How Profitable Is Mining Cryptocurrency?

Can Mining Cryptocurrency be Profitable?

by DailyCryptoInfo 336 Views

How Profitable Is Mining Cryptocurrency?

Can Mining Cryptocurrency be Profitable?

by DailyCryptoInfo 336 Views

Mining Rewards

Mining rewards, in the sense of the native coins issued by the blockchain, are meant to have some kind of stability but the real outcome is not stable at all. Mining rewards fluctuate in several dimensions. The idea is that a coin like bitcoin has a constant issuance so the effort necessary to create a block changes with the effort being put in chasing new coins to smooth the production of new coins. This smoothing can be very jagged indeed.

After a number of blocks has been created the blockchain calculates a new puzzle hurdle of effort needed to get to make a block, this is known as the mining difficulty. This retargeting can be fast or slow and in bitcoin’s case it is slow. The amount of coins handed out can also change over time, in the case of bitcoin the amount of coin issued for a block halves periodically, the next halving likely in just under two years.

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Is Bitcoin Mining Still Profitable?

The Components of Bitcoin Mining

Prior to the advent of new bitcoin mining software in 2013, mining was generally done on personal computers. But the introduction of application specific integrated circuit chips (ASIC) offered up to 100x the capability of older personal machines, rendering the use of personal computing to mine bitcoins inefficient and obsolete. When miners used the old machines, the difficulty in mining bitcoins were in line with the price of bitcoins. But with these new machines came issues related to both the high cost to obtain and run the new equipment and the lack of availability.

Profitability Before and After ASIC

Old timers (say, way back in 2010) mining bitcoins using just their personal computers were able to make a profit for several reasons. First, these miners already owned their systems, so equipment costs were nil. They could change the settings on their computers to run more efficiently with less stress. Second, these were the days before professional bitcoin mining centers with massive computing power entered the game. Early miners only had to compete with other individual miners on home computer systems. The competition was on even footing. Even when electricity costs varied based on geographic region, the difference was not enough to deter individuals from mining.
After ASICs came into play, the game changed. Individuals were now competing against large bitcoin mining centers who had more computing power. Mining profits were getting chipped away by expenses like purchasing new computing equipment, paying higher energy costs for running the new equipment, and the continued difficulty in mining.

Is It Still Profitable?

The early days of Bitcoin mining are often described as a gold rush, but is it still the case in 2017 or 2018?

Mining has grown from a handful of early enthusiasts into a into a specialized industrial-level venture. The easy money was scooped out a long time ago and what remains is buried under the cryptographic equivalent of tons of hard rock.

While mining is still technically possible for anyone, those with underpowered setups will find more money is spent on electricity than is generated through mining. In other words, mining won’t be profitable at a small scale unless you have access to free or really cheap electricity.

The good news is that mining is not limited to Bitcoin. New coins come up all the time with difficulties of mining that are vastly different from Bitcoin’s. Today, Ethereum is such a currency. When tomorrow Ethereum’s difficulty will make it less lucrative for mining, or when it’s moving to a different model altogether, other coins will be there that offer better returns.

If you want to go into mining yourself, the time you will spend educating yourself about the technology, the hardware, and the currencies, is significant. The setup costs for buying hardware are also considerable when you want to mine at scale.

Difficulty can rocket up if it suddenly gets hit by lots of mining power. The coins winnable by a given mining power will therefore drop, but likely as not, the increase in mining power may come from a demand for the coin and therefore a price rise may compensate the miner in dollar terms.

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With so many variables at play, the real ‘mining reward’ that matters is how much money you are going to make mining and I denominate that not in BTC or altcoins mined but in dollars and that depends on a confluence of coin market price and the power of your mining rigs. This income will fluctuate dynamically dependant on all sorts of other permutations, which amounts to an outcome best looked at in a stochastic way or at least as some kind of optimization.

Simplifying matters, you can look at the various mining profit calculators, some more accurate than others, and see what your equipment will be earning you.

Cryptocompare.com is a great site that helps you know how profitable crypto mining is at any given time.

See also: Which Cryptocurrency Mining is Best

See also: Is Mining Cryptocurrency Worth it?

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