Bitcoin investment strategies have gotten a lot of attention lately, especially with the recent surge in Bitcoin’s price. But amongst all the investment opportunities, Bitcoin mining seems to stand out. Why? Because unlike buying and holding Bitcoin, it allows you to earn BTC actively through a process that rewards participants with Bitcoin for securing the network. But is Bitcoin mining profitable? The answer isn’t so simple. This blog post will help you confidently determine whether mining Bitcoin is a viable and profitable venture for you, by breaking down the costs, rewards, and strategies to maximize earnings. We will also touch upon what is bitcoin halving and how it may affect you.
Now, as you figure out if mining Bitcoin is right for you, it’s good to have a plan. Bitcoin Magazine Pro's Bitcoin analysis tools can help you achieve your goals by offering insights into current market conditions to help you make informed decisions.
What Is Bitcoin Mining and How Does It Work?
Bitcoin mining is a critical role in the Bitcoin network and might be the most well-known aspect of the asset. In short, Bitcoin mining is how new Bitcoins are created and helps maintain the network's security. It involves a network of computers solving complex mathematical equations to verify and secure transactions on the blockchain.
When completed, these equations produce a hash that links one block of transactions on the Bitcoin blockchain to another. Bitcoin mining is similar to a lottery, where miners compete against one another to be the first to solve the equation and earn the associated reward.
The Process of Bitcoin Mining
It helps to visualize the process to understand better how Bitcoin mining works. Imagine you ask a group of friends to guess a number between one and 100. They don't have to guess the exact number; they just have to be the first to guess a number less than or equal to your number. If you've thought of the number 19 and a friend comes up with 21, another 55, and another 83, they lose because they've all guessed higher than 19. But they get to guess again, and the next guesses are 16, 41, and 67. The one who guessed 16 wins because they were the first to guess a number less than or equal to 19.
The number you chose, 19, represents the target hash that the Bitcoin network creates for a block, and the random guesses from your friends are the guesses from the miners. Bitcoin mining is the same thing but at a much larger scale. It verifies and secures transactions through encryption, distributed computing, and technology.
The Hash
At the heart of Bitcoin mining is the hash. The hash is a 64-digit hexadecimal number that is the result of sending the information contained in a block through the SHA256 hashing algorithm. This part of the process takes little time to complete, so you can generate a hash in under a second, pasting some content into an online SHA256 hash generator. This is the encryption method used by Bitcoin to create a block hash. However, decrypting that hash back to the content you pasted is the tricky part:
A 64-digit hash can take centuries to decode with modern hardware.
For example, here's a hash for the previous paragraph run through a hash generator:
a54f83a5db7371eeefa2287a0ede750ac623e49a8ba29f248eb785fe0a678559
If you change one value in that content, like switching one "t" to an "a," the hash changes. Here is the same paragraph, but the first word is misspelled as "Aa" instead of "At":
fbfa33ff980d1492b3a9275a1eb945d89bd6b699ca19c3c470021b8f253654af
This number is called the block hash, used in the next block's header as part of the information run through encryption. Each block uses the previous block's hash, which chains
them together. This is where the term "blockchain" came from.
Target Hash
The target hash, used to determine mining difficulty, is the number miners are trying to solve for. This number is a hash generated by the network.
A block hash might look like this (block 786,729):
00000000000000000005a849c28eb24b8a5e04fcecc1ccb3eb2998e4730a456e
The target hash looked like this:
0x175c739
This number is a compacted representation of the difficulty target:
0...000005c73900000...0
Miners needed to generate a number equal to or less than the above.
Mining
Bitcoin mining requires the mining program to generate a hash and append another number called the nonce, or “number used once.” When a miner begins, it always starts this number at zero. The nonce changes by one every attempt; first, it's 0, then 1, 2, 3, and so on. If the hash and nonce generated by the miner are more than the target hash the network sets, the attempt fails, and the miner tries again. Once the nonce reaches about 4.5 billion, it rolls over like an odometer, using another counter called the extra nonce from another field.
Every miner on the network does this until a hash and nonce combination is created that is less than or equal to the target hash. The first to reach that target has their proposed block added to the chain, receives the reward and fees, and opens a new block. Once that block fills up with information (about one megabyte), it is closed, encrypted, and mined.
How Mining Pools Enhance Competitiveness in the Bitcoin Network
The Bitcoin network comprises thousands of devices that mine 24 hours per day. Because the mining reward goes to the first to solve the problem, they are all competing. This competition led miners to create pools to gain an advantage over other miners because they needed more computational power to increase their chances of winning.
The Bitcoin network mining rate fluctuates, but it averaged around 796 exa-hashes per second in December 2024, which is 796, followed by 18 zeros. If it takes roughly 10 minutes for a block to be mined, that's about 47.76 x 1022 hashes to open a new block.
Proof-of-Work
The mining process is what you may have heard called proof-of-work (PoW). The work done to generate the winning hash is viewed as proof that the miner validated the transactions in the block, so it's called proof-of-work.
PoW is sometimes called a consensus mechanism, but proof-of-work is only part of consensus. Consensus is achieved after the miner adds the block to the blockchain, and the rest of the network validates it using the hashes (reaching consensus). This only requires a little energy or computational power because each mining node does this while mining the latest block. As new blocks are added, the network confirms them.
Confirmation
Each block contains the previous block's hash, so when the next block's hash is generated, the previous block's hash is included. It has yet to be confirmed when you mine and close a block. The block is only confirmed five blocks later when it has gone through six validations.
Altering information in a block is possible before reaching six validations. It is highly unlikely because the person or group attempting to make the change must own most nodes to control the network.
Rewards
The reward for successfully validating a block is Bitcoin. In 2009, you'd receive 50 Bitcoin for mining a block. However, the block reward is halved every 210,000 blocks (roughly every four years), so in 2013, the reward amount declined to 25, then 12.5, then 6.25. At Bitcoin's last halving event in April 2024, the reward changed to 3.125.2
Another incentive for Bitcoin miners to participate in the process is transaction fees. In addition to rewards, miners also receive fees from transactions in that block. When Bitcoin reaches its planned limit of 21 million (expected around 2140), miners will be rewarded with fees for processing transactions that network users will pay. These fees ensure miners are still incentivized to mine and keep the blockchain network going. The idea is that competition for these fees will cause them to remain low after halving events are finished.
Difficulty
Mining difficulty is the work required to generate a number less than the target hash. It changes every 2,016 blocks, or approximately every two weeks. The next difficulty level depends on how efficient miners were in the preceding cycle and how many miners participated.
Bitcoin's network increases and decreases the hash rate (computing power) needed to mine it. The more miners compete for a solution, the more complex the problem will become. If computational power is removed from the blockchain network, the difficulty adjusts downward to make mining easier. This is done to keep block times averaging about 10 minutes.
The difficulty level for mining on Dec. 4, 2024, was 103.919 trillion. That is, the chances of a computer producing a hash below the target is 1 in 103.919 trillion. In perspective, you are about 355,644 times more likely to win the Powerball Grand Prize with a single lottery ticket than to generate the correct hash on a single try.
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Is Bitcoin Mining Profitable?
It depends. Even if Bitcoin miners are successful, it’s unclear whether their efforts will be profitable due to the high upfront equipment costs and ongoing electricity costs.
Worldwide, Bitcoin mining uses more electricity than Poland, a nation of 36.8 million people, according to the University of Cambridge’s Bitcoin Electricity Consumption Index. Bitcoin mining is so energy intensive that a Bitcoin miner in Texas made more in energy credits ($31 million) for not mining than from actual mining this summer.
As the difficulty and complexity of Bitcoin mining have increased, the computing power required has also gone up. Bitcoin mining consumes about 166.75 terawatt-hours of electricity each year, more than most countries, according to the Cambridge Index. You’d need nine years’ worth of the typical U.S. household’s electricity to mine just one Bitcoin as of August 2021.
What Are the Economics of Mining Bitcoin?
Bitcoin mining is a business venture. Profits generated from its output Bitcoin depend on the investment made in its inputs.
There are three main costs involved in Bitcoin mining:
Electricity
This is the power that runs your mining systems 24/7. Mining can run up a substantial bill. The process (network-wide) consumes as much electricity as certain countries. It's also important to consider the costs of cooling the area your mining systems are in. They produce a lot of heat; the more units you have, the more cooling you require. Air conditioning costs further increase the electricity bill.
Mining systems
Contrary to the popular narrative, desktop computers and regular gaming systems can be used to mine by joining a mining pool. But the returns are limited because most pools split the rewards based on the amount of work each miner contributes. These systems cannot compete with the ASIC mining machines, but it is possible to come out a few hundred dollars ahead after accounting for the energy used. If you want to be competitive, you'll need to buy several ASIC miners and join a pool—which can set you back between $4,000 to $12,000 per rig. The faster a machine mines, the more it will cost.
Network Infrastructure
Network speeds do not significantly affect the Bitcoin mining process, but latency does. Latency is the time it takes to communicate with the rest of the network. Also, mining farms require multiple internal connections to connect each mining rig to a main router or server with an internet connection. However, if you're using your gaming rig to mine and join a pool, you shouldn't need any extra bandwidth, just low latency to the pool you joined.
Balancing Costs and Profits in Bitcoin Mining: Understanding the Break-Even Point
The total costs for these three inputs should be less than the output, which is Bitcoin's price so that you can generate profits from your venture. Considering the fluctuating and often rising Bitcoin price, minting your BTC might sound attractive.
Given the economic difficulties of Bitcoin mining, you may have to resign yourself to accepting lower profits and a longer timeframe to break even after purchasing equipment to participate in the lottery that Bitcoin has become.
How Mining Pools and Bitcoin Price Volatility Impact Mining Profitability
One way to share some of the high mining costs is by joining a mining pool. Pools allow miners to share resources and add more capability, but shared resources mean shared rewards, so the potential payout is less when working through a pool. The volatility of Bitcoin’s price also makes it difficult to know exactly how much you work for. There are several factors to affect Bitcoin mining profitability:
Individual Profitability
Bitcoin mining remains profitable for some individuals. Equipment is more easily obtained, although the cost of competitive ASICs varies from a few hundred dollars (used) to thousands (new or hosted).
Prospective miners should perform a cost-benefit analysis to understand their break-even price before purchasing fixed-cost equipment. Variables to consider include the purchase price, cost of power, efficiency, time, and Bitcoin market value.
Initial Setup
Several factors determine whether Bitcoin mining is profitable, including the cost of electricity to power the mining machines, the speed of your miner(s), its cost, and mining pool payouts.
Here are some general steps for analyzing whether mining will be profitable for you:
Choose the Mining System
You can use your home computer to mine if it is an up-to-date system with the latest and fastest CPU, GPU, storage, and cooling. But home computers, regardless of how fast they are, cannot keep up with dedicated mining systems but can still generate small amounts of income. This guide doesn't cover home computer mining because even top-of-the-line GPUs in October 2024 cannot mine Bitcoin fast enough to become profitable, even in a pool, realistically.
A dedicated mining system comprises application-specific integrated circuits explicitly programmed for mining. These cost about as much as a new high-performance desktop computer (sometimes more). Some of the ASIC brands and their price ranges are:
- Antminer: $1,320–$14,521, speeds from 120TH/s to 473TH/s1
- Whatsminer: $540–$8,569, speeds from 102TH/s to 412TH/s2
Prices and availability vary, especially for the less expensive models.
Mining Pools
You'll need to choose a pool based on its size, reputation, how it pays, whether there are any fees, and your chances of earning based on how much work you provide to the pool.
Two standard payout methods used in Bitcoin mining pools include:
- Proportional mining
- Pay-per-share method
In a proportional mining payout method, miners receive rewards proportional to their effort in finding a block. The payout amount also depends on whether the pool finds a block, and this payout method is profitable when the price of Bitcoin surges.
The pay-per-share method distributes payouts based on the mining power of the entire pool, which is the opposite of a proportional mining system. A miner's share is determined not by their effort but by an equitable division of the rewards the pool receives. A miner receives their reward regardless of whether the pool finds a block. Since it guarantees a flat fee, this payment model is best suited for periods when the Bitcoin price is low.
Bitcoin Mining Cost Analysis
You can use an online mining calculator to determine whether you'll be profitable. BTC.com's calculator was chosen for this example because it is comprehensive and uses the pay-per-share payout method, one of the most common pool payouts. Here, the values are for the Antminer S19 XP, one of the more popular mining systems.
You ensure the information is accurate on the left-hand side of the page by choosing your currency, ensuring the Single Miner Cost field is accurate, and entering the number of miners you're evaluating. Make sure the hash rate is correct and estimate your electricity costs. This example, $0.13 is used because it's a common price per KW/h. Leave other fields at their defaults and click “Calculate.”
Assessing Financial Viability and Payback Period
You'll see the total profit, revenue, electricity costs, and other information on the top. The period calculated was one year, so a field on the right says “Days to Payback.” This shows that if everything remained the same, you wouldn't be able to pay off the miners and become profitable in one year.
You're also presented with “Maximum Mining Days (profit>0),” which tells you how many days it will be before you begin turning a profit, which is when you've received back the total cost of the system if nothing else changes. In this case, it was 660 days. Enter the information from each of the miners you're evaluating to determine which one might have the shortest payback period.
Bitcoin Mining Profits
To answer the lingering question of whether it is profitable to mine Bitcoin, Depending on its price, the market, the difficulty level, the network hash rate, and the pool's payout scheme, it can be.
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Ways to Enhance Bitcoin Mining Profitability
1. Level Up Your Hash Rate: Efficient Upgrades for Mining Hardware
You can boost your profitability by increasing your hash rate. The more hashes you can solve per second, the quicker you can earn Bitcoin. To increase your hash rate, you’ll need to acquire better hardware. However, it’s not only about higher hashrate. The hardware has to consume less energy as well.
This brings us to efficiency. We’re not looking for the mining rig with the highest hash rate but one with the highest efficiency. We have a list of the best mining rigs in 2024 that you can look at.
2. Slash Those Electric Bills: Find Cheap Power or Generate Your Own
Bitcoin mining is an energy-intensive process, and electricity costs are the biggest expense for miners. To decrease our electricity costs, we must either produce our energy or find a location where electricity costs are low. Since very few people are willing to build up their energy production, here’s a list of countries with the lowest electricity costs globally:
5 Countries With the Lowest Electricity Costs for BTC Mining
- 1. Libya – $0.009/kWh
- 2. Ethiopia – $0.010/kWh
- 3. Angola – $0.011/kWh
- 4. Syria – $0.016/kWh
- 5. Bhutan – $0.019/kWh
This is based on information from the GlobalPetrolPrices study on electricity costs for businesses in March 2024.
3. Move Your Mining Operation to a Low-Tax Jurisdiction
Another variable that impacts the profitability of your mining operation is taxes. You’ll be subject to tax in whichever country your mining operation takes place, and of course, every country has its tax regime and specifics. However, speaking broadly, some countries’ regimes regarding mining are more favorable than others.
The lowest income and capital gains taxes can be found in:
- Dubai – no income or capital gains tax
- Qatar – no income tax on individuals, but 10% corporate. No capital gains tax.
- Saudi Arabia – no income tax or capital gains tax under certain conditions.
Although these countries are great for tax purposes, they may not be so great with electricity costs. It’s up to you to find that optimal compromise between taxes, electricity costs, and your personal quality of life.
4. Price Dictates the Best Time to Mine Bitcoin
The price of Bitcoin significantly impacts mining profitability. The price of mining rigs follows the price of Bitcoin, but prices for mining rigs move considerably less sharply.
As such, launching a mining operation becomes more expensive as Bitcoin increases in value. This adds complexity to sourcing rigs as prices change frequently, and attempting to time the market correctly is easier than timing the Bitcoin market.
5. Bitcoin Mining in a Bear Market
During a bear market, the primary goal of a miner is survival. The last thing a miner wants is to shut off their machines, thus losing out on potentially mined Bitcoin and pushing back the timetable to recoup their initial investment. To ensure machines keep hashing, an operation needs to understand its operating threshold. This must remain top of mind in bull markets as well, but it is in bear markets where operating thresholds are put to the test.
A miner’s operating threshold is the minimum Bitcoin price and maximum network hash rate they are willing to mine. Operating thresholds vary by miner, as each miner develops their threshold based on their unique goals.
Break-Even Analysis in Bitcoin Mining
A miner starts by calculating the price where operating expenditures equal the value of mined Bitcoin. At any point below this break-even line, the miner would be mining at a loss, while at any point above, it would represent a profit. The same is then calculated, assuming the price of Bitcoin is constant, for the break-even hash rate. This process turns typically subjective as some miners are willing to operate at a slight loss while others may choose to shut down immediately upon crossing their break-even point.
Mining is not all grim during a bear market, as the depressed rig prices present a potential opportunity for miners looking to ramp up their operations. As miners shut down their machines, the network hash rate and difficulty usually falls. Mining then becomes easier for the miners still operating.
Bitcoin Mining in a Bull Market
While exciting and prosperous, mining in a bull market comes with its unique stressors. As the price of Bitcoin climbs, so too does the number of mining rigs plugged into the network.
Mining has become more competitive, yet the amount of Bitcoin available remains unchanged. While a miner’s revenue may go up in dollar terms as the price of Bitcoin appreciates, they will receive less Bitcoin for their efforts due to more miners being incentivized to join the network. This will not matter to miners focused solely on profitability, as revenues in dollar terms will remain high as long as Bitcoin prices rise.
The Double-Edged Sword of Expansion During Bull Markets
Mining ventures see their profits rise substantially during bull markets, and the decision to expand operations comes with that. Launching new miners during a bull market can open an operation to additional risk during a bear market. Those miners likely purchased at an elevated rig price, can become difficult to pay off in the event of a bear market where rig prices plummet and revenues decline. Still, as shown in the chart above, mining revenues are much higher in a bull market, so miners become more willing to take on that additional risk.
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