Is Bitcoin mining the gold rush of our time? Are you all set to stake your claim and make a fortune? Before you get rush off to buy a rig, hang on a second. Under the right circumstances, it is still possible for money to be made with mining, but it’s not as simple as just downloading the software and letting it run.
In this post, we will go through how to determine whether or not mining is a good idea for you.
What is bitcoin mining?
Not sure about what mining is? Essentially, it’s the process of verifying the transactions on the network. This is done by your computer solving a range of cryptographic equations. You give up some of your computing power to facilitate the solving of these problems and pay for the energy used while your computer is running.
What affects profitability?
It’s like any other business – your income needs to exceed your expenses for it to be profitable. As businesses go, though, it seems like a pretty sweet deal – once your equipment is paid for, the only expense to consider is the electricity bill.
And you should take this bill seriously. As you will learn from the infographic below provided by BTXchange, energy consumption for Bitcoin mining has been notoriously known to be the biggest obstacle to making profits. Some people even argue that it produces an environmental threat.
And it is a pretty sweet deal until you consider the amount of competition on the network. You won’t be the only miner trying to earn some coins, and there are only so many coins to go around. If your machine isn’t up to scratch, you could walk away with little more than a high energy bill.
The network is geared towards issuing a set number of coins. Whether there are ten miners or a hundred, the number of coins issued remains the same. In a bid to keep the number of coins issued constant, the problems become more difficult to solve as more players enter the game.
As the difficulty increases, more computing power is required to solve problems. In the early days of the network, you could sign in with your standard home computer and mine Bitcoin quite easily. Over time, as the size of the network has increased, and more miners have joined the fray, the difficulty of mining has also increased substantially.
There’s a lot of competition
Image credit: DedMityay / Adobe stock photos
You’re no longer competing with a few home users on some obscure blockchain-based app that hardly anyone has heard of. Now there are thousands of miners competing for the same limited reward.
With the advances in chip tech making it possible to increase efficiency by over 100 times, home computers are no match for the latest rigs. There are mining consortiums that have banks and banks of specialized rigs designed to produce as much computing power as possible. Many of these consortiums have access to plenty of cheap electricity, making them difficult to compete with.
And, these rigs are quite expensive to invest in, making mining more expensive overall.
Also, the fluctuating value of the currency has to be taken into consideration. The market is notorious for being volatile, and values can vary substantially from one day to the next.
Can I make money?
Does that mean that I should give up on the idea of online gold? Not necessarily, you’ll need to do a proper cost-benefit analysis to see what your costs might be.
You’ll need to gather the following information:
- Your electricity rate: This varies from region to region and can fluctuate depending on the season and whether or not you are paying peak rates.
- How efficient your system is: You’d need to establish how much electricity your system will consume.
- How much time you can devote to mining: Obviously, running your rig 24 hours a day will cost a lot more than running for just two a day. You have to bear in mind that consortiums will usually run full-time.
- The value of the currency: At its peak, one Bitcoin was worth just under $20,000. Now, not even a year later, it is worth just over $6,000. You have to keep these fluctuations in mind when calculating profitability. It must make sense to mine when the currency is at its lowest value.
Some miners join a mining pool to reduce these costs. This can be an effective way to reduce the costs but does mean sharing the profits. On the whole, though, mining is not going to be a profitable experience for everyone. It’s important to do the sums before venturing into this field.