How hard is it to mine Bitcoin?

Posted on December 01, 2020 in Articles, Digital Assets 101, Opinions
How hard is it to mine Bitcoin?
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Mining difficulty represents the likelihood of adding a new block to the Bitcoin blockchain to mine Bitcoin. Upon its launch, Bitcoin (BTC) mining difficulty was 1. However, as of 3 November 2020, the difficulty level is around 16.7 trillion. Meaning the chances of your computer mining new BTC units is 1 in 16 trillion. 

Also, mining difficulty is adjusted roughly every two weeks, i.e. after 2,106, new blocks are added. This is done based on increasing or decreasing mining competition. The difficulty to mine Bitcoin units is skyrocketing, while the mining rewards are becoming thinner due to Bitcoin halving. In the recent Bitcoin halving event on 11 May 2020, the mining rewards were reduced to 6.25 BTC per block. 

Nonetheless, the advancements in mining hardware have made Bitcoin mining very lucrative for some miners. 

This article will help you to choose appropriate mining hardware to turn Bitcoin mining profitable. 

The Difficulty of Mining Bitcoin

Bitcoin mining is the process of verifying transactions on the blockchain and, thus, adding new blocks to the network. For this, miners have to find a 64-digit hexadecimal number called ‘hash’. The first miner to add the block is rewarded with a certain number of BTC units. As of now, miners receive 6.25 BTC per mined block. 

As discussed earlier, the difficulty level of calculating the hash function is 1 in 16 trillion. The hashing problem is set in a way that a new block can be mined every 10 minutes. Moreover, if the computational power spent on the network exceeds the estimated mark, the complexity is increased, and vice versa. This is done after every two weeks to maintain a stable number of verified blocks on the network. 

Every year, more and more miners are swarming the Bitcoin network, making mining more competitive. Thus, to get an edge over other miners or even stand as an equal in the competition, you have to ensure your mining rig is powerful.

How to Choose Hardware for Mining

The mining process has seen tremendous technological advancement from mining bitcoins on personal computers to mining using Application-Specific Integrated Circuit (ASIC). ASIC is designed exclusively to mine bitcoin units. These microchips offer 100x times the hashing power while reducing electricity consumption.

Now that you are aware that mining is a complex and competitive venture, you must know how to choose appropriate mining hardware and amass better rewards. 

Below are the two most important variables you must look for while investing in a mining rig.

Hash Rate

Hash rate is the computational power the hardware can devote while mining bitcoins. It is the number of calculations your machine can perform per second. To find the hash value of the block, you have to change the input by a single number (nonce) and rehash the function to find the hash lower than the target value. 

Your hardware must be able to compute as many possible combinations of hashes as it can until the correct nonce value is found. The higher the hash rate, the more likely you are to mine the next block. Thus, hardware with a good hash rate is a must-have for mining. 

Hash rates are measured in megahashes per second (MH/s), gigahashes per second (GH/s), or terahashes per second (TH/s). A bitcoin mining rig ranges from 336 MH/s to 14,000,000 MH/s. ASICs can cost you anywhere between a few hundred dollars to up to $10,000, depending on the hash rate. The more the hash rate, the higher the price.

Energy Consumption

Mining is an energy-intensive process. Mining bitcoins will skyrocket electricity consumption. So, you must plan your mining budget with this associated cost in mind, and you must prepare yourself for paying high electricity bills. 

You can calculate your electricity consumption based on the hash rate of your machine. To do this, divide the hash rate by the number of watts your hardware requires. For example, if your hardware’s hash rate is 5,500 MH/s and requires 32 watts of power, you will be getting 171,875 MH/s per watt. Moreover, you can also calculate your electricity bills using online electricity calculators.

Mining Rewards

As discussed earlier, the economic incentive for mining mew blocks is halved every four years to control the supply of Bitcoins in circulation. When Bitcoin was introduced, miners were rewarded 50 BTC units to mine each block. In the first halving event in 2012, the miner rewards were reduced to 25 BTCs. In 2016, the number was halved again to 12.5 BTCs. 

In the recent halving in May 2020, the miner reward became 6.25 BTCs per new block. Considering the current price of Bitcoin, which is around $15,000 per unit, the current mining reward translates to roughly $95,000 per fresh block. However, BTC is volatile, and thus, the rewards fluctuate drastically. For instance, in May 2020, each BTC unit was around $8,000.

If you wish to become a Bitcoin miner, you must keep in mind that the mining reward will further decrease in the future halving events.

Bitcoin Mining Profitability in 2020

Bitcoin mining has gone from mining on personal computers to a full-fledged industry. There are several ‘mining farms’ with tremendous computational power that earn enormous profits. Individual miners find it hard to make profits as their rewards are less than their investments. 

Nevertheless, mining architectures like mining pools and cloud mining enable individual miners to recover their investments, and in most cases, even bank profits. In mining pools, multiple miners contribute their computational power to generate a block. The incentive is then distributed among the miners proportional to their computational contribution. 

On the other hand, cloud mining services enable miners to use shared processing power from remote data centres without investing in their hardware. The profits are thinner as cloud mining operators charge you a commission to cover their expenses. 

Nevertheless, before opting for any of these approaches mentioned above, you must do your research as there are a large number of cloud mining and mining pool scammers out there. 

So, to answer the question, mining Bitcoin is still profitable if approached correctly. However, there is no denying that individuals or companies with higher investments have an edge on other miners. 

In a Nutshell

Bitcoin mining is increasing, and the rewards are becoming thinner every four years. In this scenario, mining is only profitable for individuals with a decent investment. However, mining pools and cloud mining services are a major attraction for miners with small capital. 

To purchase a mining rig, you must consider the hashing power and its energy consumption. You can use online calculators to calculate your energy consumption and the profitability of your mining activity. Just remember, mining is indeed complex and expensive. However, if done right, it can add BTC to your holding.