When it comes to potential long-term earning strategies, the cryptocurrency community is typically split into three main camps. The first category comprises of investors who profit from market turbulence through trading and Bitcoin Mining. To maintain consistency, they adhere to tight risk management.
The second group consists of long-term investors, also referred to as “HODLers.” They don’t trade it; instead, they simply hold it because they believe that Bitcoin has long-term worth and that its price will rise significantly over time. Miners are the third. These are people or businesses who have spent money on hardware so they can take part in the Bitcoin mining process.
In this piece, we’ll focus more on and examine mining in greater detail and attempt to determine if it will still be viable in 2022 or whether miners would be better off investing their earnings directly in Bitcoin.
What is bitcoin mining?
We will only focus on Bitcoin because it was the first cryptocurrency to use the algorithm and spread the idea throughout the market, despite the fact that numerous cryptocurrencies are mined.
Bitcoin miners employ powerful machines to solve challenging mathematical calculation tasks. The “Proof-of-Work” consensus algorithm, which forms the basis of Bitcoin’s blockchain, drives the process. Transactions are validated and verified by miners, who are compensated (in BTC) for their work. This ensures that there are no fictitious transactions or double expenditures.
Additionally, they group these transactions into blocks and publish them on the network, giving rise to the term “blockchain.” The successful miner is rewarded with a block reward for this. Every four years, there is an event known as… that reduces this award by half.
The halving of Bitcoin
The Bitcoin halving reduces the rewards that miners receive for their work by 50% every four years. There have been three prior cases to this point, from 2012, 2016, and 2020. In the first, the payouts were lowered from 50 Bitcoins per block to 25 Bitcoins. From 25 Bitcoin to 12.5 Bitcoin is the second. The final one, from 12.5 Bitcoin to 6.25 Bitcoin.
The next one will take place in 2024, further reducing the payouts to 3.125 BTC. It occurs after every 210,000 blocks (approximately once every four years).
The Evolution of Bitcoin Mining
When Bitcoin was first made available to the general public, mining was often carried out on personal computers with conventional GPUs. The miners already had the necessary tools, thus getting the reward was rather simple at that point because they didn’t need to put any money up front. Furthermore, there was little competition because few individuals were aware of the cryptocurrency, let alone knew how to begin mining it.
However, this quickly changed when application-specific integrated circuit chips (ASIC) were introduced, which had dramatically higher capabilities than the typical personal computer, this renders them outdated. The bar has been significantly increased. This also increased the costs of mining successfully, which meant that people could seldom compete effectively with the new norm. Furthermore, this was the period when massive Bitcoin mining operations with highly powerful equipment began to develop.
It’s important to highlight that after ASIC-powered machines were operational, Bitcoin’s hash rate skyrocketed, resulting in a much healthier network.
Distribution of Bitcoin Mining
With the introduction of new and powerful equipment, as well as the formation of huge mining centers, it became evident that those establishments would monopolize Bitcoin mining. China was the dominant country in terms of hash rate (with over 66%) for many years, but that all changed when the government officially forbade mining. Companies were obliged to turn off their devices. This may be seen in the accompanying figure, which shows a significant dip in May 2021.
However, the network rebounded nearly instantly, demonstrating once again how robust Bitcoin is and that there is no central authority that can “shut it down.”
In terms of the entities that account for the larger portions of Bitcoin’s hash rate, AntPool is the largest recognized pool, although a considerable portion of it is distributed throughout the world with unknown origins (marked as Unknown).
Is Bitcoin mining really profitable today?
The big question has arrived, but there is no simple solution. There are four essential elements to examine before we can even begin to determine if BTC mining is still worthwhile today:
• The expense of powering computer systems using energy.
• Difficulty in mining
• Computer system availability and cost
The first is somewhat subjective and is primarily determined by geography, as power costs vary depending on where the mining equipment is located. Another important factor to consider is the source of electricity – how are miners powering their equipment? Some rely on hydroelectric power, while others rely on solar, wind, or even fossil fuels. All of this must be considered while performing the computations.
The complexity ratio is intimately tied to Bitcoin’s hash rate, which quantifies transaction validation in hashes per second. The network is structured to create a set amount of bitcoins per second, and as more miners join the network, the difficulty rises to ensure that the level of distribution remains constant.
Although the distribution of processing power appears to be without problems, this is not always the case. Bitcoin mining became increasingly popular during the parabolic price spike between 2017 and 2021, as well as increased media attention, and many individuals tried to join in. Mining hardware became scarce, resulting in exorbitant costs for components like as CPUs, video cards, and so on.
As previously said, competition may be the most important aspect. As we can see from the above paragraph, major mining firms dominate the market, leaving little room for independent miners.
Keeping this perspective, it’s easy to understand why the question doesn’t have a simple “yes” or “no” response. In reality, by considering all of these aspects, each potential miner should choose whether or not it is worthwhile for him. However, before going to the hardware shop to make major purchases with the intention of Bitcoin mining, ensure that you have completed all of the necessary calculations.
Mining has become a multibillion-dollar sector in recent years, with several huge entities vying for more influence.
Nevertheless, such adjustments largely exclude individual miners, although many continue to do so and profit. Bitcoin is projected to undergo its fourth halving in 2024, reducing the incentives that miners get in half to 3.125 BTC.
Upon its exterior, this may deter potential entrants who wonder whether it isn’t more advantageous to invest and wait for it to increase over time. This expansion, however, is not assured. Mining, on the other hand, not only pays users with BTC but also protects the network and validates transactions, making it one of the most important parts of the Bitcoin jigsaw.