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The answer is YES and it’s complicated. successfully mining is just one Bitcoin block and holding onto it since 2010 would mean you have $450,000 worth of bitcoin in your wallet in 2020
Bitcoin mining began as a well-paid hobby for early adopters who had the chance to earn 50 BTC every 10 minutes, mining from their bedrooms.
If you’re motivated to learn, and you want to get a semi-passive income from bitcoin, then there are a few basics to get your head around, before deciding if it’s even possible for you to profit from bitcoin mining.
What is Mining Hardware?
Mining hardware is specialized computers, created solely for the purpose of mining bitcoins. The more powerful your hardware –and the more energy efficient– the more profitable it will be to mine bitcoins.
What is the Block Reward?
Roughly every ten minutes a specific number of newly-minted bitcoin is awarded to the person with a mining machine that is quickest to discover the new block. Originally, in 2009, Satoshi Nakamoto set the mining reward at 50 BTC, as well as encoded future reductions to the reward.
The Bitcoin code is predetermined to halve this payout every four years. It was reduced to 25 BTC in late 2012 and halved again to 12.5 BTC in the middle of 2016.
How do Bitcoin miners calculate their earnings?
You’ve probably heard the scare stories about Bitcoin mining’s energy consumption.
Regardless of whether the impact is overblown by the media, it’s a fact that the underlying cost of mining is the energy consumed. The revenue from mining has to outweigh those costs, plus the original investment into mining hardware, in order to be profitable.
In February 2022, one Bitcoin mining machine (commonly known as an ASIC), like the Whatsminer M20S, generates around $12 in Bitcoin revenue every day depending on the price of bitcoin. If you compare this to the revenue of mining a different cryptocurrency, like Ethereum, which is mined with graphics cards, you can see that the revenue from Bitcoin mining is twice that of mining with the same amount of GPUs you could buy for one ASIC. Thirteen AMD RX graphics cards cost around the same as one Whatsminer M20s.
You can think of it as though the miners are a decentralized Paypal. Allowing all the transactions to be recorded accurately and making a bit of money for running the system.
Bitcoin miners earn bitcoin by collecting something called the block reward plus the fees bitcoin users pay the miners for safely and securely recording their bitcoin transactions onto the blockchain.
The second source of revenue for Bitcoin miners is the transaction fees that Bitcoiners have to pay when they transfer BTC to one another.
This is the beauty of Bitcoin. Every transaction is recorded in an unchangeable blockchain that is copied to every mining machine.
Bitcoin doesn’t rely on a central bank to keep records, it’s the miners themselves that keep the records, and they get to keep a share of the transaction fees as well.
Taxes on Bitcoin Mining Profits
Profiting from Bitcoin mining isn’t certain, paying taxes on your mining rewards is. Every miner needs to know the relevant tax laws for Bitcoin mining in their area, which is why it is so important to use crypto tax software that helps you keep track of everything and make sure you are still making enough money after you account for taxes.
Reasons for making profits in Bitcoin mining?
Firstly, Bitcoin mining has a lot of variables. This is why buying bitcoin on an exchange can be a simpler way to make a profit. However, when done efficiently it is possible to make a more profit mining bitcoin than simply buying and ‘holding’ (a term used to describe the act of not selling your bitcoin).
One of the most important variables for miners is the price of Bitcoin itself. If, like most people, you are paying for your mining hardware and your electricity,- in dollars, then you will need to earn enough bitcoin from mining to cover your ongoing costs; and make back your original investment into the machine itself.
Bitcoin price, naturally, impacts all miners. However, there are three factors that separate profitable miners from the rest: cheap electricity, low-cost and efficient hardware, and a good mining pool.
So far in this article, I’ve used the Whatsminer M20S as an example of the kind of machine you will need to mine bitcoin. These days there are several hardware manufacturers to choose from.
1. Efficient Hardware
The price of hardware varies from manufacturer to manufacturer and depends largely on how low the energy use is for the machine vs the amount of computing power it produces. The more computing power, the more bitcoin you will mine. The lower the energy consumption the lower your monthly costs.
When choosing which machine to invest in, miners should think about the machine’s profitability and longevity.
“Profitability is determined by the machine’s price per TH, how many watts the machine uses per TH, and your hosting costs.
Longevity is determined by the production quality of the machine. It makes no sense to buy cheaper or seemingly more efficient machines if they break down after a few months of running” according to Tore Thornas Mining Expert
The manufacturer with the lowest failure rate right now is MicroBT, which makes the Whatsminer M20S and other Whatsminer models.
Bitcoin Mining Hardware Turnoff Prices
One useful way to think about hardware is to consider what price BTC would have to fall to in order for the machines to stop being profitable. You want your machine to stay profitable for several years in order for you to earn more bitcoin from mining than you could have got by simply buying the cryptocurrency itself.
2. Cheap Electricity
Electricity prices vary from country to country. Many countries also charge a lower price for industrial electricity in order to encourage economic growth. This means that a mining farm in Russia will pay half as much for the electricity you would mine at home in the USA. In places like Germany individual miners, the only hope of competing with operations that have access to such cheap electricity is to send their machines to those farms themselves. Not many farms offer this as a service though.
3. Reliable Mining Pool
These days, every miner needs to mine through a mining pool. Whether you are mining with one machine, or several thousand, the network of Bitcoin mining machines is so large that your chances of regularly finding a block (and therefore earning the block reward and transaction fees) is very low.
“If the Bitcoin Network Hashrate is 100 EH/s (100,000,000 TH/s), a WhatsMiner M20S ASIC miner with 68 TH/s, has approximately a 1 in 1,470,588 chance of mining a Bitcoin block. With one block per 10 mins, they may have to wait 16 years to mine that one block” according to Thomas Heller
The oldest two pools are Slush Pool and F2Pool. F2Pool is one of the largest Bitcoin mining pools and it supports around 15% of the entire Bitcoin network.
2Pool’s payout method is called PPS+. PPS+ pools take the risk away from miners, as they pay out block rewards and transaction fees to miners regardless of whether the pool itself successfully mines each block. Typically, PPS+ pools pay the miners at the end of each day.
This is how PPS+ pools calculate how much to pay out to miners in their pool. Here comes the science part…
If the Bitcoin Network Hashrate is at 85 EH/s (85,000,000 TH/s), a WhatsMiner M20S ASIC miner with 68 TH/s, will earn around 0.000702 BTC per day before pool fees.
0.000702 BTC is calculated by 68 (miner hashrate) ÷ 85,000,000 (network hashrate) × 144 (number of blocks per day) × 6.25 (block reward).
Pool fees are normally 2.50–4.00%, so let’s use 2.50% for the example; the net mining revenue is therefore 0.00068445 BTC.
If BTC is priced at $9,000, then this M20S has a daily revenue of $6.16.
4. Fees When Selling Bitcoin
An often overlooked facet of mining profitability is the fees one pays to sell the Bitcoin one mine. If you are a small-time miner, you may have to sell your coins on a retail exchange like Kraken or Binance. Sometimes your fees are low but sometimes your fees are high – it really just depends on the fee structure of the exchange and the state of the order book at the moment.
However, if you are a professional miner like F2 or Bitmain, you likely have really advantageous deals with OTC desks to sell your coins at little to no fees – depending on the state of the market. Some miners are even paid above the spot price for their coins. Either way, professional mining operations deal with Bitcoin at a large scale and so they have more leverage to get deals that are good for them, and this doesn’t just apply to electricity purchases.
5. Professionals vs Amateurs
It’s common knowledge that it has become very difficult for individual miners to get access to the best machines and the cheapest electricity rates. Bitcoin farms that operate at scale use these advantages to maximize their returns.
As the difficulty of mining bitcoin increases, and the price lags behind, it is becoming harder and harder for small miners to make a profit.
“Bitcoin mining is starting to resemble similar industries as more money flows in and people start to suit up. With increased leverage, margins are lower across the whole sector. Soon, large-scale miners will be able to hedge their operations with financial tooling to lock in profits, whilst bringing in USD-denominated investments like loans or for equity” according to Kristjan Mikselsson Managing Director of the Icelandic
Can you Mine directly to an exchange?
Putting in the effort to learn about mining, and you have found a location with low-cost electricity for your machines, then you still need to consider where to store the bitcoin that you mine.
It is possible to mine directly from the pool to exchange, but we recommend you keep your bitcoin in a wallet where you have access to the private keys.
Is CPU mining profitable?
No, and in the case of Bitcoin, it almost never was. Unless you were one of the very first people to mine Bitcoin, CPU mining has never been profitable. There was a time when one could profitably mine Bitcoin with GPUs, but again…today, you really must have an ASIC and a deal with a power company to make any money mining Bitcoin in 2020.
The average home miner is unlikely to recoup the cost of mining hardware and electricity. Profiting on your own is highly unlikely.
The situation may improve in the future once ASIC mining hardware innovation reaches the point of diminishing returns. That, coupled with cheap, hopefully, sustainable power solutions that retail customers can access in some shape or form, may once again make Bitcoin mining profitable to small individual miners around the world.
If small miners can re-enter the network, it greatly increases decentralization and supports the original intentions of Satoshi Nakamoto even further.