Bitcoin

Will 2017 be Profitable for Bitcoin Mining?

bitcoin mining hardware comparison

Currently, based on (1) price per hash and (2) electrical efficiency, the best options for bitcoin mining are:

Bitcoin mining during its early days was generally referred to as a gold rush. Bitcoin, the brainchild of Satoshi Nakomoto, “a peer-to-peer electronic cash system,” opened up a whole new perimeter of not only freedom but also profit. People with a keen interest in such things were the first to stake their claim, namely cypherpunks, cryptographers, tech-minded libertarians, and assorted hackers.

Reading: Is bitcoin mining worth it 2017

but is there still gold in those hills?

From some of the early enthusiasts, it is certain that bitcoin mining has progressed from a cottage industry to a specialized enterprise on an industrial level. the easy money is long ago mined and the rest is hidden under the crypto equivalent of miles of hard rock.

Nowadays, in order to mine bitcoins profitably, it is necessary to have specialized and high-powered machinery. while it is technically possible for anyone to mine, those with low power setups will spend more money on electricity than the money generated through mining.

common mining terms

To better understand bitcoin mining, it helps to know some basic technical terms:

block: A group of bitcoin transactions, compiled from current pending transactions and entered into a growing record of blocks (also known as “the block chain”) by a miner. a new block is created on average every ten minutes.

proof-of-work hash: This is the function miners perform to define a new block. pow hashing ensures the proper functioning of the bitcoin block chain. miners compete to solve a cryptographic “puzzle”, known as a hash. there are no shortcuts to this process, which can only be solved with raw computational power. by correctly encoding the current block, miners prove their investment of work and are rewarded with a certain amount of newly created bitcoins.

block reward: the number of newly created bitcoins. This number was initially set at 50, was halved to 25 in late 2012, and will be halved again to 12.5 in mid-2016. This halving process continues, roughly every four years (or every 210,000 blocks), until all 21 million bitcoins are created. this is the only way new bitcoins can be created; by miners according to rate and code limit.

hashrate: a measure of a miner’s computational power. the higher their relative power, the more solutions (and thus block rewards) they are likely to find. initially measured in hashes per second (h/s), due to the increasing speed of mining hardware. h/s was soon commonly prefixed with si units as follows:

  • kilohash = kh/s (thousands of h/s), then

    megahash = mh/s (millions of h/s), then

    gigahash = gh/s (billions of h/s), then

    terahash = th/s (trillions of h/s), and even

    See also: Trademarking of Cryptocurrency

    petahash = ph/s (quadrillion h/s).

    difficulty: with the hashrate skyrocketing over the years, it would seem that miners would find blocks faster and faster. bitcoin’s difficulty measure is what prevents this from happening, ensuring that blocks are found approximately every 10 minutes. when the total hash rate increases, the power hash difficulty adjusts upwards, and the reverse also applies. the difficulty adjusts automatically every two weeks (or blocks of 2016).

    btc/xbt exchange rate: the current fiat price of bitcoin; essential to calculate profitability.

    w/xhash/s: watts per hashrate per second. electricity is the main ongoing cost of bitcoin mining. the price paid per watt will greatly influence profitability.

    mining pool: Unless you control a tremendous hashrate, your chances of solving a block yourself (ie “solo mining”) are extremely low. By joining with other miners in a so-called pool, their combined odds of solving a block increase proportionally to the total hash rate of the pool. every time they solve blocks, pools reward individual miners according to their contributed hash rate (minus fees and the like).

    calculate mining profitability

    With these terms in mind, it is feasible to calculate the current profitability of bitcoin mining for your circumstances. Please note that the future profitability of mining cannot be reliably predicted. this is due to the changing nature of the difficulty modifier and the price of btc, in particular.

    To begin with, we need to select a suitable asic mining rig. To help in the selection, the bitcoin wiki provides a handy comparison of mining hardware: we will select for our example the antminer s7, which is more or less the latest in mining technology and is a modern mining rig that offers a good rate. hash by its power consumption. the s7 on amazon is available for $609 and just $450 from bitmain, not including shipping. approximately $150 added for power supply units.

    Next, we need to enter the specs and cost of the s7, as well as other information, such as energy cost and pool fees, into a suitable number processor. coinwarz.com offers a good mining profitability calculator, which automatically fills in the current btc price, difficulty, and block reward information.

    as standard in china, the default energy cost we will use is 10c (usd), but it is likely to be much higher elsewhere. Check electricity prices around the world or your utility bills for the exact price to find out your own energy cost. the 2.5% pool fee is for the ant pool. There are usually lower rates or none at all for smaller groups, but remember you’ll rarely find blocks. this list compares various pool rates and reward structures.

    after recording all the necessary information, click on calculate to get the profitability result:

    not a bad result! $800 per year and you can use the excess heat from the miner to heat your home.

    the american scenarios

    As exciting as this sounds, let’s first recalculate the average cost of energy per kWh in the us. -estimated date):

    given the difficulty and price remain stable and by the looks of it, it turns out that every year the average American miner can only earn $500. but, this could be an unsafe assumption! the average bitcoin hash rate is up an astonishing 30 percent at the time of writing.

    the compensating difficulty spike, expected the day after reports of this spike, completely alters the above equation:

    See also: Bitcoin 2022 Recap, Highlights – Bitcoin Magazine – Bitcoin News, Articles and Expert Insights

    if we increase the difficulty in the mining calculator by the corresponding 30%, all the profits evaporate! $500 is lost in a year of mining.

    unexpected profit loss: difficulty spikes, price drops, equipment failures, power outages, shipping delays & more

    The aforementioned scene works as a perfect picture of the risks present in bitcoin mining. there is a chance that even some large corporate miners could be hurt by such a steep difficulty spike. Unless the home miner has access to free or very low-cost electricity, they really don’t stand a chance of competing in such a challenging environment.

    Also remember that the rate of degeneration in bitcoin hardware is terrifyingly fast! one should know that during the (pre-) ordering of the equipment, the potential manufacturing, shipping, customs or other delays could be very costly in the end, as the difficulty increases or the price decreases during the interim.

    There are many other things that are inaccurate, and such downside risks should always be considered in any conceptual business plan.

    chinese scenarios

    For the sake of interests, let’s look at the scenario of Chinese miners, who account for the majority of bitcoin’s mining power for good reason. the results can help us better predict bitcoin’s post-halving environment, as this article attempts to do.

    amateur miners

    Some Chinese regions have an excessive supply of electricity, which in many cases is subsidized. because of this, a low energy cost is made and we’ll assume it’s 7c for a miner in the correct province. To add to that, a lot of mining hardware is invented in China, making it likely that locals in the Middle Kingdom will buy it cheaper (and get it sooner). we will assume a hardware price of ¾.

    results:

    Before the difficulty spike, a small Chinese miner with a single s7 connected to antpool could have made over $1000 a year. That’s twice the profit of its American counterpart!

    after the halving and difficulty spike, the same miner would lose around $40 per year. For a bitcoin lover, this is an easily acceptable loss.

    industrial miners

    Cheap energy sources are present in remote provinces, so large-scale mining operations will be located nearby. a popular option is hydroelectric power from dams. from such companies we can assume a very low energy cost, say 5c. these operations also buy hardware in volumes, assuming they get s7s at $325, which is only half the price. thousand s7 drives seems like a reasonable number, allowing us to simply add three zeros to the hash rate, hardware, and power costs. Lastly, these setups often run their own pools, so we’ll assume zero pool fees.

    results:

    The operation would fetch $1.4 million a year, before the halving and difficulty spike.

    The trade would make a profit of about $200,000 a year, after the halving and difficulty spike.

    Given the initial hardware investment of $325,000, a profit of $200,000 doesn’t look too good. It can be seen that marginal mining operations will be forced to close after the halving due to the other costs involved in mining such as property, salaries, maintenance, etc. get ahead. bitcoin price is the only wild card. it will allow less efficient miners to keep the lights on for longer, if raised high enough.

    conclusion

    For an average home miner, it will be difficult to recoup the cost of mining hardware and electricity. in this current given circumstance, profitability is highly unlikely. Once asic mining hardware innovation reaches the point of diminishing returns, the situation may improve in the future. which, coupled with cheap and hopefully sustainable power solutions, can once again make bitcoin mining profitable for small individual miners around the world. decentralization of the bitcoin network will also greatly improve by strengthening it against legislative risk.

    See also: Best Crypto Portfolio Management Software – 2022 Reviews & Comparison

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