Is Bitcoin mining still profitable?

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Bitcoin is one of the hottest cryptocurrency from a long time. But, only a fixed number of it will ever exist, with an upper cap of 21 million bitcoins. This has attracted a lot of people to set up their own rig and mine for bitcoin. Not only people, but organizations have also poured in a lot of money and human intelligence to mine bitcoin and develop cutting edge focused equipments whose sole purpose is to mine bitcoin. These devices are called ASIC, or an Application Specific Integrated Circuit.

A general consensus on Bitcoin mining has been that it is something that requires a moderate to high starting capital, but will recuperate that capital and start making profits pretty quickly. But that might not necessarily be true. With more and more computing power joining the network of bitcoin mining, the difficulty of mining a block increases as well. This is quantified using Mining Difficulty.

The concept of difficulty was introduced to reduce the inflation rate of bitcoin. That is, as more and more computing power joined the mining network, the time to mine a single block on the blockchain will go down. To counter this trend, the difficulty of the math problem which needs to be solved to mine a block is increased regularly. This phenomenon has created a mining equivalent of an “arms race” to get the best ASIC which would improves the chances of mining a block and earn the rewards of, currently, 12.5 BTC.

An Analysis of Bitcoin mining:

We decided to conduct an analysis of Bitcoin mining by calculating all the costs, but initial and over the next two years, to calculate what the current price of bitcoin should be in order to break-even. Two years were used as a time period because most mining rigs have a lifetime of approximately two years. The following data was used in the analysis:

Hardware Cost = $765
Overhead Cost = $200
Maintenance Cost = $10
Electricity Cost = 7 cents/kWH

The hardware cost was calculated by considering a13.5TH/s bitcoin ASIC. Overhead costs include the cost for installation and setting up the environment to install the ASIC. A monthly maintenance cost of $10 is fixed. The electricity cost is calculated by considering the following distribution for bitcoin mining:

Bitcoin Mining distribution: Georgia -> 15%, China -> 70%, India -> 3%, USA -> 3%, other countries -> 6%

Looking at the historical data, it can be approximated that the difficulty increases 8% every month and this rate is used to estimate Bitcoin mining difficulty over the next 24 months. The following link contains a spreadsheet which outlines the calculations done using the above assumptions.

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It can thus be observed that for Bitcoin mining to be profitable after two years, the current price of it should be $12,166.94. This is no-where close to the current price of BTC, which is almost half of the break-even price. This clearly indicates that with the participation of structured organizations and corporations in bitcoin mining, it is no longer profitable for an individual to buy and set up a BTC mining rig using a standard ASIC. This is partly due to the fact that on average, $66 is spent on electricity every month!

Also, with the difficulty increase at a very high rate, newer and newer ASICs will be developed, rendering the current one’s obsolete in the next few years. This would increase the hash rate of the bitcoin network, making it more and more difficult to mine a block. The network hash rate determines the number of calculations taking place per second in the bitcoin network. The growth of hash rate means that more and more people and organizations are joining the bitcoin mining bandwagon.

This is counter-intuitive, given that bitcoin has lost more than 50% of its value since the start of the year. In the same time, the bitcoin network has rate has increased by over 150%. Currently, the network hash rate is 38 Exa-hashes per second, which is 38 trillion-billion hashes or 38,000,000,000,000,000,000 hashes per second. This is also an indicator of the fact that bitcoin mining is not profitable, with a focus on other cryptocurrency like ethereum being a more profitable investment.

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