You often read in the media that Bitcoin mining is extremely complicated. However, this is not entirely true.
Essentially, Bitcoin mining is a big dice game where the person who rolls a certain number the fastest is rewarded. The reward is the block premium, which is currently 6.25 BTC per block.
In Bitcoin mining, however, this is not a simple number, but a data string with a specific identity. In Bitcoin mining, this is called a hash. The effort that a miner puts into finding a hash is called the hashrate. The more effort and computing power a miner puts into it, the more likely it is to find the correct hash.
Of course, factors such as the number of other miners and the overall hash rate still play a role here, but it can happen (although this is very unlikely) that even a hobby miner with a lot of luck finds a block and thus wins the block reward for himself. This process is known as proof-of-work and secures the Bitcoin network.
To ensure that the miner with the most hash rate does not control the network, a Difficulty Adjustment has been built into the Bitcoin code every 2016 blocks. This guarantees that a new block will only be created on average every 10 minutes, and no sooner.
Another phenomenon to be aware of in relation to Bitcoin mining is Bitcoin halvings. These take place every 210,000 blocks and minimize the block premium, and thus Bitcoin's output rate, by 50%.
The halvings are also exciting for investors, as in the past the price always skyrocketed after the halving and reached a new all-time high. The next halving is scheduled for spring 2024 and minimizes the block premium to 3,125 BTC.
To solve the proof work function, you need computing power. Since the competition is now very high, this can no longer be done with a conventional computer, but requires special equipment.
In the mining industry, these are ASICs (Application Specific Integrated Circuits), which is a complex name for a simple product. These mining computers are designed to perform very simple calculations at extreme speed to find the right hash as quickly as possible.
In addition to the ASICs, you also need power, an Internet connection and usually a data center with active cooling. Innovative tests are already being carried out here and various cooling models can be found today.
As a private person, however, you don't have to have such a large infrastructure, but can already work with an ASICs miner in a cool box, or simply use the waste heat cleverly.
With the miner's processing power, you can then join a mining pool. As the name suggests, this is a collective of mining power that searches together for the next block. Many of these mining pools are a collection of private individuals or hobby miners. However, one does not enter into a long-term contract with such pools, but has the option to switch to another pool within seconds. This ensures another important aspect of the Bitcoin network, decentralization.
The Bitcoin mining industry is unique. On the one hand, there is a large industrial market with mining farms all over the world, and on the other hand, you also have the opportunity to participate as a private person.
Precisely because the mining market is an important part of the Bitcoin world, many jump on board with the expectation that you can profit from it in a few months. However, this is usually not the case in the Bitcoin mining industry.
The crucial point is the Bitcoin price. Like any asset, it has its ups and downs. It is important to understand this because the Bitcoin mining industry thrives on a high Bitcoin price.
If you take a closer look at this chart, you will see that a miner makes up to three times more profit in a bull market than in a bear market. These profits are then often reinvested in better infrastructure and new ASICs. Only those mining companies that have a good mix of investments and cash flow can survive.
A private person has a bit more leeway. After all, you don't want to live from Bitcoin mining, but use it as a passive source of income. Therefore, the market phases do not play such an important role for private individuals.
Of course, you benefit from the bull market and can cover your initial costs faster. After all, you have to invest in an ASIC and include the electricity you consume in the calculation. However, once the electricity costs are covered and you have recouped the expense of the ASIC, Bitcoin mining can become a passive income. Especially if you find an alternative energy source.
However, if you are unable to procure cheap energy for your mining setup, you will have difficulty covering your operating costs. Also, you will need to cover the initial investment before your mining activities can become profitable.
For individuals who are primarily concerned with returns, it probably makes more sense (and is less risky), buy bitcoin and hold than to invest in their own mining setup, as various factors affect the profitability of mining even in the very short term.
As mentioned earlier, there are certain expense costs associated with Bitcoin mining. An ASIC alone can cost between 500 and 15,500 euros, depending on the model. It should be said that the more expensive models are new and mine more efficiently accordingly. However, you can also start with an older model.
In addition to the hardware, you have to calculate the monthly energy costs. These are the crucial point. If you have the possibility to use a renewable energy source like sun, water or wind, you can be profitable faster.
Besides the energy source, the biggest factor for profitability is the ASIC miner itself. For this purpose, we have selected three ASICs to illustrate their profitability. Everything was calculated with the current electricity price of 48.20 cents/kWh (as of February 2023).
The Bitmain Antminer S9 is one of the cheapest and also most popular ASIC models and for many hobby miners the entry into the Bitcoin mining world. Used models of this ASICS can be found again and again for 300 to 500 euros. At the current electricity prices, one would be at a loss of 5,138.95 euros after one year.
Using this example, you can see that in addition to electricity costs, the type of mining machine you invest in has a significant impact on your potential mining revenue.
For individuals who want to learn more about the technical aspects of Bitcoin, mining is an excellent option. However, if you're only interested in returns, it's probably better to buy Bitcoin as an asset and hold it for the long term than to start mining at home, because the unpredictability of mining returns can hurt your returns.
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The profitability of Bitcoin mining depends on many factors, such as electricity costs, the difficulty of mining, and the Bitcoin price.
In Germany, electricity costs can be relatively high, so profitability is reduced compared to countries with lower energy costs. Especially in times of energy crises Bitcoin mining is not profitable.
Nevertheless, it is possible that mining is profitable in Germany, especially if the Bitcoin price rises and the price of electricity falls again.
On average, it takes 10 minutes to mine a Bitcoin block. Of course, it can happen that it takes longer once. To ensure that it is always 10 minutes, a difficulty adjustment takes place every 2016 blocks.
When all 21 million bitcoins have been mined, no more new bitcoin will be created. The network will continue to operate with transaction fees to incentivize miners to validate transactions on the network.
