a major commotion in the market which got everyone taking notice of Bitcoins and cryptocurrencies.

Suddenly, more and more began to enter into the crypto world, proven by the local Luno wallet provider’s statement that deposits via Ringgit Malaysia has risen significantly, which added to the hype that helped skyrocket the price of Bitcoin. From trading to investing in ICOs, the word that is again going around in the market recently is about Bitcoin mining. What people are asking these days is, “Is mining Bitcoin profitable in 2017 and beyond?”

The short answer would be, “It depends on how much you’re willing to spend”. Each person intending to go into the Bitcoin mining world who is asking this will get a slightly different answer since Bitcoin mining profitability depends on many different factors, such as electricity cost, the cost of their hardware, exchange rates, and other variables.

Of course, the thought of creating Bitcoins out of ‘thin air’ sounds awesome these days, as it is increasingly becoming easier for cryptocurrencies to be interchangeable with our Fiat currencies through the many exchanges readily available in the market.

Yet, there are a few things the potential ‘miner’ must consider before pouring in those hard-earned investment startup cost before one even proceeds to mining.

Hash Rate

A Hash is the mathematical problem the miner’s computer needs to solve. The Hash Rate is the rate at which these problems are being solved. The more miners that join the Bitcoin network, the higher the network Hash Rate is. The Hash Rate can also refer to your miner’s performance. Today Bitcoin miners (those with super powerful computers) come with different Hash Rates. A Miners’ performance is measured in MH/s (Mega hash per second), GH/s (Giga hash per second), TH/s (Terra hash per second) and even PH/s (Peta hash per second).

Bitcoins per Block

Each time a mathematical problem is solved, a constant amount of Bitcoins are created. The number of Bitcoins generated per block starts at 50 and is halved every 210,000 blocks (about four years). The current number of Bitcoins awarded per block is 12.5. The last block halving occurred on July 2016 and the next one will be in 2020.

Bitcoin Difficulty

Since the Bitcoin network is designed to produce a constant amount of Bitcoins every 10 minutes, the difficulty of solving the mathematical problems has to increase in order to adjust to the network’s Hash Rate increase. Basically this means that the more miners that join, the harder it gets to actually mine Bitcoins.

Electricity Rate & Power Consumption

Operating a Bitcoin miner consumes a lot of electricity. You’ll need to find out your electricity rate in order to calculate profitability. Each miner consumes a different amount of energy. Make sure to find out the exact power consumption of your miner before calculating profitability.

Pool Fees

In order to mine you’ll need to join a mining pool. A mining pool is a group of miners that join together in order to mine more effectively. The platform that brings them together is called a mining pool and it deducts some sort of a fee in order to maintain its operations. Once the pool manages to mine Bitcoins the profits are divided between the pool members depending on how much work each miner has done (i.e. their miner’s hash rate).

Profitability decline per year

This is probably the most important and elusive variable of them all. The idea is that since no one can actually predict the rate of miners joining the network no one can also predict how difficult it will be to mine in 6 weeks, 6 months or 6 years from now. This is one of the two reasons no one will ever be able to answer you once and for all “is Bitcoin mining profitable ?”.

Conversion rate

Since no one knows what the BTC/USD exchange rate will be in the future it’s hard to predict if Bitcoin mining will be profitable. If you’re into mining in order to accumulate Bitcoins only then this doesn’t need to bother you. But if you are planning to convert these Bitcoins in the future to any other currency this factor will have a major impact of course.

Personally, I do believe in Bitcoin mining, only if you have long term planning, and willing to invest a considerable amount of money in a good mining rig. It may take you a year before you can recuperate your startup investment, which will then compound itself with greater challenges year on year. So, if you don’t have the time nor the money, my advice is to stay away from mining and just invest in buying Bitcoins for the long run.