Is today a good time to mine Bitcoin?
With the increasing popularity and professionalization of Bitcoin mining, the debate about it being worth it or not has arisen in the last few months. However, after all the recent events, this question now has a very clear answer.
The basics of Bitcoin mining and profitability
Understanding Bitcoin mining and how to make money through it can be complex, especially for newcomers to the cryptocurrency ecosystem.
Many factors can affect your performance as a miner, some more important than others. The most relevant factors people have to consider when setting up a mining operation are:
- Bitcoin’s price: Of course, when you start mining, the revenue you’ll earn will be in BTC, which is why its price is a major factor in determining your profits in dollars or any other fiat currency.
- Global hashrate and mining difficulty: Mining is a competitive activity by nature. It was designed to be like that to keep the network secure. That is why the more people are mining Bitcoin, the harder it is to do so. The network automatically adjusts mining difficulty every 2016 blocks — roughly two weeks — proportionally to its global hashrate. It’s essential to consider this metric as it will affect your revenue as a miner: The higher the difficulty, the higher hashrate is needed to mine a block. And since your mining power is constant, your share of the total hashing power decreases relatively when the network’s hashing power increases. Nonetheless, miners can enjoy mining at lower difficulties thanks to mining pools.
- Cost of electricity: The most significant expenditure when it comes to Bitcoin mining is the electricity bill. Mining hardware is power-intensive, which is why larger enterprise-level mining operations tend to settle down on locations that offer cheaper electricity.
Hashrate and difficulty adjustments
Only a few months ago, the dominance of China-based mining pools was indisputable. According to the University of Cambridge, the country concentrated 65% of the global hashrate. Primarily because it’s home to the largest manufacturers of mining equipment, but also massive mining farms settled down there to take advantage of extremely cheap electricity prices.
Then, the China mining crackdown happened. Concerned about the environment and energy shortages, the Chinese government banned many energy-intensive activities, Bitcoin mining included.
As we’ve said, mining difficulty is proportional to the amount of hashrate working on the network. Now, imagine the drop in difficulty when half the miners go offline from one day to the next. Indeed, Bitcoin’s difficulty underwent its most significant adjustment in history, falling from 19.9T to 14.3T. That’s almost a 25% drop.
Now, although some migrating Chinese miners have found new homes and started to come back online, most still haven’t. Difficulty has recovered to 18.4T, but it’s still very far from its 25T all-time high. And it will probably take months to reach that level again. This opens up a window for an extremely rare mining profitability epoch.
So, is it worth it?
To add some perspective, the last time mining difficulty was at similar levels to today was in November 2020. By that time, Bitcoin was trading around $18,000. Now, it is worth $44,000. That means that for the same effort and hashrate output it took you ten months ago, you can now mine Bitcoin for ~245% more revenue — as long as you measure it in US dollars.
In fact, the hashprice index — a metric that tracks the value of hashrate units, or, in other words, the daily revenue in US dollars obtained from terahashes per second (TH/s) — is close to its three-year highs.
Not only that, but if Bitcoin continues its bullish trend and its price rises faster than hashrate keeps returning to the network, profitability will keep improving. A scenario that doesn’t seem too unlikely, given the current shortage of mining hardware, the traveling restrictions due to the coronavirus pandemic, and the bottlenecks and rising costs of the logistics industry. Additionally, although most companies have started developing it, few locations can provide proper mining infrastructure and space to receive Chinese miners.
All this has led to a rising interest in Bitcoin mining from investors and the general public, translated into the surge of mining companies’ stocks and overwhelming demand for mining equipment.
So, short answer: yes. This is one of the best opportunities in history to start mining Bitcoin.
Is a new era of domestic mining starting?
Back in the day, when Bitcoin wasn’t the global phenomenon it is today, people could mine it from their regular PCs.
As its popularity grew and new miners connected to the network, specialized equipment was required. First, it was custom computers built with several graphic-processing units or GPUs with greater mining capabilities.
GPU mining rigs’ dominance didn’t last long. Bitcoin became the best performing asset in the last years, and an industry started to take shape around it. Hardware manufacturers started building high-performance equipment called ASICs, whose only purpose was to mine Bitcoin. Simultaneously, professional mining companies emerged, pouring large amounts of capital into mining.
With the advent of professional mining and the consequent increase in difficulty, it became virtually impossible for solo miners to turn a profit. Even when joining a pool, mining was too risky for retail and small investors. Mining became more difficult than ever, and Bitcoin’s price was lagging behind. Even during the 2020’s bull market and the new Bitcoin all-time high.
Now, with the global mining landscape rearranging itself, the technological advances of new mining equipment, and the availability of cleaner and cheaper sources of energy, domestic mining could be primed for a new golden era.
At Titan, we certainly hope so. We believe decentralization is a critical aspect of Bitcoin, and a new spike in retail, domestic mining would be a significant step towards it. But for it to happen, we need to provide miners with as many tools and options as possible to stay profitable and sustainable.
That is why we’re building the Lumerin Protocol, a decentralized, peer-to-peer network to make hashrate an easily accessible and tradeable commodity and provide miners with several hedges against the many variables that impact mining profitability.
Want to learn more? Make sure to visit our website.
Titan is actively working to optimize mining and make proof-of-work cryptocurrencies more accessible and democratic. If you liked this story, make sure to subscribe to our blog and sign up for our weekly newsletter. You can also visit our social media through the links below. We’ll be glad to have you!
