The cryptocurrency community is usually divided into three major camps when it comes to potential ways to earn over time.
The first group consists of traders who take advantage of market volatility to make profits. They practice strict risk management to be consistent.
The second comes in the form of long-term investors, also known as HODLers. They believe in the long-term’s value of Bitcoin and that its price will increase notably over the years, so they don’t trade it – just hold it.
The third one? Miners. Those are individuals or corporations who have invested in hardware equipment so that they participate in the process of mining Bitcoin.
In this article, we will take a more in-depth look into mining as a whole and will try to answer the question of whether or not it’s still profitable in 2022 or if miners would be better off using that money to invest in BTC directly.
Even though many cryptocurrencies are mined, our focus will be solely on Bitcoin, being the first cryptocurrency to put the algorithm to work and popularize the concept in the industry.
Bitcoin miners use high-powered devices to solve complex computational math problems. The process is powered by the “Proof-of-Work” consensus algorithm which is the backbone of Bitcoin’s blockchain. Miners validate and verify transactions and receive fees (in BTC) for doing so. This guarantees there are no double-spending and faux transactions.
They also package these transactions into blocks and add them to the network (hence the term – “blockchain.”) For this, the winning miner receives a block reward. This reward decreases in half every four years in an even that’s known as…
Every four years, the Bitcoin halving slashes the rewards that miners receive for their efforts by 50%. So far, there have been three previous cases – in 2012, 2016, and 2020. The first one reduced the rewards from 50 BTC per block to 25 BTC. The second – from 25 BTC to 12.5 BTC. The last one – from 12.5 BTC to 6.25 BTC.
It happens after every 210,000 blocks (roughly once every four years), and the next one will take place in 2024, further decreasing the rewards to 3.125 BTC.
Back in the day when Bitcoin was initially introduced to the public, mining was usually done on personal computers using standard GPUs. At that point, receiving the reward was pretty easy, because miners already had the needed equipment, so they didn’t need to invest any money to start.
Additionally, the competition was scarce as very few people knew of the cryptocurrency, let alone how to start mining it.
Quickly though, this changed with the induction of application-specific integrated circuit chips (ASIC) that offered extremely higher capabilities than the regular personal computer, thus making them obsolete. The bar was raised notably. This also made the expenses necessary to mine effectively very high, which meant that individuals could rarely compete properly with the new standard. Moreover, this was the time when large Bitcoin mining centers started to emerge with incredibly powerful machines.
It’s worth noting that after ASIC-powered computers started operating, Bitcoin’s hash rate increased dramatically, as well, ultimately making the network much healthier.
With the entry of new and powerful technology and the creation of large mining centers, it became clear that those establishments will be in control of Bitcoin mining. For many years, China was the leading country in terms of hash rate (with over 66%), but that all changed when the government officially outlawed miners. Companies were forced to shut their machines down. This can be seen in the above chart with the notable drop in May 2021.
However, the network recovered almost immediately, showing once again exactly how resilient Bitcoin is and that there’s no central authority that can “shut it down.”
In terms of the entities that account for the more notable chunks of Bitcoin’s hash rate, AntPool is the biggest known pool, but a large percentage of it is scattered through the world with origins that are yet to be determined (marked as Unknown).
Is Bitcoin Mining Still Worth It Today?
Here comes the big question, but it doesn’t have a straightforward answer. Before we can even begin to understand whether or not BTC mining is still worth it today, there are four major factors to consider:
The first one is somewhat subjective and depends mainly on the location, as the electricity costs differ depending on where the mining machine is stationed. It’s also worth noting that the source of electricity is another major component – how are miners powering up their equipment? Some use hydroelectric sources, others use solar, wind, or even fossil fuels. This all needs to be taken into account when making the calculations.
The difficulty factor is strongly related to the hash rate of Bitcoin as it measures the transaction validation in hashes per second. The network is designed to produce a certain number of bitcoins per second, and when there are more active miners, the difficulty increases to ensure that the level of distribution is static.
Even though the availability of computing power sounds like it wouldn’t provide any issues, that’s not always the case. During the parabolic price increase of 2017 and 2021 and the increased media attention, Bitcoin mining became extremely popular, and lots of people were trying to get in. Mining hardware became scarce, which also resulted in very high prices for certain components like chips, video cards, and whatnot.
The competition could be the most significant factor, as mentioned above. As we can see from the previous paragraph, large mining companies are the dominant players, leaving little opportunity for individual miners.
With all this in mind, we can see why the question doesn’t have just a “yes” or “no” answer. In fact, by looking at all of those factors, each future miner should ask himself whether or not it’s worth it for him. But before heading to the hardware store to make large purchases with the idea of Bitcoin mining, make sure that you have made all of the needed calculations.
Mining has become a billion-dollar industry in recent years, with so many large players trying to establish further control. However, those changes are generally excluding individual miners, yet many continue to do it and manage to make profits. In 2024, Bitcoin is expected to go through its fourth halving, cutting the rewards that miners receive in half to 3.125 BTC.
On the surface, this might repel potential newcomers who are asking the question if it’s not more profitable just to invest and wait for it to grow over the years. However, this growth is not guaranteed. On the other hand, with mining, people not only receive BTC as rewards but also keep the network safe and validate the transactions, making them one of the most critical pieces of the Bitcoin puzzle.
