Crypto Research

Bitcoin mining simply explained (Part 2/4)

May 3, 2022

You've probably heard the term "bitcoin mining" before, right? But what that is exactly is not entirely clear to you. Or maybe you know something about it but don't understand how it works, where its value comes from and how it is currently evolving.


Is Bitcoin mining actually profitable today?

It is still possible to profit from Bitcoin mining if you have the right hardware and low electricity costs. Nowadays, however, mining as a hobby is almost non-existent due to the fierce competition in this field. There are many things to consider when calculating the profitability of Bitcoin mining. These are the factors:

  • Hash Rate: A hash is the mathematical problem that the miner's computer has to solve. The hash rate refers to the performance of your miner. In other words, how many puzzles your computers can do per second. The hash rate can be measured in mega hash per second (MH/s), giga hash per second (GH/s), terra hash per second (TH/s), and even peta hash per second (PH/s).
  • Block Reward: This refers to the number of Bitcoins generated when a miner finds the solution. This number started at 50 Bitcoins in 2009 and halves every 210,000 blocks, roughly every four years. The current number of Bitcoins awarded per block is 6.75. The last halving was in 2020.
  • Mining Difficulty: This is a number that indicates how difficult it is to mine Bitcoins at any given time according to the mining power currently active in the system.
  • Electricity Costs: The reason why electricity costs are important is because miners consume electricity. You have to figure out your electricity price to calculate profitability.
  • Power Consumption: One needs to find out the exact power consumption of your miner before calculating profitability.
  • Purchase price of the miner
  • Pool Fees: When you mine through a mining pool, and you should, the pool will retain a certain percentage of the earnings for providing its services.
  • Price of Bitcoin: It is difficult to predict whether Bitcoin mining will be profitable without considering the price of Bitcoin. If you plan to convert the mined bitcoins into another currency in the future, this variable will have a significant impact on your profitability.
  • The Increase in Difficulty: This is probably the most important and elusive variable of all. The idea is that since nobody can actually predict the rate of miners joining the network, neither can anyone predict how difficult it will be to mine in the future. In fact, profitability has fallen only a few times in the entire time Bitcoin has existed, even at times when the price was relatively low.


What is a mining calculator?

A Bitcoin mining calculator can be used to determine how much one can profit from a particular Bitcoin miner and get a much better idea of the potential of a profitable mining operation. It takes into account all the relevant costs mentioned above such as hardware, electricity and fees etc.

The Mining Calculator is a free, publicly available tool and one does not need to be subscribed to any crypto mining monitoring and management software (such as Minerstat) to use it. The mining calculator generally supports hundreds of coins, merged mining and multi-pools.

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