3Commas
Is Bitcoin mining profitable in 2023?
As crypto mining is a vast domain, understanding what the best cryptocurrency to mine is, what Bitcoin mining is, why people are mining Bitcoin, and how to determine the mining difficulty will set you apart from an enthusiast to a crypto pro.
So, in today’s article, you will learn everything you need about Bitcoin mining and whether it can still be profitable in 2023.
What is Crypto Mining?
In short, crypto mining consists of a process that involves solving different math puzzles by using computing power. That said “math puzzle’ is more of an alphanumeric string of characters attributed to the block. And, of course, the first miner to get the correct answer validates the block and gets rewarded with cryptocurrency.
However, although the process may be different from one crypto to another, the concept remains quite similar, making mining (and other forms of validation) essential for the evolution and existence of decentralized technologies.
For Bitcoin, the miners are rewarded in BTC every time they find a 64-digit hexadecimal number and add the block to the blockchain.
In theory, BTC mining may sound simple and straightforward. In practice, you need to consider lots of factors, such as hash rate, mining difficulty, the block reward that halves every four years, energy use, costs, and more.
And because of these factors, more crypto enthusiasts wonder about BTC’s profitability.
How do people mine Bitcoin?
There are three ways to mine Bitcoin:
- Pool Mining by joining resources with others;
- Individual Mining, where you will need all the tech gear;
- Cloud Mining without owning any mining equipment.
Bitcoin Pool Mining
Some find pool mining advantageous because it joins resources to mine and shares rewards. The allocation of rewards is dependent on individual contribution to the pool.
When it comes to pool mining, you should consider three essential aspects before jumping onto any pool mining platform: the pool size, the minimum payment, and the service fees charged by the mining pool.
These three factors determine how profitable the mining business will be.
Individual Mining
Individual mining or solo mining requires you to build up a tremendously powerful mining machine to compete with the entire network of mining on your own. It can be done, but it involves a lot of hardware and high electricity bills.
Cloud Mining
As the name says, it enables investors to mine Bitcoin remotely without owning equipment. Considering the mining equipment’s cost, leasing it opens this option for those with a dollar to spare who do not want to host the equipment alone.
How Much Does a Bitcoin Miner Earns?
A miner earns 6.25 BTC + fees per validated block. But there are a few more things to consider.
A 2021 study showed that Bitcoin mining is a rigorous business, and 90% of the network’s mining power is controlled by 10% of Bitcoin miners, while 50% of the network’s mining power is held by 0.1% of all miners.
It is necessary to understand that Bitcoin halved its mining reward every 210,000 blocks or every four years. If in 2009, the prize was 50 BTC; in 2013, it reached 25, and in 2016 it became 12.5 BTC. Since May 2020, the BTC reward has been 6.25, and the fourth halving will be in March – May 2024, when the reward will fall short, just 3.125 BTC.
Why Do People Mine Bitcoin?
Let’s be straight, as people primarily mine Bitcoin for a variety of reasons, including earning profit. Here are 5 top reasons why people mine Bitcoin:
- Earning Bitcoin rewards: Miners verify all the transactions and add them to the blockchain; this results in BTC rewards.
- Supporting the Bitcoin network: Through Bitcoin mining, people help to secure the network, ensuring that each transaction is processed immediately. This process is a way to support the Bitcoin ecosystem and the value it represents.
- Long-term investment strategy: We might say that for some miners it is a way of accumulating BTC believing it will increase value over time.
- Hedging against inflation: Since Bitcoin is a finite supply and cannot be easily manipulated by the central banks or government, mining Bitcoin allows users to acquire and hold them as a store of value.
- Business opportunities: Some companies have built businesses around the Bitcoin network, offering services such as mining pool hosting, cloud mining, and equipment sales and maintenance.
Aside from the short-term payoff of newly minted BTC, being a coin miner can also give you “voting” power when the Bitcoin network protocol changes are proposed, known as a Bitcoin Improvement Protocol (BIP).
How to Calculate Expected Profits from Mining
A basic calculation of a miner’s profit margin is as follows: net profit margin = ((revenue – costs) / revenue) * 100
Revenue refers to the total earnings at the said time, and cost includes the electricity bills, management fees, and the cooling systems involved. The first part of the equation results in a ratio, and by multiplying by 100, you get the profit margin as a percent value.
And the Return on Investment of the machine depends on the cost of buying an ASIC machine. Using the following ratio will provide you with a BTC mining ROI:
ROI = initial purchase price / net monthly income = how many months left until ROI
Before jumping to expected profit mining, let’s make a practical example, shall we? For this we are going to use CryptoCompare calculator and will run an Antminer S19 Pro, with a maximum hash rate of 110 Th and power consumption of 3250 W (±5%), if we assume the miner pays 8¢ power per kWh, this means the estimated profit per month is $ – 1,592.81.
This is why Bitcoin mining is more suitable for a long-run strategy, rather than short time profit. Even though this is an estimate, the right strategy would be to acquire as many Bitcoins as possible to be sold in Bullrun.
Also, given the frequent changes in Bitcoin difficulty adjustments, use crypto by market cap to calculate Bitcoin mining profits, and b efore dwelling on the expected profits from BTC mining, it is recommended to understand two essential aspects: hash rate, hash power, and mining difficulty. So, let’s jump into it.
Understand What Bitcoin Hash rate and Hash power are
The hash rate measures a blockchain network’s computational power and determines a blockchain network’s security and mining difficulty.
However, hash power or hashing power represents the hash power your hardware can use to run and solve different hashing algorithms. These algorithms are used for generating new cryptocurrencies and allowing transactions between them.
As of April 4, the current Bitcoin hashrate is 320.52 EH/s at block height 783,870 with a difficulty of 46,843,400,286,276.55.
Bitcoin Mining Difficulty in April 2023
Given the name, mining difficulty represents how challenging it will be to mine the block. Bitcoin mining difficulty measures how many hashes are needed to find a valid solution to the following Bitcoin block, thus earning mining rewards.
The Bitcoin difficulty algorithm has a 10-minute duration for generating a winning code, thus finding new Bitcoin blocks to be added to the blockchain. The algorithm difficulty will increase or decrease to maintain a certain rhythm, ensuring that blocks are generated slowly.
Bitcoin mining difficulty is calculated using the most common formula: Difficulty Level = Difficulty Target/ Current Target.
The current BTC difficulty is 46.84 T at block 783,870.
Knowing what the hash rate and hash power are, you must understand that if the hash rate grows, you must supplement the hash power. Otherwise, you risk making little profit and losing money overall.
Bitcoin Mining: Energy Consumption and Profitability
In the last few years, we got bombarded with multiple questions revolving around the energy consumption and profitability of Bitcoin mining.
Mining bitcoin uses extensive energy due to fierce competition amongst crypto miners and more comprehensive network activity. Bitcoin consumes around 127 terawatt-hours (TWh) per year. In the United States, crypto activities are estimated to emit 25 to 50 million tons of CO2 yearly.
But a recent study by the Bitcoin Mining Council found that 58% of all cryptocurrency activities utilize renewable energy, thus more carbon emission reduction. As a result, it is implied that the Bitcoin mining business uses some of the greenest energy, and there is still a push towards a 100% renewable strategy.
Nonetheless, we must mention that state-of-art-art equipment has been rapidly evolving, resulting in more energy-efficient chips. Given this, we could say that at this moment, mining BTC is not profitable for short term, but a different practical strategy would be to mine coins and sell them in the bull market.
Final Thoughts: Is Bitcoin mining profitable in 2023?
Until now, you have learned about what BTC mining is and why people are still mining, the mining difficulty and the hash rate, and the measurements the Bitcoin Mining Council takes to migrate towards a renewable energy strategy.
In essence, Bitcoin mining is still worth considering as a long-time strategy, as many recent innovations have been introduced. But remember that as competitive Bitcoin mining is, you should arm yourself with patience, new and adequate information about Bitcoin mining, and remember to invest only what you are willing to lose.
