Bitcoin Mining: Worth The Investment?

Bitcoin mining can be profitable, but it depends on a lot of factors. Bitcoin mining is the process of validating transactions and adding them to a public ledger called the blockchain. Miners earn bitcoin as a reward for their efforts. However, the costs of mining equipment and electricity, as well as the competition from other miners, can make it difficult to turn a profit. The profitability of bitcoin mining also depends on the price of bitcoin, which can be extremely volatile.

Bitcoin mining equipment and costs

Bitcoin mining equipment is a major factor in determining whether the activity is profitable. The price of top and mid-tier application-specific integrated circuit (ASIC) miners, the specialised chips made for Bitcoin mining, is a key consideration. These chips are extremely powerful computers that can cost up to $10,000.

ASIC prices were reportedly down by around 70% from their all-time highs in 2022, when units sold for around $10,000 to $18,000. However, the cost of a new ASIC can still be extremely high, with prices ranging from $1,950 to $9,338.

In addition to the ASIC miners, there are other pieces of Bitcoin mining equipment to consider:

• Power supply – Bitcoin rigs need special power supplies to funnel and use electricity efficiently.
• Cooling fans – Bitcoin hardware can easily overheat and stop working. Cooling fans are needed to keep the hardware working.
• Backup generators – In case the main source of electricity goes down.
• Temperature monitor – Required to track hardware heat levels, prevent overheating, and maintain optimal performance.
• Liquid cooling system – Can efficiently dissipate heat, ensuring stable hardware operation and preventing thermal-related damage.
• Air conditioning – May be needed to regulate temperature and prevent hardware from overheating.
• Solar panels – Could be used to harness renewable energy, reducing electricity costs.
• Direct grid connection – Can ensure a consistent, uninterrupted power supply, maximising uptime and optimising potential mining rewards.
• Air filtration – To ensure workers in the mining hardware building have clean air to breathe.
• Ethernet cables – For stable, direct internet connections, reducing latency and potential disruptions.
• Routers – A good router is needed to maintain stable connections and ensure consistent mining.

As well as the equipment, the cost of electricity to power the mining machines is a significant factor in determining profitability.

Bitcoin's market value

Bitcoin's price has fluctuated from $0.00 when it was first launched, to an all-time high of $75,830 in March 2024. As of August 2024, the price of Bitcoin is around $55,936 to $59,441.

Bitcoin's value is also affected by its fixed supply. With only 21 million bitcoins to ever be minted, its scarcity can lead to dramatic price changes as demand varies. This is exacerbated by "whales", or large holders of Bitcoin, whose sizable transactions can sway the market considerably.

Energy consumption and environmental impact

Bitcoin mining is an energy-intensive process that requires a lot of electricity to power the computers that solve complex mathematical functions called hashes. The energy consumption of Bitcoin mining is comparable to the energy consumption of small countries. In 2023, global energy consumption from Bitcoin mining doubled, reaching 141.2 TWh as of December 20. The Bitcoin network now consumes more energy than some countries, including Pakistan and Ukraine. The process also results in significant carbon emissions, as about half of the electricity used is generated through fossil fuels.

The environmental impact of Bitcoin mining is significant. The energy-intensive nature of the mining process has led to concerns about its carbon footprint and water usage. Bitcoin mining's distribution makes it difficult for researchers to identify the exact location of miners and their electricity use, which makes it challenging to translate energy consumption into carbon emissions. However, estimates suggest that Bitcoin mining results in annual carbon emissions of around 65 Mt CO2, which is about 0.2% of global emissions.

The impact of Bitcoin mining on the environment has attracted the attention of regulators and led to incentives or restrictions in various jurisdictions. For example, in 2022, New York State imposed a two-year moratorium on new fossil fuel mining plants due to environmental concerns. On the other hand, states like Iowa, Kentucky, Montana, Pennsylvania, Rhode Island, Texas, and Wyoming encourage Bitcoin mining with tax breaks. Texas incentives, in particular, aim to cut methane emissions from flared gas by utilizing Bitcoin mining.

Bitcoin mining companies often locate their operations near affordable energy sources, such as hydroelectric dams, oil and gas wells, or solar energy farms. While some argue that Bitcoin mining can support the development of renewable energy sources, others suggest that using renewable energy for mining may limit its availability for the general population. Additionally, the constant energy requirement of Bitcoin mining increases baseload demand on the grid, and historically, Bitcoin miners have ended up using fossil fuel-based power to meet this demand.

The energy consumption and environmental impact of Bitcoin mining are important considerations in the debate around the profitability of investing in Bitcoin mining. As energy prices rise, the profitability of Bitcoin mining decreases, and the environmental impact becomes a more significant concern.

Bitcoin mining pools

There are several common payout schemes used by mining pools, including:

• Pay per share (PPS)
• Pay per last N shares (PPLNS)
• Pay per share plus (PPS+)
• Full-pay-per-share (FPPS)

These schemes all pay based on the share of work contributed, with different payout calculations for each type. For example, in PPLNS, the number of trial blocks or shares contributed between the last block and the new winning block dictates your payout.

Some popular Bitcoin mining pools include:

• F2Pool
• Foundry USA
• Binance Pool
• Ultimus Pool
• Braiins Pool

Bitcoin mining difficulty

The difficulty adjustment is directly related to the total estimated mining power, and a high difficulty means that it will take more computing power to mine the same number of blocks, making the network more secure against attacks. As more hashing power is added to the Bitcoin mining network, the difficulty must increase to ensure that blocks are not generated too quickly.

The Bitcoin mining difficulty level as of August 2, 2024, was 90.67 T, up from 52.33 T a year before. This represents a 73.26% increase in difficulty over one year.

The Bitcoin mining difficulty is one of the factors that determine whether Bitcoin mining is profitable. Other factors include equipment and electricity costs, and Bitcoin's market value.

Frequently asked questions