Bitcoin, which still dominates the cryptocurrency market after a decade, is driving attention due to its growth in price and value. Named as the best investment asset of the decade, Bitcoin’s returns for the year 2020 have surpassed the returns of traditional instruments like gold and stocks. One of the ways to access this cryptocurrency is through mining Bitcoin.
What is Bitcoin Mining?
Bitcoin mining is a process of providing a computational power to solve math problems and receiving rewards for that in the form of tokens. Since Bitcoin does not have any centralized authority, transactions are validated through the consensus mechanism. Mining refers to the process of receiving rewards in the form of Bitcoin tokens.
Miners together provide a computational power to validate a transaction. After maximum miners have deemed the transaction as valid, the miner who solved the problem receives a reward in the form of Bitcoins. This process is known as mining. And the computers or hardware systems that solve computational problems are called miners.
Since Bitcoin’s popularity exploded exponentially, the number of players performing the mining process has subsequently increased. Hence, the question that has gained relevance in 2020: ‘Is Bitcoin mining profitable’?
Bitcoin Mining in 2020
Well, a couple of factors has changed since 2009, the year of Bitcoin’s invention. In 2009, only a handful of people mined Bitcoin and at times from the four corners of their homes on their computers. With Bitcoin gaining prominence, subsequently, the firms and people involved in the activity of Bitcoin mining increased.
The increasing number of participants resulted in difficulty in solving math problems. Consequently, miners turned towards advanced hardware systems. Computers were replaced by Graphics Processing Units (GPU) and Application-specific integrated circuit (ASIC). The advanced hardware systems facilitated an increase in speeds and subsequently a higher possibility of Bitcoin rewards.
Corporations and firms started building rigs specifically dedicated to Bitcoin mining. New methods like pool mining and cloud mining have also started to increase the resource power for Bitcoin mining profit.
Furthermore, another factor that has changed since 2009 is the Bitcoin rewards handed out per block. At first, the number of Bitcoin rewards per block was 50 BTC. After every 4 years, the rewards split in half. While in 2016, the Bitcoins rewarded per block were 12.5, in May 2020 it further split in half to 6.25. Well, in 2020 the question to can you still mine bitcoin is yes, but is mining bitcoin worth it? Even though mining bitcoin can be profitable, sometimes exchanging it to another currency can make a value. For example, you can consider exchanging bitcoin to ethereum.
Is Bitcoin Mining Profitable?
With Bitcoin trading at levels near $12000 now, anyone might wonder, is mining bitcoin profitable? Well, mining Bitcoin can be profitable but there are factors attached to it. Here are a couple of factors that miners need to consider:
- Difficulty rate– As the number of hardware increased, the difficulty rate subsequently started growing. In other words, the higher the difficulty the harder it is for an individual miner to earn rewards. To put this into perspective, consider this- at the inception of Bitcoin the difficulty rate was 1, and now in 2020, this rate is nearly 17 trillion.
- Mining rewards– As stated earlier, every 4 years the mining rewards are cut to half by the Bitcoin’s network. In 2020, they are 6.25 BTC and in 2024 the reward will be 3.125 BTC. Moreover, the number of Bitcoins is finite at 21 million after which no new Bitcoins will be produced.
- Hardware– Unlike the early years, Bitcoin mining is not profitable if done from your computer at your home. Specialized hardware equipment like ASIC is necessary to increase the possibility of Bitcoin rewards. However, setting up a mining rig starts from around $3000, and miners also spend as much as $10,000 to turn it into profits.
- Electricity costs– The equipment and hardware set to mine Bitcoin consume quite a lot of power to run round the clock. After buying the equipment and setting a rig, a miner faces the recurring costs of electrical power. The electrical costs entirely depend upon your location where you have set the mining rig. But please note that in states with higher electricity rates, the cost of mining one Bitcoin is as high as $6000.
- Joining pools– In the current scenario, an individual miner with a small mining rig has fewer chances of converting it into a profitable venture. Alternatively, they can join mining pools or register for cloud mining and in accordance with your investment, your rewards will be distributed.
How Much Do Bitcoin Miners Make?
If you are wondering how much can I make mining Bitcoin, it depends upon a multitude of factors including your location, hardware equipment, your hash speed, your state’s electrical costs, etc.
There are mining calculators available online for you to add your factors and it will display the result of profits that can be generated per day.
In this article, we covered Bitcoin mining is profitable in the year 2020 considering the various factors. Meanwhile, the cryptocurrency continues to gain mainstream adoption with each passing day.
Written by Adam Eaton