Mining Bitcoin is a computing process that can be extremely profitable.
It is important to understand the few variables taking part on the mining process and how they impact the profitability.
Bitcoin is a monetary network composed of a limited amount of 21M units. It is a decentralised network, without a Central Bank or any administrator, that allows peer-to-peer transactions without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Not all 21M Bitcoins are yet available; new Bitcoins are created with every new block as a reward for a process known as mining, until the last Bitcoin is mined in the year 2120.
Mining is a record-keeping service carried out through the use of computer processing power. Miners keep the blockchain consistent, complete, and unalterable by repeatedly grouping newly broadcast transactions into a block, which is then broadcast to the network and verified by recipient nodes. Each block contains a SHA-256 cryptographic hash of the previous block, thus linking it to the previous block and giving the blockchain its name.
When calculating the profitability of mining, there are a few elements that must be considered.
The Bitcoin network is sustained by the aggregation of the total computing power devoted to mining, or the total Hashrate power. The network automatically adjusts (every 14 days) its block verification process Difficulty to ensure the hashing of each block occurs every 10 minutes. The higher the total Network Hashrate, the higher the Difficulty to mine, and vice versa .
To simplify, it is important to understand your miner hashrate and the share it represents vs the total network hashrate.
The Bitcoin network currently delivers 6.25 Bitcoins as a reward for hashing one block. The reward amount is adjusted every 4 years in a process called Halving, where the reward is reduced by half. The next Halving is expected in May 2024. The Halving is well-known to help ensure Bitcoin's price appreciation, as, after it occurs, the supply of new Bitcoins mined reduces substantially and thus makes it more scarce vs demand.
Since a block is hashed every 10 minutes on average, and the current reward is 6.25 Bitcoins, we conclude that there are 900 Bitcoins mined everyday.
In order to receive the Block Reward, a miner needs to solve a block. Mining "solo" means to compete with the whole Bitcoin mining Network, and thus makes it very difficult for individual miners to get a reward. Mining Pools bridge this gap by aggregating the mining power of large groups of miners, and regardless of which specific miner solved a block, the reward is shared across all participants. When using a mining pool under the FPPS (Full Pay Per Share) System, you receive a share of the 900 daily mined Bitcoin equivalent to the share of hashing power vs the total network.
Any Bitcoin user that executes a transfer needs to pay a small fee. Each block to be hashed aggregates a certain amount of transactions and their embedded fees. When a miner solves the block these fees become part of the reward as well. These fees are normally calculated as a percentage of the Block reward. and may range between 1% to 10%. Mining Pools using FPPS System distribute all the fees to their participants as well.
Mining rewards come in Bitcoin, while the mining costs are payed in USD. High Bitcoin prices result in lower relative costs, and vice versa. Each miner has a Turn-Off point, a price below which mining becomes no longer profitable. Our offerings are highly competitive, with low Turn-Off points far below current prices, providing long term reliability. A possible sharp drop in the price of Bitcoin would force less efficient miners to disconnect first, thus reducing the Total Network Hashrate and increasing your share, generating higher rewards in Bitcoins, which despite being cheaper would keep your mining operations very profitable.
Electricity is the main cost of mining Bitcoin. Machines with high computing power require large amounts of energy (>3000W). Hosting Services normally charge a fee for kWh of consumption, with prices in Georgia (Europe) around 0.130 - 0.085 USD/kWh. It is worth noting that miners normally consume around 3-5% more than the nominal value given by the manufacturers, so when simulating cost scenarios this must be taken into account. Some Hosting Services may charge some additional services for equipment / connectivity / insurance. Find out more about our Datacenters and their prices.
To evaluate the potential future profits of mining operations, The Mining Future FZCO has conducted extensive research and a deep-dive study of the historical evolution regarding the most important elements of mining: The Network Hashrate and the Bitcoin Price. The Mining Future FZCO has developed its own simulation models and generated future scenarios based on its own research. We would like to share with our more advanced investors the same data we used for our models .
Our conclusion is clear, mid (3-5 years) and long (5-10 years) term it is expected Bitcoin prices to keep raising within the macro long term trend it has gone since its beginnings, following an exponential growth. On the other hand, the total Network Hashrate will not be able to grow as fast due to technological, manufacturing and energy scarcity constraints. The best of the expectations is a linear growth of the total Network Hashrate.
In other words, the divergence between higher Bitcoin prices and slower Hashrate growth will become a big opportunity that will have a multiplying effect on the profits to any Bitcoin miner, even after the Halving expected on early 2024. The miners starting operations now will benefit of much higher revenues, with less total network hash power to share its rewards with.
Bitcoin price action shows large momentum in the logarithmic scale to reach the next x10 in a relative short period of time, propelled by its mass adoption.
Total Hashrate is decelerating in a logarithmic scale: Energy scarcity and chips shortages makes it challenging for the next x10 growth over next years.
The divergence between these two critical curves results in a big opportunity for mining in the next 5 to 10 years. Bitcoin rewards share is accelerating slower than the Bitcoin Price, so miners will be gradually receiving less Bitcoins, however the Bitcoin price action will offset greatly this gradual loss.
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