If you’ve ever wondered whether Bitcoin mining could be profitable for you, the short answer is “no.” In the early days of cryptocurrency, smaller players could mine Bitcoins successfully; however, now it’s big business, and the equipment you’d need and the electricity costs alone can eat up your profits quickly. In fact, according to a recent survey, U.S. investors that sold their Bitcoin suffered losses of $1.7 billion.
The news of recent investment losses has left many people wondering what is cryptocurrency? And is it profitable? With thousands of cryptocurrencies developed to date, it can still help to know the ins and outs of how Bitcoin mining works. More importantly, you’ll also want to know more about why it’s hard to make a profit with bitcoin mining.
What Is Bitcoin Mining?
Bitcoin mining is the process of transactions being verified and recorded on the blockchain. Bitcoin miners must use powerful computers and sophisticated software to complete mathematically complex functions, called “hashes.” Bitcoin miners earn Bitcoin as a reward for their work in verifying transactions in the blockchain. Miners must demonstrate that they have completed the work of solving these complex math problems to earn the right to verify a new block of Bitcoin transactions. They demonstrate this work by applying computing power in a process called ‘Proof of Work’ (PoW).
What Is Bitcoin Halving?
Bitcoin halving is when the reward for Bitcoin is cut in half every 210,000 blocks, or about every four years. Bitcoin halving exists to make sure that Bitcoin stays scarce and inflation-resistant because only 21 million Bitcoins will ever exist. Halving will occur until all 21 million Bitcoin have been virtually mined. This means that Bitcoin mining is less profitable every year.
Evolution of Bitcoin Miners
Although you may be new to the concept of Bitcoin mining, it actually started 10 years ago. Mining involves using computers to solve complicated mathematical puzzles, for which you’re rewarded in cryptocurrency. In 2009, there weren’t many Bitcoin miners. In fact, Satoshi Nakamoto, the creator of Bitcoin, was among the very first few miners. At the start, you only needed a computer or two to mine cryptocurrency.
Since that time, mining has increased in popularity. And, as the Bitcoin network grows, its math problems become more difficult. This has led miners to increase their computer power in order to solve the problems and receive Bitcoin rewards.
Throughout the years, miners have turned to various technologies to solve complex mining problems, such as:
- Graphics processing units (GPU), which increase processing speeds, compared to a standard computer
- Field-programmable gate arrays (FPGAs), which use less power than a GPU
- Application-specific integrated circuit (ASIC) systems, which were created to mine cryptocurrency specifically
Today, the costs of Bitcoin mining equipment can be very high. Before you start buying equipment, be sure to consider both the long-term and short-term consequences of your investment.
Is Bitcoin Mining Worth It?
Bitcoin mining has been evolving since the start. For most, mining hasn’t been easy to make a profit on. This is due to a variety of factors including:
- Bitcoin’s block rewards get reduced every four years. Nakamoto set up Bitcoin’s rewards to be cut in half every four years. This helps reduce the amount that is mined in a year. It also helps make the Bitcoin supply last longer because there’s a limited number of Bitcoins in circulation. However, for miners, it means getting rewarded less each year. Even when you put in more effort.
- It’s difficult to mine alone. At the beginning, many Bitcoin miners worked alone. As the cryptocurrency grew, larger groups of miners began joining together. These were known as mining pools. They gave individual miners a better shot at competing for Bitcoin rewards. Today, many who are interested in mining go straight for one of these groups. However, these pools come with a fee and all rewards get split. This can mean you’ll receive lower rewards overall.
- Mining has increased in difficulty. As mentioned above, the equations in Bitcoin get harder to solve as more users join the network. This increased difficulty means you’ll need to invest in a powerful computer. To keep up with the necessary increases in computer power, you’ll need expensive equipment that can cut into your profits. Equipment to mine also uses a lot of electricity that you need to be prepared to pay for. And, you’ll also need software to run your mining hardware.
Bitcoin Mining Pools
You’ve seen the rewards of teamwork in your life. When it comes to Bitcoin mining, the same concept applies with mining pools. Through these pools, miners combine their resources to be more effective at mining.
When the pools succeed and receive Bitcoins, they then split the reward. These rewards are split depending on the power each miner used. So, the miner that used the most power earns the largest reward. For small miners, joining a bigger pool can help them be successful.
In recent times, these mining pools have grown so big that they require a whole warehouse to hold all the equipment needed. For example, North America houses one of the largest mining facilities, known as Giga Watt, in Washington. This facility includes over 1,700 GPUs.
You can probably imagine how difficult it would be to go up against big warehouses, like the one in Washington, with your own equipment. Instead, a mining pool to consider is SlushPool. This was the first Bitcoin mining pool created. To join, all you have to do is visit the website and go from there.
Cloud Mining Bitcoin
If you’re interested in mining for Bitcoins but not ready to buy expensive mining equipment, there is another option. Cloud mining allows you to buy time on someone else’s mining equipment. The most popular cloud mining option is to lease processing power on someone else’s equipment at a remote data center. Generally, you join a mining pool and then the company that you work with will manage your account. Cloud mining operations typically utilize cloud computing as well. This means that their servers, software, and storage can be found on the cloud.
- Avoiding high electricity costs. Mining equipment is not only expensive to acquire but also expensive to run.
- Creating less clutter for your home. When you use someone else’s equipment, you can avoid cluttering your own home with large equipment. You also won’t have any ventilation problems from equipment overheating.
- Not having to sell any equipment later on. If you decide to leave the mining game, you’ll likely want to sell your equipment. This can take some time and effort to find others interested in your equipment. In some cases, your equipment may even become out of date as technology for mining advances.
- Being more susceptible to fraud. Before entering any cloud mining agreement, you’ll want to do your research. It isn’t difficult for scammers to set up cloud mining scams. These usually involve taking money up front and not delivering what they promised. One way to research cloud mining platforms is by reading reviews and blogs. Genesis Mining is a popular cloud mining site.
- Earning less money. You make less money with cloud mining because the equipment operators have to cover their costs. This can make investing in your own equipment more profitable.
- Having less control. When you invest in cloud mining, one advantage is that you don’t have to manage your own hardware. However, you do give up some control over your financial investment. Essentially, you invest in a cloud mining site and trust that they call the right shots. In many cases, you just pay a monthly fee for cloud mining services.
Bitcoin Mining Pros and Cons
Although Bitcoin can be highly rewarding for some, there’s a significant amount of risk involved without the guarantee that you’ll be a high earner. The pros to Bitcoin mining include the potential for high earnings with a small amount of active work required once you’ve set up your hardware.
The cons to mining Bitcoin include:
- High startup costs
- Expensive equipment like a powerful computer
- Increased energy costs
Although some Bitcoin miners earn a lot, it’s not without taking on a great deal of risk. If you’re considering making the leap into Bitcoin mining, choose your strategy wisely. Remember, both cloud mining and mining pools can be good options to consider. Attempting to mine Bitcoins on your own will likely leave you frustrated and out of money.