With the massive price jumps Bitcoin saw at the end of 2017-2018, it’s natural to wonder if mining Bitcoin is worth the cost and effort. You’ll have multiple factors to consider here. Bitcoin may have increased significantly in price, but that doesn’t necessarily mean that mining it is sure to be profitable.
In deciding whether Bitcoin mining will be profitable, the three factors you’ll need to consider are its difficulty compared to its reward, the hash rate and your costs to operate everything.
Difficulty Compared to Rewards
In Bitcoin mining, difficulty is how complicated the algorithm is. Your mining rig must solve this algorithm to create another transaction block, and algorithms become more difficult when more miners come to the network.
There’s currently a reward of 12.5 bitcoins for each block you mine. A halving occurs after every 210,000 blocks, which has led to drops from previous rewards of 50 and 25 bitcoin. Halving should happen once again in 2020.
The hope is that Bitcoin’s price will continue to increase substantially enough that the lower reward amounts don’t matter. Just keep in mind that Bitcoin is volatile, and there’s no guarantee it will increase in price. It’s also unknown how many new miners there will be, making it impossible to calculate what your mining revenue will be from year to year.
Hash rate refers to how quickly your mining rig gets through algorithms. As you’d expect, mining rigs with higher hash rates also have much higher price tags.
What you should think about here is the length of time you’d like to try Bitcoin mining. Be realistic about this. It makes no sense to invest in an expensive mining rig with a high hash rate if you won’t be mining very long.
Your Operational Costs
Bitcoin mining comes with a few costs that eat into your profits. Most important is electricity so consider mining colocation to save you money on power rates. When you’re looking at a mining rig, compare the typical power consumption it has listed with the rate you pay for electricity from your power company. This helps you figure out the amount you’ll pay per month for your Bitcoin mining.
To get anywhere with Bitcoin mining, you must also sign up with a mining pool, which is a group of miners who all work as a team to get through blocks faster. When a pool gets through a block, they split their profits. Mining pools have fees that tend to be between 0 and 5 percent of the profits.
And of course, there’s the upfront cost of your mining rig. You can find mining rigs for under $500, but more high-end units can cost $2,000 or more.
Running the Numbers
After you know your electricity costs and you have an idea of the mining rig you want, you can check how much you could make with a profitability calculator. Several sites have these available online. Even if Bitcoin mining doesn’t seem like a profitable endeavor, remember that there are other cryptocurrencies you can mine for, as well.