We’ve all heard the success stories of those who started mining bitcoin at the early days in their basements and made a killing. A pizza bought for 10 000 Bitcoin may still make you cringe. Those days are often referred to as the gold rush.
What is the story today? Can you still make money mining bitcoin at home without any special equipment ?
Firstly – What is bitcoin mining anyways?
Mining is the process of adding records of transactions to Bitcoin’s public ledger. This is called the blockchain. Every individual block must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes (any computer that connects to the Bitcoin network is called a node) each time they receive a block. This solves the double spend issue with digital currencies.
What’s the purpose of this? The idea of mining is allowing the Bitcoin nodes to reach a consensus. The whole thing is built in a way that transactions are secure and tamper-resistant. Mining allows this currency to truly be decentralized.
A block is confirmed every 10 minutes and at the time of writing this article there were over 2000 transactions per block. For confirming a block the miner receives a reward. Miners are also paid miners’ fees on top of the block reward. This is to incentivise and keep miners securing the network. It is called mining as it is similar to mining gold for example – it is a rather difficult process and takes a lot of recourses (electricity) as a valuable asset is released over time.
This is accomplished by running SHA256 double round hash verification processes that will confirm the transactions on the network and secure the public ledger in the process. The mining speed is measured in hashes per second. The more computational power you have the higher the reward you receive.
Early Bitcoin Mining vs Today
Bitcoin is set up in a way that the mining reward halves every 210 000 blocks. So far it has happened approximately every four years. The reward at the start was 50 BTC and this will keep diminishing over time until the total number of Bitcoins that can ever be, which is 21 million, will be mined. Then mining stops.
In the early days it was relatively easy to mine, just using your computer CPU at home. Over time as mining became more popular, people started using graphics cards or GPU’s for mining. This is no longer profitable. The electricity cost will quickly diminish any possible earnings from it.
The next thing that came along was ASIC (Application-Specific Integrated Circuit) which has over 100x more computational power than mining with GPU’s. As mining has become really competitive, ASIC’s mining is the only profitable way to mine Bitcoin.
It comes down to these two thing really – the mining reward and competition. The mining reward previously halved in 2016 to 12.5 BTC and is expected to halve again around 2020. It is built up on simple economics. Once the supply drops the price should also rise, which it has done so far every time the reward has been cut in half. This should keep mining Bitcoin profitable for the miners until the total of 21 billion Bitcoins have been created.
Is Mining Bitcoin Still Profitable?
There are still ways of making money mining bitcoin – buying custom mining hardware, joining a mining pools or cloud mining services. The rewards are not what they used to be, but back then the Bitcoin price too was not high enough to make instant millionaires. Rewards came to those who waited. As I am writing this in the summer of 2017 you could make around 0.35 BTC per month mining with AntMiner S9. To up your profits further it is a good idea to use a mining pool. This hardware will cost you approximately $2000 and make you an estimated 4 BTC per year.
This is quite a decent amount, a year’s salary to some. And the key is you don’t really have to do much apart from getting the hardware, setting it up and paying electricity bills. Now if we go on a wild speculation run and assume you keep all the coins mined until the next halving of the bitcoin reward, you should have over 12 BTC. If the price would double again, we could speculate that this in 2020 could be worth upwards from $50 000. That is not a bad amount to make in 3 years with a starting investment of $2000.
This of course could go the other way as Bitcoin’s price is highly volatile and speculation on any kinds of currencies, commodities or assets can be very risky. The truth is we don’t have a window into the future. Bitcoin has proven itself and is showing no signs of stopping. Who knows, some day we might not even remember the traditional currencies like dollars or euros.
If you want to leave mining for others and get some Bitcoin quick, we’re happy to help!
Disclaimer: This is not investment advice, please bare in mind that the price of cryptocurrencies fluctuates a lot and there’s risk in speculating on these assets. The profit speculation on mining bitcoin in this article is calculated looking at previous events and the future prices may differ.