Since its inception in 2009 during the height of the global economic crisis, the value of Bitcoin has gone up to amazing levels. In January of 2011, the price of one bitcoin was $1.00. Currently, it is around $6,480. This is a remarkable gain and one far beyond what most cryptocurrency experts would have predicted at that time. One of the most profitable ways to get involved in bitcoin is to mine them.
What is Bitcoin mining?
For digital currencies like bitcoins, mining doesn’t involve a physical act of digging, drilling or blasting rocks. Bitcoins are mined by performing a complex cryptographic algorithm. This is performed by a very powerful machine that is built to solve these complex mathematical equations.
People who own these machines are called miners. When a complex math problem is solved, a block is generated. Blocks are verified by other miners and once they’re verified, they get added to what is called the blockchain. This chain continues to expand with a new block added to it about every 10minutes. Miners then get bitcoin in reward.
Every time 210 000 blocks have been generated the reward to the miner is reduced by 50%. It takes an average of four years to accomplish this. The block reward in 2009 was 50 coins. Currently, the block reward is 12.5 bitcoins. In 2020, the reward will only be 6 coins. This means bitcoin mining will continue to get more difficult as time goes on.
The computer power needed to create each block consumes a lot of electricity. In some places, the cost of electricity may outweigh the benefits for miners.
The energy consumption of these machines has risen as the price of bitcoin has risen steeply. Early on, it was possible to mine bitcoins with just a laptop. But as more and more miners join in the race, the algorithm automatically adjusts to get more difficult, requiring anyone who wants to generate bitcoins to use more high-powered machines and more energy.
There is another way to mine; it is called cloud mining. With cloud mining, you’re paying to use someone else’s network and that cuts to your profits significantly. The main advantage to using this method is that it does not require using your electricity or buying a machine.
Computing Mining Profitability
You do not need to be a math genius to calculate the profitability of bitcoin mining hardware as mining calculators have made computations easier. These calculators help miners to know how much profit they can make from a bitcoin mining hardware. Considering all the relevant costs, including hardware, fees, and electricity, these calculators provide an estimated amount.
The total network hashrate, bitcoin price, and power consumption are the three factors that will affect a miner’s profitability.
Hashrate: It’s the speed at which a miner solves the complex math problem. The higher hash rate means increased opportunity for digital coin mining and receiving bitcoin reward. Each time a math problem is solved, the next problem gets harder to solve.
The total number of bitcoins that will be created is 21,000,000. Once we hit that number there can never be another coin mined again but the blockchain itself will continue to grow.
Mining Hardware: You would have to start by buying a powerful mining machine. The best option is the Antminer S9 mining device. It would cost you about $2,000. The Antminer is generally considered to be the most energy-efficient mining hardware on the market today. However, this will vary depending on electricity costs where you live.
Use a bitcoin mining profitability calculator to know how much profit you can make from your mining hardware. Some of the best bitcoin mining profitability calculators are the following:
Do not forget to take electricity costs into account. Most specialized mining machines appear profitable until electricity costs are accounted for.