Is Bitcoin Mining Profitable?

There are several factors that affect bitcoin mining profitability
By KRISTINA ZUCCHI Updated November 08, 2023
Reviewed by JEFREDA R. BROWN
Reviewed by JeFreda R. Brown
Full Bio

Dr. JeFreda R. Brown is a financial consultant, Certified Financial Education Instructor, and researcher who has assisted thousands of clients over a more than two-decade career. She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University.
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Bitcoin mining is still profitable if you have a capable system, join a mining pool, and can pay off your fixed expenses in a reasonable amount of time. However, any expectations of digital riches should be tampered with reason. There are many people and wealthy organizations engaged in the activity, making it difficult for all but a few to reap the legendary rewards mining bitcoin used to promise.
However, this doesn't mean you can't make money mining bitcoin—it just won't be as lucrative as you would like. Joining a pool and connecting a good home mining rig might net you a few hundred dollars monthly (if you're lucky) after you account for your expenses.

KEY TAKEAWAYS

• Bitcoin is mined using systems specifically designed for it or by joining a pool and using up-to-date graphics processing units on more powerful computers.
• Miners are rewarded with bitcoin for verifying blocks of transactions by solving an encryption problem on the blockchain.
• A "hash" is a hexadecimal number that is words, messages, and data of any length sent through a hashing algorithm.
• Bitcoin mining profitability is affected by the costs of equipment and electricity, the difficulty associated with mining, and bitcoin's market value.

Components of Bitcoin Mining

Several factors determine whether Bitcoin mining is a profitable venture, including the cost of electricity to power the mining machines, the availability and price of machines, and mining difficulty.

Hashrate

Hashes are 64-digit hexadecimal numbers generated by a mining program trying to solve for the latest hash. Hashrate is a measurement used in the cryptocurrency industry that indicates how many hashes per second a mining entity can create when mining.
Hashing difficulty changes depending on the number of miners entering and leaving, as the network is designed to produce a certain number of bitcoins every 10 minutes. When more miners join the market, the difficulty increases to ensure that the number of bitcoins produced remains the same.1

Because each hash created is random and impossible to predict, it can take millions of guesses, or hashes, before the target is met and a miner wins the right to fill the next block and add it to the blockchain. Each time that happens, a block reward of newly minted coins is given to the successful miner(s), along with any fees attached to the transactions.

ASIC

Before the advent of the bitcoin mining software, early miners used personal computers and were able to generate a profit. Miners owned their systems, so equipment costs were negligible, and they could change the settings on their computers to run efficiently. Also, professional bitcoin mining centers with massive computing power had yet to begin. Miners competed only with other individual miners on home computer systems.
In 2013, a China-based computer hardware manufacturer called Canaan Creative released the first set of application-specific integrated circuits (ASICs) for bitcoin mining.2 Individuals began competing against powerful mining rigs with more computing power. Mining profits were slashed by the growing expenses for computing equipment, higher energy costs, and the increasing mining difficulty.

Bitcoin Mining Difficulty Rate

To ensure bitcoin blocks are discovered every 10 minutes, an automatic system is in place that adjusts the difficulty depending on how many miners are competing to discover blocks at any given time.
The difficulty rate is a measure of how difficult it is to mine a bitcoin block or to find a hash below a given target. The higher the difficulty rate, the less likely it is that an individual miner can successfully solve the hash problem and earn bitcoins.
In recent years, the mining difficulty rate has skyrocketed. When Bitcoin was first launched, the difficulty was one hash. On Nov. 8, 2023, it was 62.46 T (T stands for trillion hashes, the number of hashes needed to mine one block), confirming the growth of difficulty associated with mining compared to when it began.3
The difficulty associated with mining Bitcoin is variable. It changes approximately every two weeks to maintain a stable production of verified blocks for the blockchain with a finite number of bitcoins introduced into circulation.
The Bitcoin network will be capped at 21 million total bitcoins. This has been a key stipulation of the entire ecosystem since it was founded, and the limit is in place to attempt to control the supply of the cryptocurrency. Currently, over 19.5 million bitcoins have been mined. As a way of controlling the introduction of new bitcoins into circulation, the network protocol halves the number of bitcoins awarded to miners for completing a block about every four years.
Initially, the amount of bitcoin a miner received was 50. In 2012, this number was halved, and the reward became 25. In 2016, it halved again to 12.5. In May 2020, the reward halved once again to 6.25. The next halving is expected to occur sometime in mid-2024, with the reward reduced to 3.125. Prospective miners should be aware that the reward size will continue to decrease, even as the difficulty is liable to increase.

Individual Profitability

Bitcoin mining remains profitable for some individuals. Equipment is more easily obtained, although competitive ASICs' cost varies from a few hundred dollars to tens of thousands. To stay competitive, some machines have been adapted. For example, some hardware allows users to alter settings to lower energy requirements, thus reducing overall costs.4
Prospective miners should perform a cost-benefit analysis to understand their break-even price before making fixed-cost equipment purchases. Variables to consider include cost of power, efficiency, time, and bitcoin market value.
A profitability calculator, such as the one provided by CryptoCompare, helps would-be miners analyze the cost-benefit equation of Bitcoin mining. Profitability calculators differ slightly, and some are more complex than others.

Mining Pools 

To compete against the mining mega centers, individuals can join a mining pool, a group of miners who work together and share the rewards. This can increase the speed and reduce the difficulty of mining, putting profitability within reach.
As difficulty and cost have increased, more miners have opted to participate in a pool. Although the overall reward decreases among multiple participants, the combined computing power means that mining pools stand a much greater chance of actually completing a hashing problem first and receiving a reward.

Pool Payout Schemes

Two common payout methods used in bitcoin mining pools include proportional mining and the pay-per-share method. In a proportional mining payout method, miners receive rewards proportional to the amount of effort expended by them in finding a block. The payout amount also depends on whether the pool finds a block and this payout method is profitable during times when the price of bitcoin surges.
The pay-per-share method distributes payouts based on the mining power of the entire pool and is the opposite of a proportional mining system. A miner’s share is determined not by their effort but by an equitable division of the rewards received by the pool. A miner receives their reward regardless of whether the pool finds a block. Since it guarantees a flat fee, this payment model is best suited for periods when the bitcoin price is low.5

Profitability

To answer the question of whether Bitcoin mining is still profitable, use a web-based profitability calculator to run a cost-benefit analysis. Determine if you are willing to lay out the necessary initial capital for the hardware and estimate the future value of bitcoins as well as the level of difficulty.
According to recent research, Bitcoin mining is a highly concentrated business, with 10% of miners controlling 90% of mining capacity on Bitcoin's network. Even more telling is another statistic from the research: 0.1% of all miners own 50% of the network's mining capacity.6 So, if you decide to mine independently, bear in mind that you are competing against established outfits with enormous capacity, amounting to more than 100 exa-hashes per second (10018 hashes per second), at their disposal—compared to a graphic processing unit's approximately 275 mega-hashes per second (275 million h/s).78

What Is Bitcoin Mining?

Bitcoin mining is the process of earning bitcoin by running the verification process to validate bitcoin transactions. The verification process requires solving an encryption puzzle and competing with other miners to solve these calculations quickly.

Is Bitcoin Mining Even Profitable Anymore?

Bitcoin mining can be profitable for firms that operate large mining pools with dedicated hardware and facilities. You can increase your chances at profitability by joining a pool, but your rewards are based on your contribution to the mining effort, i.e., how much hashing power you provided to the pool when it won the reward.

What Factors Should Be Considered for a Cost-Benefit Analysis of Bitcoin Mining?

Variables needed to calculate bitcoin profitability include electricity costs, the efficiency of mining machines, and bitcoin price. Companies such as Nicehash provide online calculators that can help you determine mining profitability.

The Bottom Line

Bitcoin mining is the process by which miners earn bitcoins in exchange for running the verification process to validate Bitcoin transactions. With increasing difficulty levels and the number of large institutional players in the Bitcoin mining ecosystem, economics have changed. Individual miners should perform a cost-benefit analysis, considering variables such as electricity costs, efficiency, bitcoin price, and pool payout schemes before deciding to mine.
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