Bitcoin Mining Profitability

Most Bitcoin mining hardware appears profitable at first glance. Bitcoin mining, unfortunately, isn’t simple and there are a number of hidden costs and constantly changing factors. This guide will help you understand Bitcoin mining profitability and give you a good estimate of your expenses and earnings.

Bitcoin Mining Profitability Factors

Hardware Costs

The most obvious expense in Bitcoin mining is mining hardware. Better, newer miners will cost more, so if you’re serious about investing in Bitcoin mining then aim for efficiency (more below). In addition to a Bitcoin miner, you may need extra cables, power supplies, software, and cooling fans.

Efficiency

A bitcoin miner’s job is to convert electricity into hash power. Miners that do this using the least amount of electricity per hash are the most efficient. The Antminer S9, Antminer S7, for example, converts electricity to hash power at 0.25 W/Gh. The SP20 Jackson, a popular miner by Spondoolies Tech, converts at 0.65 w/Gh.

Electricity costs vary by location, but this means that an Antminer S7 run in the same place as an SP20 converts electricity nearly three times more efficiently. It’s important to compare both hardware prices and efficiency when purchasing a miner.

Electricity

Miners with low electricity costs have an advantage, as monthly costs are much lower. Venezuela’s government has implemented price controls, which has created some of the lowest electricity prices in the world. According to an article from Bitcoin Magazine, a 320 kw electric bill cost just 6 cents. About 1,000 people mine Bitcoin full time in Venezuela.

The situation in Venezuela is an extreme example, but shows how cheap electricity effects mining profitability.

Difficulty

Bitcoin mining difficulty measures how difficult it is to find a new block. Assuming a stable Bitcoin price and no change in your hash rate, expect your earnings to decrease as difficulty increases. If difficulty were to decrease with a stable Bitcoin price, your profitability would increase.

When taking difficulty into account, note that:

  • The network difficulty has been on a steady uptrend since Bitcoin’s creation. Expect mining to become more competitive as time goes on.

  • Bitcoin price increases can cancel out difficulty increases if you measure your profits in fiat currency. While a rising difficulty with no change in your hash power will always mean you have less BTC earnings, a higher BTC price could mean the BTC you do earn has the same purchasing power.

Bitcoin Price

Early Bitcoin miners were able to gather thousands of Bitcoin. At the time, however, one bitcoin wasn’t worth one penny. Bitcoin’s price, or the purchasing power of one bitcoin, must be considered. A sharp drop in price can turn slightly profitable miners unprofitable very quickly. Price changes are factor, but it often makes more sense to simply purchase bitcoins if your goal is Bitcoin price speculation.

Block Reward

Bitcoin’s block reward halves every 210,000 blocks. Assuming the Bitcoin price remains the same, each block halving cuts miners’ profits in half. Even though block reward halvings are known events with expected dates, it can still have effects on the market and price of Bitcoin.

Location and Weather

Mining farms in hot areas will overheat and require large amounts of cooling fans. There have been fires at mining warehouses created by the excess heat. It is much easier to run a mining farm in cool areas. The heat generated from miners can even be used in place of regular heating to cut costs.

Downtime

Large mining operations have employees working 24/7 to ensure that all hardware is working properly. A few hours offline could be the difference between thousands of dollars in profits.

Now that you understand the many factors that will affect your mining profitability, plug in some numbers to any Bitcoin mining calculator. Multiple calculators should be used (1,2, 3, 4 options) to get the most accurate data.

Written by Jordan Tuwiner on February 19, 2016.