Interest in cryptocurrencies had surged since 2015 as Bitcoin’s value rose from around $300 per coin to a peak of approximately $20,000 per coin in December 2017 and then dropped to roughly $8,000 per coin by November 2019 before it surged to record highs of nearly $67,000 in October 2021. Other cryptocurrencies have also experienced similar rises and fall in value. In this article, we will talk about Bitcoin mining investment.
While buying on an exchange like Coinbase is usually pretty easy and allows you to buy fractional amounts of cryptocurrency, some prefer to mine their coins. The best option will likely depend on individual circumstances.
Bitcoin miners receive their earnings in Bitcoin, but they typically pay their expenses — energy, rent, hardware, salaries, and maintenance — in their local fiat currency. Therefore, the price of Bitcoin is central to the profitability of a mining operation. Every bitcoin mining operation has a breakeven price below which they cannot mine profitably.
As Bitcoin price rises, new miners find it profitable to mine even if their electricity costs were previously prohibitive. If the Bitcoin price falls, these miners can no longer mine profitably and have to close down. This creates a causal relationship between the price of Bitcoin and the security of the Bitcoin network. The more valuable the network becomes, the more secure it becomes.
Miners with low energy costs and miners with more efficient hardware will be able to keep working despite low bitcoin prices. BTC mining machines with higher electricity prices or older equipment tend to have higher breakeven prices.
Other Financial Factors
Local laws and regulations can affect the profitability of mining operations. Governments have taken different regulatory positions on bitcoin mining in jurisdictions with significant mining activity.
Local governments in some regions of China have banned Bitcoin mining investment. Some jurisdictions, including South Korea, have imposed additional taxes specifically on bitcoin mining operations. On the other hand, other jurisdictions have granted tax breaks and even subsidies to bitcoin mining operations to spur economic growth and job creation.
Bitcoin mining investment profitability
Bitcoin mining investment seems to be a piece of cake. Set up a computer to solve complex math puzzles, and you’ll be rewarded with a coin or a fraction of a coin. The first bitcoin miners could earn coins relatively quickly using only the computing power at home.
By 2019, cryptocurrency mining got a bit more complicated. With Bitcoin, the reward is halved every four years. Additionally, serious miners have built multiple arrays to mine, making it harder for smaller miners to compete. Now you can join a bitcoin mining pool to be more effective, but that comes with a fee that will reduce your profits.
Some crypto miners choose to use other currencies instead. Some other cryptocurrencies are worth very little in US dollars, but it is possible to convert what you mine into fractions of bitcoins on an exchange and then hope that bitcoin will appreciate.
Regardless of what you choose, you need to consider your setup costs, including, in some cases, graphics cards that can cost up to $700 apiece. It’s possible to put together a basic rig for some less popular cryptocurrencies for around $3,000. However, some miners spend upwards of $10,000 on their rigs.
In addition to building your rig, you need to be aware that you will be using quite a bit of power. If you have high stream rates, you could spend quite a bit on coin mining – especially bitcoin. The cost of electricity to mine a single bitcoin can be very high, even in the cheapest states. A less powerful alternative currency mining rig could save you money. It can take several weeks or even months to recoup your original investment and become profitable.
Bitcoin Mining Economics
Bitcoin mining investment is like any other economic activity. Miners offer a service by stacking transactions into blocks and adding those blocks to the blockchain, and in return, they receive bitcoin. This bitcoin is called the block reward and is made up of any fees paid by transactions in the block plus a subsidy for a new bitcoin.
Who can mine Bitcoin?
Since Bitcoin is an open system, anyone can mine Bitcoin. However, not everyone can mine Bitcoin profitably. Bitcoin mining is highly competitive, so profit margins are generally slim. Additionally, bitcoin mining is capital intensive and requires a significant upfront investment.
When is Bitcoin mining investment profitable?
Bitcoin mining investment profitability depends on a few factors, including the cost and type of hardware, energy costs, and the price of Bitcoin itself. In addition, government regulations, taxes and subsidies, and environmental factors such as temperature can all affect profitability.
Bitcoin miners only receive revenue when they mine a block, making the benefits atomic and unpredictable. However, the costs of mining are ongoing and predictable.
If a person is mining with a relatively low hash rate, they have a very low probability of mining a block. A small miner could go months without any revenue.
Mining pools exist to mitigate this imbalance between ongoing costs and fickle revenues. Mining pools allow individuals to aggregate their hash rate and their rewards. When a small miner joins a mining pool, they receive a payout each time a miner in the pool finds a block. This payout is proportional to the hash rate they contributed to the collection.
Bitcoin mining hardware considerations
Bitcoin is usually mined using ASICs, specialized computers dedicated solely to Bitcoin mining. There are several versions of these machines, each with different energy efficiency.
Newer, more efficient machines produce more bitcoin per unit of electricity but are generally more expensive than older, less efficient machines. This represents a compromise for bitcoin miners.
Hardware is an expensive upfront investment, so the potential profitability of mining should be considered before purchasing ASICs.
The Energy Cost of Bitcoin mining investment
The main variable cost for bitcoin miners is electricity. Bitcoin mining hardware uses significantly more power than the average laptop, and most mining equipment runs 24/7 to maximize revenue.
Miners must achieve the lowest possible electricity costs for these reasons. This incentive shapes the geographical distribution of bitcoin mining. Certain regions of China, where large, government-funded energy projects have created a surplus of hydroelectric power, are home to significant amounts of bitcoin mining. Mining also occurs in oil-rich regions like Texas, regions with geothermal energy like Iceland, and places where government subsidies have created energy surpluses.
Most bitcoin mining uses energy at between 2.5 and 8 cents per kilowatt-hour. This is well below most household retail energy prices, meaning mining from home is typically unprofitable.
Miners with newer, more advanced ASICs can afford to pay higher electricity bills because their machines are more efficient. Because of this, miners with lower energy costs are more likely to turn to older rigs as they are the only ones who can run them profitably. Miners with higher electricity prices need to use more advanced hardware to make profits.
Bitcoin mining investment: Cloud mining
Cloud mining involves buying time on someone else’s rig. Companies like Genesis Mining and HashFlare charge you based on a “hash rate” — basically your computing power. If you buy a higher hash rate, you will likely get more coins for what you pay for, but it will cost more.
Depending on which company you choose, you may pay a monthly fee or pay by hash rate. Some companies also charge a maintenance fee. Cloud miners that give you access to Bitcoin are generally available at higher prices.
You may have to sign a year-long contract that locks you in some cases. If the cryptocurrency goes down in value, you could be stuck in an unprofitable contract.
So, depending on what you’re mining, it can take several months to get a return on your cloud mining investment.
However, at least with cloud mining, you don’t have to worry about the electricity costs and other direct costs associated with all mining with your rig.
The long view
Investing in expensive equipment and spending a lot of money on electricity every month may not be worth it.
They are buying bitcoins hoping that their value will increase just as risky. The cryptocurrency market is young, and for every analyst who sees great potential, there is another who expects the need to go bust.
Banks like JP Morgan still consider cryptocurrencies unproven and likely to fall in value. Benoit Coeure, a board member of the European Central Bank, argued in January 2018 that cryptocurrencies could prove to be a sound system for cross-border payments as long as one understands how “to control these gates between the shadow currency universe and the regular financial system.” Less than a year later, He expressly referred to Bitcoin as the “evil spawn of the financial crisis” while still acknowledging the broader potential of cryptocurrencies.
Profitability before and after ASIC
Old-timers (e.g., way back in 2009) mining bitcoins using their PCs could make profits for several reasons. First, these miners already owned their systems, so the equipment cost was virtually nil. They could change the settings on their computers to work more efficiently and with less stress. Second, these were the days before professional bitcoin mining centers with massive computing power came into play. Early miners only had to compete with other individual miners on home computer systems. The competition was even. Even if the cost of electricity varied by geographic region, the difference wasn’t enough to discourage individuals from mining.
After ASICs came into play, the game changed. Individuals now competed with powerful mining rigs that had more computing power. Mining profits have been wiped out by expenses such as buying new computer equipment, paying higher energy costs to run the latest gear, and the ongoing difficulties of mining.
Bitcoin mining difficulty
As discussed above, the difficulty associated with Bitcoin mining investment is variable, changing approximately every two weeks to maintain a stable production of verified blocks for the blockchain (and thus circulated bitcoins). The higher the difficulty, the less likely it is that a single miner can successfully solve the hash problem and earn bitcoins.
In recent years, mining difficulty has skyrocketed. When Bitcoin was first launched, the problem was 1. As of November 2021, it is more than 22 trillion. This gives an idea of how complicated it is to mine Bitcoin today than a decade ago.
The final result
Bitcoin and other cryptocurrencies remain a high-risk, high-reward investment with little consensus on their economic role in the years to come.
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.