Can Bitcoin Mining Become Unprofitable?
Bitcoin mining allows miners to earn bitcoin from validating transactions on the blockchain. The process is profitable if the bitcoin price exceeds the costs of mining. Due to the recent changes in technology and the introduction of professional bitcoin mining farms with greater computational power, several individual miners are worried that the profitability of bitcoin mining may depreciate in the future.
Factors Affecting the Profitability of Bitcoin Mining
Numerous factors determine the profitability of bitcoin mining. The main aspects include the cost of electricity required to power the computational hardware, the availability and price of bitcoin mining systems, and the difficulty in providing mining services.
Bitcoin miners use computing rigs to mine bitcoin and, those systems usually comprise hardware, including computers and servers that consume a lot of electricity. That is why most bitcoin miners today resort to using mining pools, facilitating the sharing of resources such as hardware and electricity.
In bitcoin mining, only those with hi-tech computational hardware stand a chance to make huge profits since those systems allow them to solve hash problems much faster. That puts the miners using old and outdated machines at a more significant disadvantage when making profits.
Bitcoin miners had the opportunity to make huge profits in its early adoption stages. One reason was that most of them used their computers, which ensured minimal equipment costs. The competition was on an even platform as miners mainly competed against other individuals on home computers. Even with the disparities in electricity costs across geographical regions, the difference still allowed many miners to make profits.
Today, bitcoin miners are competing against various professional mining rigs with vast computational power. That means miners must now rely on those mining rigs to make more profits. The bitcoin network can only mint a given amount of bitcoins every ten minutes. Thus, the difficulty in bitcoin mining increases when there is a surge in the number of miners. That helps with maintaining a given level.
However, the difficulty of mining bitcoin varies and usually shifts every two weeks. If the difficulty rate is higher, it is unlikely that an individual miner will successfully solve the hash puzzles and earn the rewards. The bitcoin mining rate difficulty has increased in recent years, making it much harder for miners to reach as many profits as they did in the past. As the difficulty rate continues to grow, miners will need to work much more complicated and faster to make profits.
The Shifting Rewards of Bitcoin Mining
Bitcoin supply can't exceed 21 million tokens, meaning only that number will be in circulation. Currently, miners have mined more than 18 million, leaving 3 million to release into the circulation. Bitcoin miners initially earned 50 bitcoins for every transaction that they successfully verified. However, the network protocol can only halve the rewards every four years. As of May 2020, bitcoin miners received 6.25 for every block that they complete. As such, prospective bitcoin miners should understand that the reward size will continue to depreciate into the future.
The increasing adoption of bitcoin by mainstream financial institutions and trading platforms such as yuan pay group site suggests the growing demand for bitcoin. However, that does not guarantee increased earnings for bitcoin miners.
In conclusion, bitcoin mining profitability depends on various aspects, including the cost of equipment, electricity costs, and bitcoin mining difficulty rates. Therefore, prospective bitcoin miners should conduct extensive cost/benefit analysis to understand the implications and leverage the above factors for profitability. Nevertheless, bitcoin mining will continue to provide miners with avenues for making profits.