The early days of Bitcoin mining were akin to the gold rush, as Bitcoin created a new world of freedom and outrageous profits.
The early adopters such as cryptographers, technical libertarians and a few hackers were the first beneficiaries. Over the years, Bitcoin mining has grown from a few early devotees in a cottage industry into a highly-specialised industry. Without specialised high-powered machinery, it’s almost impossible extract Bitcoins profitably today. Mining is still possible but if your setup is underpowered, you may end up spending more on electricity than you’ll generate from mining. Unless you can access cheap electricity, mining will not be profitable on a small scale.
The alternative is Bitcoin cloud mining which allows you to share the processing power of a pool of Bitcoin miners in remote data centers. Instead of running your own Bitcoin mining hardware, you pay a Bitcoin cloud mining company to use their hashing power.
This is the quantity of new bitcoins released with each mined block. They’re picked from the mempool and recorded by a miner into an ever-growing record of blocks known as “the blockchain.” A mempool is a list of pending transactions. The creation of new blocks takes place every 10 minutes on average. Initially the number of blocks created was set to 50. It was later split to 25 in 2012, and then 12.5 in 2016. The next halving event is due in mid-2020.
Proof of Work Hashing
Miners perform this cryptographic task which allows them to define a new block. PoW hashing enables the Bitcoin blockchain to function efficiently. Using raw computational power, miners compete to solve a cryptographic “puzzle” called hash. The reward is a certain number of newly-created bitcoins.
Hashrate refers to a miner’s computational power. The higher the power, the more solutions, and block rewards a miner will find.
Solving a block by yourself (solo mining) is difficult unless you command an enormous hashrate. Banding together with other miners in a “pool” combines your odds of solving a block. Whenever the pool solves blocks, individual miners are rewarded according to the hashrate contributed less commissions.
Mining difficulty depends on the amount of effort put in the mining process across the network. Following a protocol in the software, Bitcoin network automatically adjusts the mining difficulty every 2016 blocks or approximately every two weeks. This adjustment keeps the rate of block discovery constant. More computational power adjusts the mining difficulty upwards. The opposite is true if mining power is adjusted downwards. The higher the difficulty, the less profitable it will be for miners. Thus when many people are mining, they will earn lower profits.
If you can access the internet, and arm yourself with relevant hardware you can participate in mining. Serious Bitcoin mining is done by a dedicated Bitcoin mining hardware ASICs (Application Specific Integrated Circuits). They’re housed in thermally-regulated data centers with access to low-cost electricity. You can still mine Bitcoin without ASICs but your earnings will be lower.
Hardware and electricity costs is the main operational expense for miners. Major mining operations are conveniently located near cheap electricity as the running, cooling and ventilation costs of the hardware can eat into miners profits. MegaBigPower – the largest mining operation in North America is nearby the Columbia River, Washington State. There’s plentiful hydroelectric power and at the lowest cost possible. CloudHashing mining operation in Iceland has access to renewable and cheap power sources. Besides, the cold northern climate helps provide cooling.
Bitcoin Cloud Mining
Mining Bitcoin on a computer will cause more damage to your machine, compared to making a profit. The alternative is Bitcoin cloud mining. You will not have to deal with the headache of cooling down the miners, electricity costs or storing them. All you’ll need to do is send out periodical payments and you’re good to go.
Any cryptocurrency mining has risks. Once you do some test calculations, you’ll discover some cloud mining services will return profits for a few months. As the difficulty level increases, you’re likely to make losses in the preceding months. The risk of fraud and mismanagement is also common in cloud mining. Thus only invest if you’re comfortable with the risks.
Bitcoin mining profitability will depend on factors such as Bitcoin prices, mining difficulty, and competition. Cloud mining contracts from companies such as Genesis Mining shows Bitcoin mining has a modest ROI. This is partly due to the higher Bitcoin price, which offers miners more rewards for their effort. Cloud mining contracts remain unchanged at almost the same price.
Not all Bitcoin cloud mining online companies are legitimate. Many high yield investment programs (HYIP) on the internet claim they’re legit, but the opposite is true. Cloud mining companies that offer multi-tier referral programs are likely to be HYIP scams. Some HYIPs promise unrealistic ROI by paying older investors with money injected by new investors – like Ponzi schemes.
Pros of Cloud Mining
- Your home will be less noisy and cooler with no humming fans
- No added electricity costs
- No need to sell equipment when mining stops being profitable
- No ventilation issues with hot equipment
- The chances of disappointment by mining equipment suppliers are nil.
- The risk of fraud is high
- The mining operations are vague
- It’s less fun for techies who enjoy building systems
- You gain lower profits as the operators have to cover their costs
- When signing the contract, the operator warns you their operations may cease depending on the price of Bitcoin
- You lack control and flexibility of the mining process
Bitcoin mining becomes unprofitable when the cost of running your cloud mine outstrips the amount of Bitcoin you are mining. If this is the case, it’s cheaper to buy Bitcoin. It’s difficult to predict or calculate the profits you’ll make in Bitcoin mining in the long-term. The main reason is the ever increasing Bitcoin difficulty. This is affected by the increasing and decreasing Hashrate of the Bitcoin mining network. Before you invest in Bitcoin mining, due diligence and research are important.