Before we start, if you’re new to Bitcoin mining and don’t know what it is watch this short and simple explanation:
“Is Bitcoin Mining Profitable in 2016?“
The short answer would be “It depends on how much you’re willing to spend”. Each person asking himself this will get a slightly different answer since Bitcoin Mining profitability depends on many different factors. In order to find out Bitcoin mining profitability for different factors “mining profitability calculators” were invented.
These calculators take into account the different parameters such as electricity cost, the cost of your hardware and other variables and give you an estimate of your projected profit. Before I give you a short example of how this is calculated let’s make sure you are familiar with the different variables:
Hash Rate – A Hash is the mathematical problem the miner’s computer needs to solve. The Hash Rate is the rate at which these problems are being solved. The more miners that join the Bitcoin network, the higher the network Hash Rate is. Here’s the Bitcoin network’s hash rate progress over time: The Hash Rate can also refer to your miner’s performance. Today Bitcoin miners (those super powerful computers talked about in the video) come with different Hash Rates. Miners’ performance is measured in MHz (Mega Hertz), GHz (Giga Hertz) and even THz (Terra Hertz).
Bitcoins per Block – Each time a mathematical problem is solved, a constant amount of Bitcoins are created. The number of Bitcoins generated per block starts at 50 and is halved every 210,000 blocks (about four years). The current number of Bitcoins awarded per block is 25.
Bitcoin Difficulty – Since the Bitcoin network is designed to produce a constant amount of Bitcoins every 10 minutes, the difficulty of solving the mathematical problems has to increase in order to adjust to the network’s Hash Rate increase. Basically this means that the more miners that join, the harder it gets to actually mine Bitcoins. here’s how the Bitcoin networks’ difficulty look over time: Electricity Rate – Operating a Bitcoin miner consumes a lot of electricity. You’ll need to find out your electricity rate in order to calculate profitability. This can usually be found on your monthly electricity bill.
Power consumption – Each miner consumes a different amount of energy. Make sure to find out the exact power consumption of your miner before calculating profitability. This can be found easily with a quick search on the Internet or through this list. Power consumption is measured is Watts.
Time Frame – When calculating if Bitcoin mining is profitable you’ll have to define a time frame to relate to. Since the more time you mine, the more Bitcoins you’ll earn.
Profitability decline per year – This is probably the most important and illusive variable of them all. The idea is that since no one can actually predict the rate of miners joining the network no one can also predict how difficult it will be to mine in 6 weeks, 6 months or 6 years from now. This is one of the two reasons no one will ever be able to answer you once and for all “is Bitcoin mining profitable ?”. The second reason is the conversion rate. In the case of BitcoinX (the mining profitability calculator), you can inset an annual profitability decline factor that will help you estimate the growing difficulty.
Conversion rate – Since no one knows what the BTC/USD exchange rate will be in the future it’s hard to predict if Bitcoin mining will be profitable. If you’re into mining in order to accumulate Bitcoins only then this doesn’t need to bother you. But if you are planning to convert these Bitcoins in the future to any other currency this factor will have a major impact of course.
Get a mining calculator
In order to calculate all of these parameter and get an answer to our question we will use a mining profitability calculator. here’s a short example: As you can see, at the stated setting I would probably make around $1500 after 3 years. Not exactly the American dream. I also searched for some online testimonials regarding Bitcoin mining but all I could find was a guy on Reddit that started mining around October 2013 and is probably netting $360 a year.
So you’re probably not going to get rich by mining Bitcoins at home unless you buy some heavy duty equipment. But does this mean you should abandon the idea of Bitcoin mining altogether ? Well, not so fast…you still have a few more options.
How to mine Bitcoins with ASIC miners
If you still want to try your luck at Bitcoin mining in hopes that Bitcoin’s price will ramp up so much that it will be profitable I’d recommend using miners from a company called Spondoolies Tech. They offer excellent mining rigs and also the ability to host them so you don’t have to take care of electricity consumption or cooling the rig. With the weakest rig they have, according to the profitability calculator, you can break even after 129 days and make around $3500 after a year. Update: Spondoolies seem to have run out of mining hardware. Currently you can find Bitcoin miners on Amazon. Also here’s a detailed guide about ASIC mining hardware.
How to mine Bitcoins with cloud mining
Another solution that can be found today in order to reduce the cost of hardware and electricity is CEX.IO. The idea behind CEX.IO is that you pay for GHS (Giga Hashes) and mine Bitcoins without actually owning a miner. Think of it as renting a miner without the need to run it on your own electricity. You can choose how many GHS you would like to buy and start mining right away.
You are also able to trade your GHS at any time or even redeem your hardware if you don’t wish to mine on the cloud. CEX.IO’s mining pool is called Ghash.IO and is currently the largest mining pool available.
Mining Altcoins as an alternative to Bitcoin
One more option you can consider is mining Altcoins instead of Bitcions. Today there are hundreds of Altcoins available on the market and some of them are still real easy to mine. The problem is that because there are so many Altcoins it’s hard to tell which ones are worth investing your time in. Some good examples for Altcoins are Litecoin, Dogecoin and Peercoin.
In order to understand which Altcoins are profitable you can find website indexes such as CoinChoose that give you a complete Altcoin breakdown. On CoinChoose you can see the difficulty for each Altocoin, where can you exchange them and what are the chances to profit Bitcoins by mining each specific Altcoin.
So is Bitcoin Mining Profitable ?
My guess is that in the long run you could make a profit from Bitcoin mining but only if you invest a considerable amount of money in a good mining rig (e.g. Spondoolies) or take your time to “hack” through making a profit with CEX.IO. I’d currently stay away from Altcoins but that’s my own personal opinion. If you don’t have the time or the money – stay away from mining and just invest in buying Bitcoins for the long run.