The Bitcoin business mining model; commercial enterprise or side business?
Thinking of starting a bitcoin mining operation from the comfort of your home? We’ve done some research and found out what it takes to set up a bitcoin mining business that is profitable for you.
But first, what is Bitcoin mining?
Simply put, Bitcoin mining is the process by which new blocks containing transaction data are formed and secured on the blockchain network. Mining serves the double purpose of creating new blocks and verifying their authenticity so that double spending of Bitcoin is avoided.
The way the blockchain forms new transactions or blocks is by using a computer’s processing power to solve complex mathematical problems, ones that cannot be solved by human hand in the time required to form a block.
This means that you, the miner, have to run your computer using your hash rate (we will explain what hash rate is in more detail later) and compete with other miners to solve for blocks
For this, Bitcoin miners receive their payment in the coins itself
(The current reward amount is 6.25 bitcoins. The price of bitcoin at the time of writing this article was 41,351$ which would make the total value of the reward amount 259,568.75$.)
(Edit : The price has now dropped to 40,861.90$. This would make the reward amount 255386.875$)
Before you go and try to mine bitcoin yourself, there are still a few issues that come with trying an enterprise of this kind.
The power required to power such an operation like this is very high. According to calculations from www.minerdaily.com using mining pool data, you would need 86,509 kWh (That is, kilowatt hours) to make one bitcoin. When you compare this to the average use of 11000 kwh for an average US household per year, this amount clearly stretches into a commercial expense, not a domestic one.
Furthermore, when we take into account these two factors; the cost of your GPU (Graphics cards are used for computing power) may be high due to increased demand for these machines; the actual event of mining a bitcoin is actually a hit and miss, not a guarantee. (More on that later.) The profitability in all this can seem faraway.
Some of the barriers to make money from cryptocurrency mining
- GPU’s can be expensive due to increased demand
- Higher energy bills
- Overestimating the profitability of the bitcoin mining reward system
- Bitcoin’s volatile price movements
What are hash functions and hash rate? Why do they matter?
Hash rates are important to understand because they determine your overall chances of successfully securing a block.
Here’s an analogy; if the complex mathematical question to form the block is the problem, then the hash rate is number of attempts made to solve it. More specifically, the hash rate is the amount of computational power used per second. When mining the higher your hash rate, the better. This shows that there is a definite link between your hash rate and the chances of securing a bitcoin or other cryptocurrency.
The main issue here with mining becomes more clear. When one starts mining, they’re still operating on probabilities. Having better machinery and a higher hash rate is good for improving your chances of creating (and securing) a block on the blockchain, but the time taken to realise some gains on investment can still vary. Two people could have the same machine (and hash rate) and pay the same energy costs but because they’re in competition with each other, one gets there quicker and gets the reward.
If you were to start, how long would you take to break even on investment?
We’ve pulled some data from www.tomshardware.com and the numbers show that you’ll at-least be spending more than a year to recoup on your investment.
We’ve arranged the information for you in terms of
— Price (Taken from E-bay)
— Days to break even (Approx)
1.) GeForce GTX 1060
400 days to break even
2.) Radeon RX 5700 XT
450 days to break even
3.) GeForce GTX 1080 Ti
500 days to break even
4.) Radeon RX Vega 56
550 days to break even
5.) GeForce RTX 3060 Ti LHR
600 days to break even
6.) Geforce RTX 3070 LHR
700 days to break even
7.) GeForce RTX 3080 Ti LHR
750 days to break even
(Please note that the prices are from E-bay. Prices in locations like Dubai will vary in at-least some of the models.)
The list on the website is much bigger than this, and we recommend you visit it if you’re interested in starting a crypto-mining business. (Best Mining GPUs Benchmarked and Ranked | Tom’s Hardware (tomshardware.com))
Mining crypto holds potential, but proceed with caution (Or try a mining pool)
For entrepreneurs, dabbling in ventures that are new and exciting like crypto mining seems the way to go; but it’s clear that mining bitcoin and other crypto is a very expensive affair to have as a side business. If you’re still determined to make money in this space but want a more regular income, mining pools come off as a safer alternative.
A group of miners can come together and pool their computing resources to mine more bitcoin and share the gains made as a whole. But before joining a mining pool, have a look at whether there is a split of the money made.
The split can happen based on computing power (hash rate) or not at all. Some mining pools are used just for the server infrastructure like in this article without any sharing of the rewards for mining bitcoin. (How Small Solo Miners Solve Bitcoin Blocks — Bitcoin Magazine: Bitcoin News, Articles, Charts, and Guides)
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