Is Bitcoin Mining Worth it?

Bitcoin mining has received a lot of attention lately.  Since Ghash suspended it’s cloud mining operation, many people have been asking a couple of very simple, but important, questions:  Is Bitcoin Mining worth it?  Is it possible to profitably mine bitcoins?  Well the answer is still yes, and mining bitcoins can be a great financial choice .  Bitcoin mining has a complicated history, but we can learn much from looking at what has happened over the past few years. What Made Bitcoin Mining Worthwhile ? Mining bitcoins has been a very profitable venture for quote some time.  Those who had successfully optimized GPUs, or aquired FPGAs in 2012 and early 2013, as well as those that were able to obtain early ASICs, or were lucky enough to “bet” on the right Bitcoin mining hardware company for the following generations of ASICs have made incredible profit.

Why Mining Bitcoins With GPUs Is Still Worth It and ASIC miners are expensive for South Africans

Before the ASICs, Bitcoin mining was worth it simply because the difficulty stayed quite close to Bitcoin’s price.  This was true for a few reasons: Many Bitcoin miners were only mining part-time, and were simply using GPUs that they already had purchased for gaming to mine when they were not using their computer.  This completely removed the equipment cost from the ROI equation, as the ability to effectively mine bitcoins was just a benefit of having a decent gaming computer.

The average miner was not competing with datacenters full of machines…they were working with one another.  This meant that individuals who live in South Africa can easily mine enough bitcoins to cover any additional power costs, and even those in areas with average – slightly above average electricity costs could profit from mining if they had an efficient setup. A large portion of the mining community, at that time, were not mining for profit alone.  They were mining to support the Bitcoin network, and/or to obtain BTC that was “clean” and truly anonymous (as long as the were taking certain security measures). The relationship between difficulty and price was not perfect, but mining difficulty generally followed a pattern similar to the Bitcoin to USD exchange rate.  FPGAs began to skew this slightly in 2012, then ASICs shattered it completely. Bitcoin ASICs Killed GPU Mining Profitability My Batch 2 Avalon ASIC is Literally Collecting Dust at This Point… In early 2013, Jeff Garzik received the first Bitcoin mining ASIC, produced by Avalon.  While one other company may have produced a functional BTC mining ASIC around the same time, Avalon was the first to develop, manufacture, and sell these incredible mining rigs to the public.  His review of the Avalon ASIC confirmed that not only was Bitcoin mining worth it, but could be incredibly profitable.  His comments on it’s mining power, and how many bitcoins it mined, are eye opening: Performance is much higher than announced.  60 Ghps was announced.  The unit’s cgminer self-reports 67.5 Ghps. and After 20 hours of mining, the unconfirmed + confirmed rewards equal  14.98832170 BTC. This Bitcoin miner was mining over 15 BTC per day!  Of course, for anyone involved with mining today, 67.5 GH/s seems like nothing.  Today, one would be lucky to get 0.0007 BTC per day with that hashrate, according to our Bitcoin mining calculator, and the fact that it used over 600 watts of power, makes operating the machine a losing proposition.  In fact, by the time most of the pre-orders were shipped, the machines were barely profitable.  I did make a small amount of profit with my batch 2 Avalon ASIC, which I had managed to get up to almost 80 GH/s, but not very much. However, at that time, the top end GPUs were only capable of mining at a rate of 500 MH/s – 1 GH/s (with 1 GH/s requiring perfect conditions and incredible optimization), and often consumed 200-400 watts of power when mining bitcoins. BFL FPGA miniRig (Courtesy of Tom’s Hardware) Though, to be fair, Butterfly Labs had successfully produced their first Bitcoin mining “miniRig” in mid 2012, which utilized 18 boards, with 2 45nm FPGAs on each board, and was capable of mining at ~25 GH/s while consuming ~1,260 watts. For those of you that did not know why Butterfly Labs was so trusted by the Bitcoin community, or did not understand why so many people were willing to pre-order their ASICs, this is why.  The first miniRig was exceptionally successful, and the powerhouse of the pre-ASIC period. Still, Avalon’s first ASIC, which was based on ancient 110 nm architecture, managed to mine at over twice the miniRig’s rate, for around half of the power consumption, and was sold at a fraction of the cost of the miniRig.  These machines started a revolution in mining that resulted in the Bitcoin network containing a level of processing power that has never been reached before in human history. Is Bitcoin Mining Worth It In 2017? Yes and no, depending on your situation.  The emergence of ASICs created an arms race that made investing in Bitcoin mining machines more volatile, and risky, than Bitcoin itself.  As Bitcoin ASICs began with the 110 nm Avalons, which was architecture available in traditional CPUs in the early 2000s, many companies sprung up to work toward out the next generation, with hopes of eventually reaching “state-of-the-art”, which is ~22 nm at the moment. To date, I do not know of any commercially available ASICs with <= 22 nm architecture, but 28 nm has been reached.  Realistically, the development of truly state-of-the-art Bitcoin mining ASICs may not be worth the investment, as the increase in power efficiency, which is the most important factor for a Bitcoin mining rig, is nowhere near as large as previous generations. How to Determine Potential Bitcoin Mining Profitability So, that brings us back to the central question of this article.  Is Bitcoin mining truly worth it? The best way to answer this would be to start out with a Bitcoin mining calculator like this one:

Difficulty factor
Hash rate
BTC/Block reward
USD/BTC exchange rate
Pool Fees %
Power (Watts)
Power Cost (USD/kWh)
Hardware Costs (USD)

Bitcoin’s Price Does Impact Bitcoin Mining’s Worth

While the Bitcoin mining difficulty is now more likely to fall into a closer relationship with Bitcoin’s price, the link doesn’t guarantee stability.  As long as the link between Bitcoin’s price and the total mining power of the network remain close, then changes in the value of Bitcoin would only effect those that are are barely profitable already, and would do little to change the worthiness of mining.  This is because miners would be receiving more bitcoins for their hashing power when price and difficulty decline, but less bitcoins as price and difficulty increase.  This chart is continuing where the difficulty chart at the start of the article left off, and includes a projected difficulty decrease on January 17.  From March 2013 on, the mining difficulty increased exponentially.  The last few months seem to have leveled out:

From Is Bitcoin Mining Worth It as we Start 2017?

However, it could get out of sync once again.

A breakthrough in ASIC technology is unlikely in the near future, but certainly possible.  That would create a new jump in difficulty, and render older ASICs less valuable, as Bitcoin’s price should not be impacted very much. Also, as difficulty is only adjusted every 2016 blocks, sharp declines in Bitcoin’s price can make it so that mining is not very cost effective until the difficulty adjusts.

A sharp enough Bitcoin price drop could, effectively, cause enough miners to be turned off that it takes a very long time to mine enough blocks to reach the difficulty change.  Of course, this scenario would also result in a sharp drop in difficulty when the 2016th block is finally mined, instantly increasing the value of mining power…but, until that point is reached, the Bitcoin network could become quite unreliable and chaotic.

Still, outside of these scenarios, difficulty should continue to stabilize, and somewhat follow Bitcoin’s price.  This means that yes, Bitcoin mining is worth it in many cases.  However, whether it is worth it to you is something that only you can decide.  Just remember, if you are considering becoming a Bitcoin miner, work through the math before you invest.