Bitcoin mining is a process that rewards people for verifying transactions on the bitcoin network by giving them new bitcoins. That’s how two siblings, ages 14 and 9, earned more than $30,000 in a month from mining three different cryptocurrencies in 2021.
But while this story may be compelling, it’s important to note that bitcoin mining isn’t worth it for everyone. In fact, total revenues earned from bitcoin mining are down a little more than 42% year-over-year as of August 5, 2022.
Let’s look into whether bitcoin mining is worth the effort and explore how you would mine it if you decided to pursue this opportunity.
What is bitcoin mining?
The only way to add new bitcoins to circulation is through the process of mining. This is a process that verifies new data blocks that carry transaction information by solving complex cryptographic puzzles using computers. The people who run these computers then earn bitcoin as a block reward.
If you mine bitcoin, you will use your computing power, or hash rate, to generate codes in the hope of unlocking the right code to verify the bitcoin transactions on the block and add them to the blockchain. This system is known as proof of work, and it provides a reward when you mine a new block.
Did you knowAs of August 12, 2022, the reward for successfully mining a block is 6.25 bitcoins (BTC), amounting to $158,455.
That might sound like a lot of money. However, bitcoin mining is a competition, with many other users attempting to mine the same blocks. The first bitcoin miner to find the block gets the reward, which means people with higher computing power stand more of a chance.
This system has led people to combine their computing power and share the rewards in what is known as mining pools, providing a way of investing money in computing power with an improved chance of profit.
Is bitcoin mining profitable?
Mining computers, more widely known as rigs, are designed specifically to mine cryptocurrencies and often come at a high cost. This means that for bitcoin mining to be worth your time and investment, you’d need to make a decent enough income to pay both the initial cost of your rigs and the recurring costs of running and maintaining them.
There are several factors to consider as you decide whether bitcoin mining makes sense for you or whether you’re better off learning how to buy cryptocurrency from an exchange.
Consider the difficulty of mining
As the price of bitcoin began taking off, so did the interest in mining it. People started building more advanced mining rigs, which caused mining difficulty to skyrocket. Increased difficulty in bitcoin mining began trending much higher beginning in 2018.
A slight reprieve to the mining difficulty occurred in the summer of 2021, following China’s ban on cryptocurrency mining. The ban took place in June 2021, and the difficulty had somewhat dropped by the end of July. However, the difficulty of mining bitcoin began a steady increase after July 2021 and reached a new, all-time high in May 2022.
Before you start mining bitcoin, consider the cost to get started. It may cost thousands of dollars to build competitive mining hardware. You may not see a return on this investment since the high mining difficulty means you may never successfully mine a block.
Take reward halving into account
Bitcoin is set up so that the reward for mining a block is halved every 210,000 mined blocks, or roughly every four years. The first bitcoin mining reward was 50 bitcoins. The last halving — the third in bitcoin history — happened in 2020, bringing the reward down to 6.25 bitcoins. The next bitcoin halving would drop the reward to 3.125 bitcoins, which is expected to occur in 2024.
If you’re solo mining and find a block, you would make over $150,000 as of August 12, 2022. However, that amount would be distributed among the participants if you're in a mining pool.
As you consider whether to spend money building a mining rig, it’s essential to acknowledge that you might not be able to find a block before the next halving. You need to consider the cost of electricity and equipment upgrades — on top of the initial financial cost of your equipment.
There is a maximum limit to bitcoinReceiving reward blocks is expected to continue until 2140, when the total number of bitcoins reaches the maximum possible number of 21 million.
Estimate the profitability
As you consider whether bitcoin mining is worth it for you, don’t forget to consider potential profitability. First, consider how much it costs to build a mining rig or create a mining machine that could be added to a mining pool.
Depending on the model you get, it may cost thousands of dollars to buy a mining rig. The actual mining cost depends on how many you purchase and your electricity costs. It’s also possible to rent machines at a server farm, but you would also include the rent cost in your profitability calculation.
While the bitcoin price reached more than $65,000 in 2021, it sits at a little more than $24,000 as of August 12, 2022 — less than half its all-time high. Depending on your electricity and equipment costs, it might not be profitable.
Bitcoin mining is difficultBy some estimates, the odds of mining a bitcoin block on your own is 1 in 1.3 million, which reduces potential profitability over time.
Study the risk
Finally, consider the risks involved with bitcoin mining. First, the odds of mining a block on your own may be fairly low. So, you should consider whether it makes sense to join a pool. There are reputable mining pools out there, but you still risk being scammed or not getting paid when you join a pool.
Keep in mind that cryptocurrencies might not achieve widespread acceptance. Bitcoin price could continue to fall, reducing the chances that you’ll make back the money you invest in mining.
Government regulation may also impact your profitability and increase risk. Adjustments to how cryptocurrency is treated might introduce changes to tax policies that reduce your profits. Additionally, the perceived need for independent cryptocurrencies would change if the Federal Reserve and other central banks decide to issue their own cryptocurrencies.
You might decide that mining a different cryptocurrency is a more profitable proposition. Study the requirements and decide whether bitcoin mining makes sense for your situation.
How bitcoin mining works
You can attempt to mine bitcoin on your own or you can pool your resources with other crypto miners if you can’t afford strong enough mining rigs on your own.
Mining bitcoin: the solo version
Bitcoin mining is very different in 2022 compared to how it was a decade ago. In 2012, I was able to mine bitcoin using a regular computer. In fact, all I needed was my regular desktop, outfitted with a run-of-the-mill graphic card or graphics processing unit (GPU).
While there were other ways to mine bitcoin at the time, the number of people mining bitcoin was small enough that I could still be somewhat competitive as an individual miner, and I managed to find a block during that time.
Starting in 2013, though, miners began to shift to using a specific type of computer chip known as application-specific integrated circuits (ASICs). These ASIC miner units were specifically designed to quickly solve the complex algorithms used in mining.
With millions of people mining, a single computer, or even a single ASIC mining unit, might no longer be sufficient. You may need to purchase several circuits and compatible GPUs to have a successful mining operation.
Even successful miners, such as the two Texas siblings who started a mining operation in 2021, use 97 ASIC and GPU mining units for their business. Their dad had to take out a loan to fund the equipment purchase.
Once you have the necessary equipment, you need to set it up and install the mining software. This step is necessary before you can begin mining and may require technical knowledge. However, it may be a while before you mine any blocks since many other people are competing at the same time.
Mining bitcoin: the pool party
Another option to mine bitcoin is to build your rig and then join a bitcoin mining farm or pool. This may help you reduce your initial expenses since your rig wouldn’t need to be as powerful. It may also increase your chances of receiving a bitcoin reward for your mining effort.
In a bitcoin mining pool, you would contribute your computing power to a network of miners. By combining computing power, everyone in the pool increases the chance that one of the miners will discover a block. Once a block is discovered, the reward payout is divided among the participants, often based on the proportion of the processing power contributed.
Depending on the mining pool, payouts might be received daily or when a block is discovered. However, since there is no guarantee that you’d receive your payout, you should carefully choose the mining pool you join to avoid potential scams and unreliable pools.
FAQs about bitcoin mining
How long will it take to mine one bitcoin?
You don’t mine a single bitcoin. Instead, you use computing power to solve complex puzzles and mine blocks. The miner that finds the block receives a number of bitcoins as a reward, currently amounting to 6.25 bitcoins. A block is mined every 10 minutes, which roughly translates to one new bitcoin every 90 seconds.
Is bitcoin mining legal?
Bitcoin mining is legal in the United States. However, some countries, such as China, have banned bitcoin mining. Before you can begin mining bitcoin, it’s essential that you confirm its legal status in your country.
How many bitcoins are left to mine?
The maximum number of bitcoins that can be created is 21 million. There are a little more than 19 million bitcoins in circulation as of August 2022. That means there are less than 2 million bitcoins left to mine.
Bitcoin mining has become increasingly difficult and expensive. Depending on your situation, learning ways to buy bitcoin and purchasing a portion of a bitcoin from one of the best cryptocurrency exchanges might be an easier way to acquire bitcoin than through mining.
Other cryptocurrencies might be easier to mine, especially when you join a mining pool. Some cryptocurrencies, such as ethereum, don’t depend on computing power. They instead use a system known as proof of stake to enable people invested in the blockchain integrity to verify transactions.
Carefully consider your situation, do your research, and decide whether mining and its costs may yield actual profits for you.
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