The short answer is yes. The long answer… it’s complicated.
Bitcoin mining began as a well paid hobby for early adopters who had the chance to earn 50 BTC every 10 minutes, mining from their bedrooms. Successfully mining just one Bitcoin block, and holding onto it since 2010 would mean you have $450,000 worth of bitcoin in your wallet in 2020.
Ten years ago, all you needed was a reasonably powerful computer, a stable internet connection and the foresight of Nostradamus. These days, thanks to industrial bitcoin mining operations, it’s not such a level playing field and for a lot of people it makes more sense to simply buy some bitcoin on an exchange like Coinbase.
f you’re motivated to learn, and you want to get a semi-passive income of bitcoin, then there are a few basics to get your head round, before working out if it’s even possible for you to profit from bitcoin mining.
Mining is the backbone of all proof-of-work blockchains and can be described with three key concepts:
The verification and addition of transactions to the public blockchain ledger. This is where you can view every single transaction that has ever occured in the history of the blockchain.
Proof -of-work calculations
The energy-intensive puzzle that each Bitcoin mining machine solves every ten minutes. The miner that completes the puzzle before anything else adds the new block to the blockchain.
Bitcoin Block Reward
Rewarded with 6.25 bitcoins. This number will reduce to 6.25 bitcoins after the halving in May 2020. The reward (plus transaction fees) are paid to the miner who solved the puzzle first.
This process repeats approximately every 10 minutes for every mining machine on the network. The difficulty of the puzzle (Network Difficulty) adjusts every 2016 blocks (~14 days) to ensure that on average one machine will solve the puzzle in a 10 minute period.
Network difficulty is calculated by the amount of hashrate contributing to the Bitcoin network.
What is Hashrate?
Hashrate is a measure of a miner’s computational power.
In other words, the more miners (and therefore computing power) mining bitcoin and hoping for a reward, the harder it becomes to solve the puzzle. It is a computational arms race, where the individuals or organizations with the most computing power (hashrate) will be able to mine the most bitcoin.
The more computing power a machine has, the more solutions (and hence, block rewards) a miner is likely to find.
In 2009, hashrate was initially measured in hash per second (H/s) - Due to the exponential growth of mining, H/s was soon commonly pre-fixed with the following SI units:
Kilohash = KH/s (thousands of H/s), then
Megahash = MH/s (millions of H/s), then
Gigahash = GH/s (billions of H/s), then
Terahash = TH/s (trillions of H/s), and even
Petahash = PH/s (quadrillions of H/s).
When you consider how many TH/s there are in the entire Bitcoin network though, you get a true sense of the scale of the industry:
85 Exahash = 85000000 Terahash
That means in May 2020 the daily revenue, globally, for Bitcoin mining is: $8.45M
How do Bitcoin miners calculate their earnings?
You’ve probably heard the scare stories about Bitcoin mining’s energy consumption.
Regardless of whether the impact is overblown by the media, it’s a fact that the underlying cost of mining is the energy consumed. The revenue from mining has to outweigh those costs, plus the original investment into mining hardware, in order to be profitable.
In 2020, one modern Bitcoin mining machine (commonly known as an ASIC), like the Whatsminer M20S, generates around $8 in Bitcoin revenue every day. If you compare this to the revenue of mining a different crypto currency, like Ethereum, which is mined with graphics cards, you can see that the revenue from Bitcoin mining is twice that of mining with the same amount GPUs you could buy for one ASIC. Thirteen AMD RX graphics cards cost around the same as one Whatsminer M20s.
You can think of it as though the miners are a decentralized Paypal. Allowing all the transactions to be recorded accurately and making a bit of money for running the system.
Bitcoin miners earn bitcoin by collecting something called the block reward plus the fees bitcoin users pay the miners for safely and securely recording their bitcoin transactions onto the blockchain.
What is the Block Reward?
Roughly every ten minutes a specific number of newly-minted bitcoin is awarded to the person with a mining machine that is quickest to discover the new block.
Originally, in 2009, Satoshi Nakamoto set the mining reward at 50 BTC- as well as encoding the future reductions to the reward.
The Bitcoin code is predetermined to halve this payout roughly every four years. It was reduced to 25 BTC in late-2012, and halved again to 12.5 BTC in the middle of 2016.
Most recently, in May 2020, the third Bitcoin halving reduced the block reward to 6.25 BTC.
What about transaction fees?
The second source of revenue for Bitcoin miners is the transaction fees that Bitcoiners have to pay when they transfer BTC to one another.
This is the beauty of Bitcoin. Every transaction is recorded in an unchangeable blockchain that is copied to every mining machine.
Bitcoin doesn’t rely on a central bank to keep records, it’s the miners themselves that keep the records, and they get to keep a share of the transaction fees as well.
How do you know if you can profit from Bitcoin mining?
First of all, Bitcoin mining has a lot of variables. This is why buying bitcoin on an exchange can be a simpler way to make a profit. However, when done efficiently it is possible to end up with more bitcoin from mining than from simply hodling.
One of the most important variables for miners is the price of Bitcoin itself. If, like most people, you are paying for your mining hardware, and your electricity,- in dollars, then you will need to earn enough bitcoin from mining to cover your ongoing costs; and make back your original investment into the machine itself.
Bitcoin price, naturally, impacts all miners. However, there are three factors that separate profitable miners from the rest: cheap electricity, low cost and efficient hardware and a good mining pool.
1. Cheap Electricity
Electricity prices vary from country to country. Many countries also charge a lower price for industrial electricity in order to encourage economic growth. This means that a mining farm in Russia will pay half as much for the electricity you would mining at home in the USA. In places like Germany, well as you can see from the chart, that’s another story.
In practical terms. Running a Whatsminer M20S for one month will cost around $110 a month if your electricity is $0.045 kWh in somewhere like China, Russia or Kazakhstan.
2. Efficient Hardware
So far in this article I’ve used the Whatsminer M20S as an example of the kind of machine you will need to mine bitcoin. These days there are several hardware manufacturers to choose from.
The price of hardware varies from manufacturer to manufacturer and depends largely on how low the energy use is for the machine vs the amount of computing power it produces. The more computing power, the more bitcoin you will mine. The lower the energy consumption the lower your monthly costs.
When choosing which machine to invest in, miners should think about the machine’s profitability and longevity.
If the hosting cost is low enough, it often makes sense to prioritize the ‘price per TH’ over ‘watts per TH’, as your lower operational expenses (OpEx) will make up for the loss in your machine’s efficiency - and vice versa if your hosting costs are high.
The manufacturer with the lowest failure rate right now is MicroBT, who make the Whatsminer M20S and other Whatsminer models.
One useful way to think about hardware is to consider what price BTC would have to fall to in order for the machines to stop being profitable. You want your machine to stay profitable for several years in order for you to earn more bitcoin from mining than you could have got by simply buying the cryptocurrency itself.
The following table shows that the majority of the most modern machines could remain profitable at a bitcoin price between $5000 and $6000. Some machines could handle a drop below $5k, if they are being run with electricity that costs under $0.05 kWh.
Unfortunately most older machines are now no longer profitable even in China. The Bitmain S9 has been operational since 2016 and interestingly enough they are still being used in Venezuela and Iran where electricity is so cheap that it outweighs the risk of confiscation. There may, eventually, be more reputable sources of sub 2 cents electricity as the access to solar and wind improves in North America.
For the individual miner, the only hope of competing with operations that have access to such cheap electricity is to send your machines to those farms themselves. Not many farms offer this as a service though.
3. Reliable Mining Pool
These days, every miner needs to mine through a mining pool. Whether you are mining with one machine, or several thousand, the network of Bitcoin mining machines is so large that your chances of regularly finding a block (and therefore earning the block reward and transaction fees) is very low.
Professionals vs Amateurs
It’s common knowledge that it has become very difficult for individual miners to get access to the best machines and the cheapest electricity rates. Bitcoin farms that operate at scale use these advantages to maximize their returns.
As the difficulty of mining bitcoin increases, and the price lags behind, it is becoming harder and harder for small miners to make a profit.
It all comes down to scale and access to cheaper prices. When people enter the space, without prior relationships, they struggle to compete with established mining operations.
As mining becomes more professional, it will make things even harder for DIY miners.
Can you Mine direct to an exchange?
If you have put in the effort to learn about mining, and you have found a location with low cost electricity for your machines, then you still need to consider where to store the bitcoin that you mine.
It is possible to mine direct from the pool to an exchange, but we recommend you keep your bitcoin in a wallet where you have access to the private keys.
The average home miner is unlikely to recoup the cost of mining hardware and electricity. Profiting on your own is highly unlikely.
The situation may improve in the future once ASIC mining hardware innovation reaches the point of diminishing returns. That, coupled with cheap, hopefully sustainable power solutions that retail customers can access in some shape or form, may once again make Bitcoin mining profitable to small individual miners around the world.