Is Bitcoin Mining Worth It? (2020 Updated)
Is Bitcoin mining worth it?
In this article, we’ll answer that question given that today, large scale mining operations now dominate the landscape. We’ll consider equipment costs, what can give you an advantage in mining and how to determine profitability.
Before we dive in though, if you’d like a primer on what Bitcoin mining is, including some interesting facts that you might not be aware of, we’ve published another article: What is Bitcoin Mining. The article is a great introduction to the topic of Bitcoin mining and if you’re new to crypto you might want to check it out before reading this more technically rich article.
The State of Bitcoin Mining Today
Bitcoin mining today is dominated by mining farms, large Bitcoin mining operations with thousands or tens of thousands of ASICs (specialized mining devices) all under one roof. These operations benefit from economies of scale as well as the financial acumen to hedge their operations using futures and options.
As of publication, the Bitcoin hashrate has not quite reached its all-time high from March 2020. However, that won’t last long and at some point over the summer of 2020, the hashrate will break old records. Why is this important?
A high hashrate means that it’s more difficult to make a profit mining Bitcoin. The higher the hashrate the more miners there are (or fewer but more efficient miners) which means you’ll earn less by mining.
So when deciding whether you want to mine Bitcoin you should consider the hashrate and how that will affect your bottom line.
Bitcoin Mining Costs
The two major costs in mining Bitcoin are electricity and equipment costs, I.e. the ASIC miner costs. If you live somewhere with cheap electricity this puts you at an advantage.
In fact, this is why Bitcoin mining is common in China, which has cheap hydroelectric power, as well as in Venezuela, with its cheap, state-subsidized electricity. University dorm room mining, where electricity is a fixed cost per semester, is also increasingly a thorn in university housing budgets.
The other cost, the ASIC miner, is nothing to dismiss. A top of the line miner can cost anywhere between $1,000 and $3,000. Again, the small guy who is buying a handful of miners (or just one) is at a big disadvantage to the large mining farms getting a discount by buying in bulk.
As expensive as an ASIC is, it’s advisable to buy top of the line equipment as the latest generation of miners usually provide the best ROI. When you look at Amazon and see old ASIC Bitcoin mining rigs selling for $100 each, there’s a reason that they’re that cheap.
These old rigs are so inefficient that the electricity costs dwarf any potential returns – unless you have a source of nearly free electricity (we do not recommend mining from WeWork or moving to Venezuela).
To throw another wrench in the gears of profitability, ASIC miners become obsolete faster than anyone would like. If you buy a miner when it first comes out you can typically get between 6 to 12 months of peak efficiency before the next generation comes out and makes your ASIC old news.
You can still mine on older equipment of course but the cost to reward ratio is going to be increasingly disappointing. Also, as shown above it’s not as though you can sell the old rig to recoup your costs. Old ASIC miners are just about worth their weight in high grade firewood.
Finally, you have mining pool fees, cooling fees, mining software fees, the time cost of maintaining your rig, and the set up costs.
An ASIC is as loud as a hairdryer and almost as hot. When you’re mining, you’ll need to keep your rig in a noise insulated container, or somewhere outside, like your shed, which will require some special planning to avoid fires.
So having mentioned those factors, let’s take a look at the next question, is it worth it?
So is Bitcoin Mining Worth It? For Most, No
Is mining Bitcoin worth it? As a financial investment, probably not. For it to make financial sense you would need very cheap (or free) electricity, strong technical acumen to optimize the operation of your ASIC(s), and plain luck.
As an example of how mining might go wrong, you can imagine how well all those people did who started mining in January of 2018…
If you still want to mine BTC, a tool like a Bitcoin mining profitability calculator can be a great resource to help you decide whether mining Bitcoin is worth it. You can select different coins, input the cost of your electricity and so forth.
One consideration when running a cost-benefit analysis is that a Bitcoin ASIC will allow you to mine several different coins, including BTC, BCHSV, and BCH among others. So you can switch between networks to arbitrage opportunities.
That being the case, mining BTC is usually the most profitable opportunity and you shouldn’t count on a financial windfall from mining other coins.
Still, it does appear likely that we’re entering into a new crypto bull market. Or at the very least, that another protracted depression in prices is fairly unlikely. You can probably count on prices at least remaining where they are now, if not going higher as we move toward 2021.
Probably the best way to look at mining is as a hobby. Mining may be profitable, it may not be, but the experience is where the enjoyment comes from. Setting up the mining rigs, learning about Bitcoin, contributing to network security and bragging to your friends that you do some Bitcoin mining on the side. All part of the fun.
From a strictly financial point of view the best way to make money is probably to buy Bitcoin from an exchange and hold it in your wallet. But if you have a realistic idea of what mining will be like, and how much you can expect to earn, then by all means it’s worth it.
Here’s How You Can Still Benefit From Bitcoin’s Rise
All signs point toward a new crypto bull market. Arther Hayes, the CEO of Bitmex, has suggested Bitcoin will be $20,000 again by the end of 2020. Macro trader turned Bitcoin bull Raoul Pal doesn’t give a timeline but he suggests Bitcoin is headed to $100,000 in the not too distant future. Plan B, a prominent crypto analyst, is calling for $288,000 sometime by 2024.
The very best way to benefit from this potential upside for most people will be buying Bitcoin and keeping it somewhere safe.
Given all of the costs associated with Bitcoin mining, and the unfortunate advantage that large mining operations have from buying ASICs and electricity in bulk, it’s not likely that you’ll earn a positive return from investing a few thousand dollars in Bitcoin mining.
Buying Bitcoin and storing it safely is the best strategy for most people.
Once you’ve purchased your Bitcoin, it’s paramount that you store it safely. Billions (with a B) of dollar’s worth of cryptocurrency are stolen every year. Nobody thinks it will happen to them, until it does, and centralized exchanges are notorious for losing customer funds.
One of the best ways to store your Bitcoin, as well as any other cryptocurrencies that you’re invested in, is with the Exodus wallet. Exodus is one of the most well reviewed wallets in the cryptocurrency ecosystem thanks to a couple of important features:
- It supports over 100 crypto assets
- It’s both easy to use as well as visually appealing
- Exodus is the only cryptocurrency wallet that supports desktop, mobile, and hardware wallet (Trezor) integration
- Exodus allows you to exchange your Bitcoin for other cryptos right from your wallet - without creating an account!
- You can sync your wallet balances between desktop and mobile
- There is 24/7, fast human support if you ever need help
It’s important to be realistic. There are too many articles that make it sound like Bitcoin mining is an easy way to make a quick buck.
Bitcoin mining is firmly in the hands of the big players and they have all of the advantages, from cheap equipment and electricity to dedicated engineers who do nothing all day, every day, but optimize operations.
If you’d like to mine as a hobby that’s awesome! Contribute to the network and earn some coin on the side. Just make sure that you’ve already got some Bitcoin safely tucked away so that, fingers crossed, when a new bull market begins you can benefit from rising prices.
Information provided is for informational purposes only and should not be considered financial advice. Investing in crypto assets is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Past performance is not indicative of future results.