About every 10 minutes, new Bitcoins are mined. Each time a Bitcoin transaction is approved and added to the immutable blockchain, 6.25 new Bitcoins are minted. The 6.25 BTC reward is the result of the most recent Bitcoin halving of May 2020. Previously, the mining reward was 12.5 BTC. The computer (or node) that is lucky enough to approve the transaction is rewarded with the new Bitcoin. Currently, that prize is worth about $200,000 US. The process of creating new Bitcoin and approving transactions on the network is called mining.
Given the 6.25 BTC reward, mining has the potential to be incredibly lucrative. But it is also a very competitive and volatile industry. What was once done with personal laptops now requires multiple powerful Application Specific Integrated Circuit (ASICs) hardware. ASICs are high-powered computers used almost exclusively for mining cryptocurrency.
Cryptocurrencies are very volatile. So, you may wonder if it is more lucrative to mine Bitcoin and Ethereum after a crash? Keep reading and then decide.
Mining Ethereum works like Bitcoin mining, which relies on solving hash functions and comply with the proof-of-work (PoW) consensus mechanism. As Ethereum upgrades the platform in order to make room for needed improvements, PoW will replace by Proof-of-Stake. PoS requires less energy than PoW. Faster transactions are necessary to deal with scalability issues and transaction fees. Overall, Ethereum believes that PoS is a more feasible way to mine the Ethereum network.
Hashing and Difficulty
To understand the cost of mining, it is helpful to understand the difficulty rate. The difficulty rate is a set feature of Bitcoin. This rate determines how quickly Bitcoin transactions are confirmed. The network will not allow Bitcoin transactions to take less than 10 minutes. The 10-minute lag is to ensure the fidelity of the blocks in the blockchain. If transactions are approved faster, it is easier to forge Bitcoin. That also means that the more computers competing to solve Bitcoin’s hash function, the more complex the hash rate becomes, which means more power is necessary. And the more computers that compete on the network, the more expensive transactions are for the miner.
On the other hand, Ethereum only takes about 15 seconds to 5 minutes to confirm a transaction. The speed and scalability of Ethereum’s network make it a flexible platform. Thousands of other cryptocurrencies and projects are built on Ethereum’s blockchain.
For Bitcoin and any other cryptocurrency to function, it needs miners. Likewise, when miners mine Ether, they keep the network operational. Miners are responsible for approving transactions on Bitcoin’s blockchain. Multiple ASICs compete to solve the hash target of the transaction. The Bitcoin network runs by solving hexadecimal sequences. Solving the hash requires running a nearly incalculable and completely inhuman amount of probability. The computer or mining pool that solves the hash target and approves the transaction wins the transaction fees and earns the Bitcoin reward.
Computers in China mine over 60% of Bitcoins, and large mining companies mine approximately 60% of those Bitcoin. One thing to keep in mind is that a crypto exchange in Canada is not mining the cryptocurrencies that it sells. Large international exchanges like Binance do mine Bitcoin and Ethereum. For the most part, exchanges simply sell the currencies and facilitate transactions.
For the typical investor, mining is not the easiest or even the most economical way to buy Bitcoin or Ethereum. To get a potential earning approximation for Bitcoin mining profitability, check a mining calculator. Mining calculators consider energy costs, hardware, success probability, the network’s difficulty rate, and the capacity of the hardware. These collective costs are then valued based on the current profitability of Bitcoin and Ethereum as determined by the market exchange rate.
To mine Bitcoin, you need a large amount of capital to invest in high-powered computers that rely on lower watts per gigahash (W/Gh) and access to affordable energy. The hardware necessary is Application Specific Integrated Circuit (ASICs), which cost $5000 US each. Again, Ethereum does not require the same energy or computational weight as Bitcoin. You can mine Ethereum using a computer with one GPU – 3GB of RAM.
To be competitive, you will need more than one. But the actual cost of mining Bitcoin is the electricity required. Most mining is in China, Venezuela, and parts of Eastern Europe. These locations offer relatively inexpensive electricity.
Join a Mining Pool
Those interested in mining can participate in mining pools that are more profitable on an individual basis. The challenge with mining Bitcoin is that you need significant capital to get started. If you join an Ethereum pool, you may not need the same amount of capital. And joining a mining pool means you can start with a smaller amount of seed money.
Mining pools are a cooperative group of miners who combine hash power to mine Bitcoin. The profits from block rewards are shared proportionally, based on how much energy and computing power you contribute to the pool. Most of the profits go to the pool owner, while the rest are distributed to the pool contributors. Another benefit of participating in mining pools is that miners can change the pool they are contributing to and redirect their hashing power to different mining pools and cryptocurrency at any time.
You can join a mining pool from anywhere in the world to share computing power and profits.
- Slush Pool has been around since 2010 and has mined over 1.25 million BTC. It is the longest-running public mining pool. Slush Pool is a large mining pool with a pool Hash rate of 5.33 Eh/s. Pool fees are a 2% commission, which is higher than other pools. Slush Pool’s servers are in the US, Canada, Europe, Singapore, Japan, and China.
- ViaBTC is a Chinese-based pool that started in 2016. They have a worldwide presence of servers in more than 130 countries. The pool also mines other cryptocurrencies than Bitcoin, such as Litecoin, Ethereum, and Dash.
- AntPool is currently the largest mining pool and mines between 11-15% of all Bitcoin blocks. They are also a Chinese-based firm, which also manufactures the Antminer, a series of ASIC mining devices.
- BTC.com is another big pool with mining servers located in China, Germany, and the United States. Before they began a mining pool in 2016, BTC.com created a Bitcoin wallet and a blockchain explorer.
- KanoPool was established in 2014 and is popular for its low mining fees, which are 0.9%. Pool contributors also receive rewards from transaction fees and the block reward. For these reasons, pay-outs are pretty generous. However, because they are smaller, earnings take longer to amass.
Mining is central to the operation of Bitcoin, Ethereum, and other cryptocurrencies. Miners are responsible for completing transactions, adding new blocks to the blockchain, and minting new cryptocurrencies. Because cryptocurrencies are deregulated digital currency, they require the cooperative maintenance of the various cryptocurrency networks. These networks consist of millions of nodes and miners worldwide.
But, even after a market crash, mining Bitcoin or Ethereum is not necessarily profitable. Those who profit most from a crash recovery are those already mining. However, joining a mining pool is a legitimate way for individuals to earn Bitcoin and Ethereum. Again, the precise earning potential is based on the variables discussed here. And there is a significant overhead required to get started.
Ultimately, mining cryptocurrency is not the most lucrative way to earn cryptocurrency. It is much easier to buy Bitcoin or Ethereum’s token either peer-to-peer or from an exchange.