Bitcoin Mining: Is It Still Profitable?

Mining remains one of the most essential parts of cryptocurrency and blockchain technology. Without it, the entire system would collapse since it is used to verify data. Back in the day, Bitcoin mining was considered one of the most profitable ways to enter the markets.

But with all the other use-cases and ways to earn money in the space today, has mining taken a backseat?

And the question remains, is Bitcoin mining still profitable?

In the past, people interested in mining Bitcoin as a hobby could mine dozens of Bitcoins in a short span of time, right from their home computers. Of course, Bitcoin wasn’t worth as much as it is today, and home PCs can’t compete with the high-powered hash rates of application-specific integrated circuits (ASICs) – but the profitability structure back then is relatively similar to what it is today: Mine Bitcoin at a price that’s less than BTC spot price, and you make money…

Or hold the BTC and sell it once the spot price is greater than the cost of mining.

Fast forward to 2022 and with the right mining equipment and energy agreements, crypto mining is still profitable. In some cases, its highly profitable.

But it can be a much more complicated process than it used to be. When you understand the complexities, you can open the door to another opportunity outside of doing it yourself.

How Bitcoin Mining Works

Each transaction on the Bitcoin blockchain gets stored in a public ledger. To finalize that transaction, miners have to verify it using cryptographic computations. They use their computers to try and solve complex mathematical equations. When multiple people arrive at the same conclusion, they verify the data and then send it to the ledger.

The miner who computes the equation first gets rewarded with Bitcoin. At its current rate, all Bitcoins will be mined out by May of 2140.

So there is still over 100 years’ worth of Bitcoin mining left to complete.

The difference with Bitcoin today is that its supply is scarcer compared to its supply when it first launched. Satoshi Nakamoto, the Bitcoin creator, intentionally placed a cap on the protocol. To avoid draining the stash, the amount of Bitcoin blockchain equations miners can solve actually lowers over time, a process known as Bitcoin halving.

However, it’s not all bad when you can’t mine Bitcoin at the same speed and volume as in the past. The halving contributes to the scarcity, makes solving equations more difficult, and helps push the price of Bitcoin higher. Even if you can mine less Bitcoin today, the increased scarcity and value means it can still be highly profitable.

Now, miners can also gain income through transaction fees when owners transfer BTC to one another. They have the assurance because every transaction on the blockchain is copied to every machine operating in the network; meaning every move is verified on the ledger.

The challenge is that mining now requires more energy than ever. Not only that, but you also need specialized machines that are optimized to mine consistently. They require large spaces and lots of energy to run. As mentioned above, these machines are called ASICs, and their sole purpose is cryptocurrency mining.

As Bitcoin mining evolved, businesses created operations with the sole function to mine Bitcoin. These businesses have facilities that house and maintain complex mining rigs, and many have agreements with energy producers to mine at a lower cost than the electricity price homeowners pay.

The Competitive Nature of Crypto Mining

As mentioned earlier, cryptocurrency mining requires specialized computers dedicated to solving ever increasingly complex equations. These machines are expensive as they require skilled labor and expensive parts to increase computational power. The demand for high-end mining rigs has significantly increased, and due to supply chain issues, the market to produce them has yet to catch up…

Making them even more expensive.

Every mining company desires more computational power. The more you have, the higher the chance of you scoring the Bitcoin puzzle and its reward. In early 2022, Bitcoin mining produced around $41 million worth of rewards, daily.

To get mining profits means that the returns you get must outweigh the energy, infrastructure and labor costs incurred.

Mining Difficulties

Compared to when Bitcoin first launched, it’s now perhaps millions of times more difficult for hobbyists using PCs and Graphics Processing Units (GPUs) to get a Bitcoin reward. One of the factors influencing this is the rise of ASICs and their superior computing power.

Simply put, ASICs can solve the Bitcoin equations faster, leaving other processors in the dust.

There have been some adaptations by small self-miners to stay competitive. Many people buy ASICs on the market, though they cost anywhere from a few hundred dollars for “used” ones, to well above $10,000 for new, efficient ones. For potential home miners, it’s essential to analyze profitability first before getting into mining.

You’ll need to factor in:

  • Market rates: Is the current Bitcoin price worth the investment in computing power, right now?
  • Time: How much time will you need to maximize your chances of getting a block of Bitcoin?
  • Energy: Will your setup become profitable when you factor in the costs of power? Remember, unlike Bitcoin mining and hosting companies, you’re probably not going to get a deal on your electricity bill.

Because of how energy and Bitcoin values change over time, mining profitability analysis is necessary to see if it’s worth it. There are other factors to consider, like transaction rewards, though the values above will be the ones you’ll refer to the most.

A Solution for the Individual Miner: Mining Pools

One of the adaptations individual or home miners may have to make is to band together and combine computing power with others to profit. These groups are called mining pools, and they offer small miners a better chance at Bitcoin rewards than simply going it alone. However, this too requires projections and analysis of cost versus benefit. Those who participate in the pool can profit depending on how much they’ve contributed. Of course, joining a mining pool isn’t free.

If you want to join a mining pool, you’d have to consider the following factors:

  • Reputation: Have there been any issues of theft or unpaid rewards for pool contributors? Joining established pools can mitigate the risk and help you find the reliability you need.
  • Transaction Fees: Those who maintain the mining pools may charge fees taken from your profits. They can be anywhere from 0-4%, so always ask first before joining.
  • Pool size: The larger the pool you join, the more you stand to potentially profit. Larger pools mean more computing power (hash rate), which increases your odds of competing against Bitcoin mining and mine hosting companies.

There are also options for those looking more into the investment side of Bitcoin mining. You can invest money into a company that manages and maintains large-scale mining pools. Instead of contributing your rig directly, you pay them, and they will handle all aspects of operating.

One of the benefits of joining a company like this, is you won’t have to worry about all the finer details of running a mining operation. However, this option may result in higher fees, and you generally only get rewarded based on your monetary contribution to the pool.

Bitcoin Mining and Hosting Farms: An Alternative in the Cryptocurrency Market

Bitcoin mining can be a lucrative endeavor. In today’s environment, however, you’ll need significant investment if you do it yourself. Mining requires powerful computers that can solve puzzles with speed and efficiency. And they’re incredibly expensive.

Individual miners are becoming a thing of the past, replaced by pools, farms and mine hosting companies.

Bitcoin mining farms, or Bitcoin mine hosting companies may produce profits for you without the need for infrastructure investment, or the technical know-how to compete for Bitcoin rewards.

These farms and hosting companies account for the costs, benefits, and other factors needed to make the farm successful. And of course, many of them have agreements with energy producers that give them cheaper rates than homeowners.

Many Bitcoin mining and mine hosting companies are publicly traded on the US stock markets. By investing in these companies, you generally don’t have to worry about infrastructure issues, energy costs or even labor. It’s the sole job of these companies to handle all of it, while offering shareholders the benefits of their work.