Can You Make Money Mining Bitcoin?
Bitcoin mining is the procedure for placing more Bitcoins in circulation. Basically, miners verify all transactions on the Bitcoin network and are therefore rewarded in Bitcoins for their valuable work. The role of the miner, in the system, is to verify that there are no double spend transactions. Because of the work of the miners, the Bitcoin network is highly trusted. In this article, we will discuss if mining for Bitcoin is as profitable as it once was.
How does mining work?
In the same way that minerals are mined by doing intensive labor, Bitcoins are mined by doing intensive computations. A Bitcoin miner makes use of his computer’s computational power to solve complex mathematical problems and verify transactions.
Whenever a transaction is made on the Bitcoin network, it enters the mempool and sits there until a miner selects it and puts it into a block. The block of transactions is then mined. For mining an entire block, the current reward is 12.5 Bitcoins.
This reward is halved every 4 years; the next time this reward is halved is 2020. Interestingly, only the miner who finds the block is rewarded with the block reward. Each transaction also contains a small fee set by the sender; with Bitcoin, the size of that fee is based on the size of the transaction. The entire fee goes to the miner in addition to the block reward.
The process of mining uses a hashing algorithm. Each coin uses a different hashing algorithm. A miner needs to repeat this process over and over again to earn the reward. Hence, Graphics Processing Units, or GPUs, are usually used for mining because GPUs are better at performing repetitive tasks. This process requires a lot of electricity; and, if you have more than a single mining rig, it produces a lot of noise.
Is Bitcoin mining still profitable?
During the early days, you could mine several Bitcoins by just using your computer’s CPU. At the time, this was rewarding, but as more people started participating, the mining hash-rate on the network increased, therefore more blocks than usual were mined. To compensate for this and to keep the block rate constant (10 minutes for Bitcoin), the mining difficulty also increased.
While GPUs are efficient at mining Bitcoin, the repetitive nature of the process required a different type of technology. Those chips, called Application-Specific Integrated Circuits, or ASICs, were developed as dedicated mining chips. However, as the total hash rate of the network keeps increasing, the mining difficulty also increases. The hash rate is the speed at which a computer completes a computation.
Currently, Bitcoin mining is a difficult process because it utilizes a lot of computational power and a lot of electricity. Additionally, because everyone now knows how valuable the ASICs and GPUs are for Bitcoin mining, the price of purchasing these mining rigs has also skyrocketed.
For beginners, it is no longer cost effective to mine Bitcoin using a single GPU; several linked GPUs need to run together in order to mine enough bitcoin to justify the cost of the electricity itself. This results in upfront expenses that are cost prohibitive. Even ASICs are extremely expensive. On top of that, both ASICs and GPUs are power hungry rigs that need a lot of electricity. Unless the cost of electricity is cheap or free in your country, Bitcoin mining is currently not profitable.
You might have heard that many people became millionaires by mining Bitcoin. However, they started very early and were able to mine a lot of coins initially. If you begin mining today, it would take several months, if not years, for you to get back your initial investment on the equipment. Therefore, unless you are running a mining farm and are fine with undergoing the huge initial investment, and you are living in a country with free or deeply discounted electricity, you are better off of buying and holding Bitcoin instead of mining it yourself. That said, Bitcoin is not the only cryptocurrency that can be mined. Although not all cryptocurrencies require it, there are other coins that do require mining, where beginner miners can make higher profit margins.