Bitcoin mining is the process by which new bitcoins are introduced into circulation, playing a crucial role in confirming transactions and maintaining the immutable blockchain ledger. Miners utilise specialised ASIC hardware to solve complex computational problems, with the first miner finding the solution and receiving a Bitcoin reward before the process starts again.
Despite its time-consuming nature, high costs, and variable rewards due to price volatility, Bitcoin mining continues to attract investors who are enticed by the opportunity to earn bitcoin as compensation for their efforts. In addition, for tech-savvy individuals and hobbyists, mining presents an intriguing prospect for various reasons.
Compared to traditional investment assets like bank deposits, real estate, or stocks, bitcoin can offer significantly higher returns. It is also an environmentally-conscious business that can prevent energy waste by utilising excess energy sources such as natural gas from oil extraction, idle wind turbines, and surplus energy from hydroelectric or nuclear power plants.
Hiveon's long-term predictions indicate that Bitcoin's value will rise after the halving, and thus they are accumulating coins now to multiply their investment in the future. They also believe that a future alternative global financial system based on blockchain technology, similar to Bitcoin, will dominate, allowing network validators to profit from processing transactions.
However, with mining difficulty and hash rate continually reaching new highs and fees surging, many may question whether mining is still worthwhile.
IS BITCOIN MINING WORTH IT?
To determine if bitcoin mining will be "worth it" for prospective miners, they should conduct cost-benefit analyses to assess their break-even points. Factors to consider include power costs, hardware costs and efficiency, time, and the market value of Bitcoin. One can choose to factor in the current BTC price ($28,190 at the time of writing) or attempt to predict future BTC prices.
At present, Bitcoin mining can be profitable for individuals paying $0.10 or less per kilowatt hour (kWh) of power.
However, access to energy at this price can vary significantly across different regions, with some areas offering notably cheaper electricity than others. Middle Eastern countries like Iran, Qatar, and Saudi Arabia would favour Bitcoin miners due to lower household electricity prices. In contrast, European countries such as Denmark, Germany, and the U.K. would present challenges for profitable Bitcoin mining.
Acquiring ASIC equipment has become relatively accessible, although prices range from a few hundred dollars to five-figure sums. For example, a used Antminer S19 was found for sale in the U.K., listed at £2,700 (approximately $3,343.38).
Bitcoin reached its all-time high price of $67,549 in November 2021. When the 2021 bull market peaked, miners' bitcoin rewards were more valuable in fiat compared to the present time, with the bitcoin price around $27,600. However, miners benefit from rising Bitcoin transaction fees from ongoing block space experiments.
Profitability calculators can assist potential miners in evaluating the cost-benefit ratio of Bitcoin mining. However, these calculators may vary in complexity and provide slightly different results.
OTHER MOTIVATIONS FOR BITCOIN MINING
For some Bitcoin miners, a simple cost-benefit analysis may not be the sole factor in deciding whether mining is "worth it" in 2023.
Mining is essential for Bitcoin's decentralised transaction recording and validation process, addressing the "double spending" issue inherent in any digital currency system. In the physical world, intermediaries like governments and banks prevent counterfeiting, but Bitcoin relies on the computational effort provided by miners to maintain trust without intermediaries. Some miners may be motivated to contribute to the mining network due to this freedom from third parties, in addition to earning revenue.
BITCOIN HALVING CYCLES AND EXPECTATIONS FOR 2024
The upcoming Bitcoin halving in April 2024 will significantly impact the mining landscape.
Bitcoin halving occurs when the reward for mining new blocks is reduced by 50%, resulting in miners receiving half as many bitcoins for solving a block. These halvings happen every 210,000 blocks until the maximum supply of 21 million bitcoins is issued.
The effect of the next halving on Bitcoin's price remains uncertain. Some analysts predict a similar pattern to previous halvings, where the price rises after the event due to the constrained supply of new coins. However, any price increase ultimately depends on the demand for Bitcoin. It's important to note that the market has matured significantly since the 2020 halving, and numerous well-established cryptocurrencies now compete for users.
Anyone considering the profitability of Bitcoin mining in 2023 should also factor in the impact of the next Bitcoin halving into their calculations.
CHALLENGING YET POSSIBLE
Profitable Bitcoin mining presents a challenge, but it is not impossible. While the price of bitcoin is relatively low at the time of writing, an Antminer S19 can still generate profits with a maximum power cost of $0.10 per kWh. Although regions like the U.K. are less favourable due to higher electricity costs, many global locations have cheaper power. Furthermore, the profitability of mining can be further improved by utilising renewable energy sources such as solar panels. As the world transitions to renewable energy, it is expected that electricity prices will decrease.
Access to affordable electricity, the ever-evolving nature of Bitcoin, and upcoming events like the halving are among the many factors to consider when evaluating the profitability of Bitcoin mining.