Is bitcoin mining profitable? This question must have come to the minds of all cryptocurrency investors at least once. Though bitcoin mining has an attractive appeal for all the cryptocurrency investors, it is not as easy as you think. It may turn a hectic affair with very irregular rewards. Especially those investors who have a good knowledge of technology, they see bitcoin mining as a good opportunity. But, before talking about the bitcoin mining and finding out if it’s profitable, let’s have a look at the history of bitcoins, the bitcoin network, and bitcoin mining.
Bitcoins were first released 11 years ago in 2009. Bitcoin is a form of digital currency, and it’s a decentralized cryptocurrency. Bitcoins were invented by an anonymous person or a group of persons called Satoshi Nakamoto, in 2009. Their latest release took place in March 2020, two months ago. The bitcoin network was invented in 2008, but was officially released in 2009. Bitcoins are created for a particular reason. For the process called bitcoin mining, the miners receive the reward in the form of bitcoins. And these bitcoins can be exchanged for other approved services. Bitcoins rose to popularity within a short period of their release, and became very popular with the online investors. The statistical data shows that a majority of cryptocurrency wallet users prefer bitcoins over any other cryptocurrencies.
Though there are many benefits of using bitcoins, they are severely criticized for many reasons. And the major reason behind the criticism towards bitcoins is the increasing number of illegal transactions through bitcoins. Most of the illegal investors, money-makers, and fraud people have made use of bitcoins in their illegal transactions, over a few years. This is the reason countries like Algeria, Egypt, and Morocco have a complete ban on the use of bitcoins as a financial asset.
However, some countries have understood the increasing influence and importance of bitcoins in the online money market. And they have avoided a complete ban on bitcoins, and they permit a limited or restricted use of bitcoin currency. Therefore, using bitcoins is a legally permitted activity in countries like Mauritius, South Africa, etc. Even the USA, India, and many other countries are allowing the use of bitcoins. Thus, it can be said that bitcoins have already received worldwide recognition and importance.
What is bitcoin mining?
The bitcoins operate in bitcoin network which is a peer-to-peer network of payment. The network functions on the cryptographic protocol. The creator of the bitcoins, Satoshi Nakamoto had claimed that the designing and coding work for the bitcoins had begun as early as in 2007, and he has invested his efforts for two years. He has built this network of cryptocurrency with a lot of effort, as he further claims, and only then it was released as an open-source software, in 2009.
The two main components in the working of bitcoin mining are the bitcoin cryptocurrency wallet software and the public database system of bitcoins, called the blockchain. The main incentive of bitcoin mining is obviously, its reward. The bitcoin miners are rewarded with valuable bitcoin tokens for their mining. But, it doesn’t mean that this is the only way to earn cryptocurrency. Bitcoins could be bought by the use of fiat money, and they can also be traded. Therefore, people keep thinking that ‘is bitcoin mining profitable?’.
The process of mining supports legitimizes and monitors the network of bitcoins and its blockchains spread over the world. and this is not any single database handled by one person or group of persons. We already know that bitcoins are a decentralized cryptocurrency. All the activities related to the bitcoin network, rewarding, mining, etc. are also decentralized. They don’t depend upon any single bank or government for the decision making. Even the regulation of the bitcoins is decentralized, which could be a reason behind its use for illegal activities.
By the process of bitcoin mining, one can earn the cryptocurrency tokens without paying for it. When the miners complete a particular block of verified bitcoin transactions, these are added to the blockchain. And the miners receive a reward when this process is complete.
Bitcoin mining: going ahead with it
So, is bitcoin mining profitable? What is the actual process of bitcoin mining? How does it work? The bitcoin miners receive a reward for their activity when they solve a complex puzzle. Wait, don’t arrive at any conclusion before understanding the whole thing. These puzzles are some complex hash puzzles. A hash puzzle is a numerical puzzle, a process of converting one numerical puzzle into another compressed numerical value. The bitcoin miners are asked to find out the solutions for such complex hashing puzzles. And the one who arrives at the answer first, wins. The probability of his win also depends upon the mining network power.
It can be also said that the bitcoin miners act as auditors. We know that the real-life transactions, financial activities and incomes-expenditures need audits. Just as that, the cryptocurrency transactions also need the auditing process. And this job is also done by the bitcoin miners, it’s like their actual job. They have to verify the previously attempted bitcoin transactions. This concept was also invented by the developer of the bitcoins, Satoshi Nakamoto. According to him, this type of auditing will help to check the honesty of the investors. And it will also help to avoid the commonly occurring problem of double-spending, in bitcoin.
Satoshi Nakamoto had set up a limit of verification for bitcoin miners – it is 1 MB worth bitcoin transactions. That means, a bitcoin miner is rewarded when he successfully verifies a bitcoin transaction worth 1 MB. Though this may seem an easy task, there lies a luck part too. The luck part is, you have to be the first one to arrive at the right solution. If you become the first minor to do so, only you will be rewarded.
The matter of efforts + luck
Yes, gaining profit through bitcoin mining is a matter of effort plus luck. So, when we look at the whole process of bitcoin mining, you can see that only your efforts are not going to pay you off. It will require a luck factor, and vice versa. This is the reason why people keep asking, is bitcoin mining profitable? Well, to be precise, it depends on you and your luck. Also, the value of reward received by a bitcoin miner is reduced to half after every four years or so. So, if you calculate according to the year when it started, you can understand its value.
For the year 2020, it will possibly be reduced to a value of 6.25 BTC. But if you compare your reward with the task, it is quite beneficial. There are a number of websites, financial blogs, and other sites that will explain this concept in detail. They also guide the investors on how to increase the possibilities/probabilities of becoming the first puzzle solver. Because, if you have more chances to win, you will be encouraged to try more and more.
Most of the time, it is observed that the bitcoin minor’s community adopts measures to increase their chances of winning. The first method is obviously to get a fast mining rig to become the first one. And the other method is like working in groups and sharing the profit. A particular group of miners, who are going to try the same puzzle, combine their powers. They combine the computing powers to solve the problem. If they win, they split the benefits of the mined bitcoin. And, it is observed that such groups of bitcoin miners have won more times than the individual miners.
Is Bitcoin mining profitable?
After considering all the complexities involved in the process of bitcoin mining, one may start wondering about this. The first doubts will be – is it worth it? Is Bitcoin mining profitable? The investors’ interest in cryptocurrencies has risen since the increase in the value of bitcoin in 2015. There are more than 3000 types of cryptocurrencies are available as of now, but bitcoins are popular. In fact, there is a constant increase in their value and popularity as well. But even the bitcoin has two tough competitors – Ethereum, and Litecoin. So, it’s not like there’s no alternative at all.
But since last year, the process of bitcoin mining is becoming more complicated. It is almost becoming impossible to win it on your own. So, many miners are choosing the option to go for mining in bitcoin mining pools. But this too has a negative outcome. You’ll have to share your profit with others. Thus, the profitability in mining is decreasing day by day. Therefore, many bitcoin miners have started looking for more profitable alternatives than the bitcoin. Also, the set-up cost for the bitcoin mining is unavoidable. Because you have to have a good technical set-up to ensure a good bitcoin mining process.
It is necessary to have a good graphics card in your computer which can alone cost a lot. You can manage your expenses for mining some less-popular cryptocurrencies, but it not possible every time. You’ll have to spend a handsome amount on the set-up itself, if you are going for a big fish. You will also have to think about the cost of power because bitcoin mining involves spending a lot of electric power. And, if the power rates are high, it will cost you higher.
To conclude, it can be said that bitcoin mining is not as easy as one may think. You must ask this question to yourself – is bitcoin mining profitable? How much are you going to make from it? If you are fully determined to go for it, it will surely work for you. In the end, let’s have a look at some of the frequently asked questions about bitcoin and bitcoin mining.
Frequently asked questions
1. What is a bitcoin?
Bitcoin is a type of digital currency, a cryptocurrency. It is a decentralized currency that was created in the year 2009. It makes use of peer-to-peer technology to support instant payments to its users. Making transactions or passing payments through bitcoin is quite easy and less complicated. It is because it does not have any central monitoring authority over it.
2. What is meant by cryptocurrency?
Cryptocurrency is a type of digital financial asset. It’s like virtual money that can be used as a medium of exchange for the approved things. It operates completely on a digital basis and has no physical expression like banknotes or coins. So, it can be said that the existence of cryptocurrency is limited only up to the electronic form.
3. What is bitcoin mining?
The bitcoin network has a public database where all its transactions are recorded. And bitcoin mining is a process that adds information about various transactions to that database. Bitcoin miners are like auditors who secure the network of bitcoins, by adding the information about past transactions. This helps to avoid illegal transactions and double spending of the same bitcoin.
4. Is bitcoin mining profitable?
It is a 50-50 situation, because the winning probability depends on your efforts as well as your luck. However, if you manage to win a greater number of attempts, bitcoin mining can definitely prove profitable.
5. How are bitcoin miners paid?
The bitcoin miners are rewarded after they successfully verify at least the minimum limit of bitcoin transactions. The limit is 1 MB worth of bitcoin transactions, which will be rewarded. In reward, the miners receive a bitcoin or a cryptocurrency token for their work. They are awarded with a bitcoin, in simple words. Thus, bitcoin mining is a way to earn a bitcoin without spending money on it.
6. What is the responsibility of bitcoin miners?
The process of bitcoin mining is considered the backbone of the bitcoin network. Therefore, the responsibility of bitcoin miners is also very important. They help to secure the bitcoin network and protect it from illegal transactions. They have to solve some complex mathematical puzzles in the least possible time, and verify the bitcoin transactions. If they solve the problem, they can bring together a chain of transaction blocks. Thus, they are responsible to create a secure blockchain. Bitcoin miners are the auditors of this network and they are very important.