Cryptomining is the process by which a computer runs a program that does complex mathematical computations in order to verify transactions on the Blockchain. In a Blockchain network, miners compete with each other to verify these transactions. When a transaction is verified, a miner can essentially earn small amounts of cryptocurrency. In this article we will primarily focus on mining Bitcoin to try to keep things simple
Some cryptocurrencies like Bitcoin for example offer a large amount as a reward when a block of transactions is verified. This reward is the only way new Bitcoin can be minted and circulated. This keeps the network in check, allows the crypto to have value, and helps protect it from inflation. Cryptomining also prevents the users from trying to spend cryptocurrency that has already been spent somewhere else. This is because the original transaction is publicly available on the ledger and verified with a cryptographic hash..
Is It Profitable?
TLDR: Maybe, if you have a few thousand dollars to purchase specialized mining hardware and your electricity is cheap.
For the average home miner, it probably isn’t that profitable. It is virtually impossible to profit from mining Bitcoin with a basic computer these days. You would need specialized hardware which can be quite costly. Since you are competing with other miners who have more advanced hardware it really isn’t worth all the trouble. There are more profitable cryptocurrencies to mine and if you really want a Bitcoin in your portfolio you’d be better off buying one on a crypto exchange platform.
In the early days of Bitcoin the computational puzzles that your computer had to solve were probably less complex and the reward for it was much greater. Miners could potentially earn thousands of Bitcoin but due to the rising hardware and electricity costs for a mining rig setup, it simply isn’t worth it for the average person. The Bitcoin network also has a protocol called the halving which is a rule designed to cut the reward in half every four years. Currently the block reward is at 12.5 BTC. Next month another halving will occur and the new block reward will be significantly less at 6.25 BTC.
Since the average home miner doesn’t have thousands of dollars to invest in mining hardware, most of the mining happening these days is dominated by large corporations who are able to utilize countries where the cost of electricity is cheap. These corporations are also able to invest millions of dollars in specialized mining equipment that can solve these mathematical problems very quickly.
To really make a good return on your investment, your machine would have to get rewarded for completing a block. Since your machine would be competing with all the other machines in the network, your chances of solving a block on your own would be very slim. To get around this, there are mining pools that you can join. By joining a team of miners, your overall computing power increases, which increases your chance of completing a block. However earnings are split between miners in the pool which reduces your ROI. The earnings are divided based on how much computational power your rig was able to provide and then you’d have to subtract any pool fees.
Another variable to consider is the price of Bitcoin. Bitcoin tends to fluctuate throughout the year depending on various factors like supply and demand. Your return on investment will be ultimately be impacted by this as well.
Mining Bitcoin can be profitable under the right circumstances. You would really have to do your research and find the best mining hardware that doesn’t use a lot of electricity. I would also venture to guess that in order to break even you’d have to be running the mining rig 24⁄7 and even then you probably wouldn’t break even for the first year. Below is a good video from TechCrackHouse where they discuss the typical costs of mining hardware.