Bitcoin mining and Bitcoin cloud mining is the process of creating new bitcoins by solving extremely complicated math problems that verify transactions in the currency. When a bitcoin is successfully mined, the miner receives a predetermined bitcoin. So is Bitcoin mining legal?
Bitcoin is a cryptocurrency that gained widespread popularity due to its wild price swings. It has had rising value since its inception in 2009.
With the prices of cryptocurrencies, and Bitcoin, in particular, skyrocketing over the past few years, it’s understandable that interest in mining has also increased. But for most people, the prospects for bitcoin mining are not suitable due to its complexity and high cost. Here are the basics of how bitcoin mining works and to be aware of some critical risks.
Bitcoin Mining Statistics:
A miner currently earns 6.25 Bitcoin ($250,000 as of April 2022) for successfully validating a new block on the Bitcoin blockchain.
According to the Cambridge Bitcoin Electricity Consumption Index, bitcoin production uses 143.5 terawatt-hours of electricity each year, more than Ukraine or Norway use.
As of August 2021, it would take nine years of household equivalent electricity to mine a single bitcoin.
Bitcoin’s price has been highly volatile over time. In 2020, it traded at just $4,107 and hit an all-time high of $68,790 in November 2021. As of April 2022, it was selling for around $40,000.
Probability of solving a hash: 1 in 22 trillion
The United States (35.4 percent), Kazakhstan (18.1 percent), and Russia (11.2 percent) were the top Bitcoin miners, according to the Cambridge Electricity Consumption Index as of August 2021.
Bitcoin is one of the most popular cryptocurrencies, digital mediums of exchange that exist exclusively online. Bitcoin runs on a decentralized computer network, or distributed ledger, that tracks transactions in the cryptocurrency. New bitcoins are created or mined as computers verify and process transactions on the web.
These networked computers, or miners, process the transaction against payment in Bitcoin.
Bitcoin is powered by blockchain, the technology that powers many cryptocurrencies. A blockchain is a decentralized ledger of all transactions on a network. Groups of approved transactions form a block and are linked to form a chain. Think of it as a long public record that works almost like a long-running receipt. Bitcoin mining adds a block to the chain.
How bitcoin mining works
To successfully add a block, Bitcoin miners compete to solve highly complex mathematical problems that require the use of expensive computers and enormous amounts of electricity. Miners must be the first to find the correct or closest answer to the question to complete the mining process. Guessing the valid number (hash) is called proof of work. Miners guess the target hash by randomly making as many guesses as fast as possible, which requires a lot of computing power. Difficulty only increases as more miners join the network.
The computer hardware required is called application-specific integrated circuits, or ASICs, and can cost as much as $10,000. ASICs consume vast amounts of electricity, are criticized by environmental groups, and limit miners’ profitability.
If a miner can successfully add a block to the blockchain, it will receive 6.25 bitcoins. The reward amount halves approximately every four years or every 210,000 blocks. In April 2022, bitcoin traded at around $40,000, equivalent to 6.25 bitcoins worth almost $250,000.
Is bitcoin mining profitable?
It depends. Even if bitcoin miners are successful, it’s not clear that their efforts will be profitable due to the high upfront cost of equipment and ongoing electricity costs. According to a 2019 report by the Congressional Research Service, the power for one ASIC can draw the same amount of energy as half a million PlayStation 3 devices.
As the difficulty and complexity of bitcoin mining have increased, so has the computing power required. According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin mining uses 143.5 terawatt-hours of electricity each year, more than some countries. As of August 2021, it would take you nine years’ worth of electricity from a typical US household to mine one bitcoin.
One way to share some of the high mining costs is joining a mining pool. Pools allow miners to share resources and add more skills, but shared resources mean shared rewards, so the potential payout is lower when working through a pool. The bitcoin price volatility also makes it difficult to know exactly how much you are working for it.
How to start bitcoin mining?
Here are the basics you need to start mining bitcoin:
Wallet: This is where all the bitcoins you earn due to your mining efforts are stored. A wallet is an encrypted online account that allows you to store, transfer, and accept bitcoin or other cryptocurrencies. Companies like Coinbase, Trezor, and Exodus all offer cryptocurrency wallet options.
Mining Software: There are several different mining software providers, many of which are free to download and run on Windows and Mac computers. Once the software is connected to the required hardware, you can start mining Bitcoin.
Computer Equipment: The most expensive aspect of bitcoin mining is the hardware. It would be best to have a powerful computer that successfully consumes enormous electricity to mine Bitcoin. It’s not uncommon for hardware costs to be around $10,000 or more.
Risks of bitcoin mining
Price volatility. Bitcoin’s price has changed a lot since its inception in 2009. In the past year alone, Bitcoin traded for less than $30,000 and almost $69,000. This type of volatility makes it difficult for miners to know if their reward will outweigh the high cost of mining.
Regulation. Very few governments have embraced cryptocurrencies like bitcoin, and many are skeptical about them because the currencies operate outside of government control. There is always a risk that governments could ban Bitcoin or cryptocurrency mining altogether, as China did in 2021, citing financial risks and increased speculative trading.
Taxes on bitcoin mining
It’s important to remember the impact taxes can have on bitcoin mining. The IRS has sought to crack down on cryptocurrency owners and traders as asset prices have skyrocketed. Here are the top tax considerations to keep in mind when mining Bitcoin.
Are you a company? If bitcoin mining is your business, you may be able to claim tax deductions for expenses you incur. Earnings would be the value of bitcoins you earn. But if mining is a hobby for you, you probably won’t be able to deduct expenses.
Mined bitcoin is income. If you can successfully mine Bitcoin or other cryptocurrencies, the fair market value of the currencies at the time of receipt will be taxed at ordinary income rates.
Capital gain. If you sell bitcoins at a higher price than the price you received them, it qualifies as a capital gain, which would be taxed the same as traditional assets like stocks or bonds.
Is bitcoin mining legal?
Bitcoin mining legality depends entirely on your geographic location. The concept of bitcoin has the potential to undermine fiat currency dominance and government control over financial markets. As a result, Bitcoin is entirely illegal in some jurisdictions.
Bitcoin ownership and mining are legal in a growing number of countries. Algeria, Egypt, Morocco, Bolivia, Ecuador, Nepal, and Pakistan were among the countries where it was illegal, according to a 2018 report. Other countries that have banned bitcoin mining since 2018 include Bangladesh, China, Dominican Republic, North Macedonia, Qatar, and Vietnam.
Is bitcoin mining legal in the United States?
In recent years, the United States has developed a patchwork of cryptocurrency regulations, with legislators at state and federal levels taking turns addressing specific aspects of the industry. Multiple agencies, including the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), are vying for control over parts of the burgeoning cryptocurrency market.
Though these financial watchdogs have issued guidelines, warnings, and rules, their efforts have been largely uncoordinated.
As the digital asset market has grown into a trillion-dollar market, lawmakers have recognized that crypto is here to stay and that regulatory clarity is needed. In March 2022, the President issued an executive order directing vital federal agencies to coordinate their efforts in drafting cryptocurrency regulations to protect investors and prevent illicit uses without stifling innovation.
To attract businesses, Texas and Wyoming have enacted crypto-friendly laws. The Texas Virtual Currency Act, which defines cryptocurrencies as a digital representation of value used as a medium of exchange, a unit of account, or a store of value and allows state-licensed banks to offer crypto services to customers, was passed in June 2021 by the Lone Star State.
Wyoming’s blockchain legislation, passed in 2019, recognized cryptos as a legal medium of exchange and established a banking license system for cryptocurrency banks like Kraken and Avanti.
Other states have decided to get a tighter grip on cryptocurrencies. In 2015, New York was the first state to create its regulatory framework for the cryptocurrency industry. Still, the infamous BitLicense has burdened local crypto businesses that many have left the state.
These are the countries where crypto is restricted or illegal
Bitcoin has been controversial since its inception in 2009, as have the subsequent cryptocurrencies that have followed it.
While crypto criticizes its volatility, its use in nefarious transactions, and the excessive power consumption to mine it, some view it as a haven during economic storms, particularly in the developing world.
El Salvador was the first country to make it the legal currency in September 2021.
However, more people turn to cryptos as an investment or a lifeline. So criticism of crypto continues to manifest itself in several limitations.
The legal status of bitcoin and other altcoins (alternative coins to bitcoin) varies widely from country to country. In some, the relationship is yet to be adequately defined or is constantly changing.
These countries have a particularly strained relationship with Bitcoin and other altcoins.
Algeria currently bans the use of cryptocurrency after passing a finance law in 2018 that made it illegal to buy, sell, use or hold virtual currencies.
Bolivia has had a total ban on the use of bitcoin since 2014. So the Central Bank of Bolivia has issued a resolution banning bitcoin and any other currency not regulated by a country or economic zone.
China has cracked down on cryptocurrencies with increasing intensity throughout 2021. Chinese officials have repeatedly warned their people to stay away from the digital asset market and have cracked down on domestic mining and currency exchanges in China and overseas.
On Aug. 27, Yin Youping, deputy director of the People’s Bank of China (PBoC) Financial Consumer Rights Protection Bureau, labeled cryptos as speculative assets and warned people to “protect their pockets.”
Bitcoin is a currency outside the control of governments and institutions. So they viewed it as an attempt by Chinese authorities to unblock their e-currency.
The PBoC wants to be one of the first major central banks globally to launch its digital currency and could thereby monitor its employees’ transactions more closely.
On September 24, the PBoC went even further and outright banned cryptocurrency transactions in the country.
In Colombia, financial institutions did not allow to facilitate bitcoin transactions. Also, the Superintendencia Financiera warned financial institutions in 2014 that they “must not protect, invest, broker or manage virtual money operations.”
Egypt’s Dar al-Ifta, the country’s main Islamic advisory body, issued a religious decree in 2018 classifying Bitcoin transactions as “haram,” something forbidden under Islamic law. While not binding, Egyptian banking laws tightens in September 2020 to prevent trading or mining crypto without a central bank license.
Bank Indonesia, the country’s central bank, has issued new regulations banning cryptocurrencies, including Bitcoin, as a form of payment, effective January 1, 2018.
Despite ongoing efforts by authorities to block their use, cryptocurrencies are gaining popularity in Iraq. The Central Bank of Iraq has been particularly hostile, issuing a statement banning its use in 2017, which remains in effect today. In early 2021, the Interior Ministry of the Kurdistan Regional Government issued similar guidance to stop money brokerages and exchanges from handling cryptos.
Holding or trading cryptocurrency assets did not yet ban in Kosovo. But the government announced a ban on crypto mining in early January, blaming a growing energy crisis. The country unilaterally declared independence in 2008 and faced historic power shortages, with planned blackouts being implemented to conserve energy. Economy Minister Atrane Rizvanolli announced a long-term ban on crypto mining in the country.
Nepal Rastra Bank has declared Bitcoin illegal since August 2017.
While crypto did not ban in Russia until recently, a conflict waged against its use. Now, some a savior to help the country evade heavy financial sanctions imposed by the West.
Russia passed its first crypto regulation laws in July 2020, designating cryptocurrencies as taxable assets for the first time.
The law, which went into effect in January this year, also bans Russian officials from owning crypto assets.
Russian President Vladimir Putin has repeatedly linked cryptocurrency to criminal activity and has given more attention to cross-border crypto transactions.
Many in Turkey turned to cryptocurrency as the Turkish lira depreciated. With some of the highest usage rates in the world, the rollout of regulations this year came as inflation peaked in April.
On April 16, 2021, the Central Bank of the Republic of Turkey issued an ordinance prohibiting the direct or indirect use of cryptocurrencies. They include Bitcoin to pay for goods and services. The following day, Turkish President Recep Tayyip Erdoğan went further. It issued a decree directing crypto exchanges to a list of companies subject to anti-money laundering and anti-terrorist financing regulations.
Why Bitcoin cloud mining?
An unknown individual or group called Satoshi Nakamoto introduced the Bitcoin network in 2009. In 2021, there will be more than 10,000 different projects in cryptocurrencies. So each of them has its role in building the future of money.
The market value of cryptocurrencies reached $ 1 trillion for the first time in January 2021. It passed $ 2.5 trillion less than three months later. So it shows that this market is one of the growing markets favoring its investors.
Bitcoin Cloud Mining is the process by which you participate in a mining pool to a cloud miner website and purchase a certain amount of hash power. In this pool, the profit will distribute equally among all participants who have participated in the mining pool. It will happen based on hash power. Also, the cloud mining platform allows you to mine your BTC without installing any hardware and at no extra cost. So Minerland, the best crypto cloud mining service to earn Bitcoin, helps you invest in Bitcoin easily and with low risk. For more information about us, you can follow Minerland’s Instagram account.