Last Updated on 27 mins by cryptoevent

Cryptocurrency has established itself as an industry well-suited for investors looking for alternative investments over a longer period of time. With a high return on investment over the years, cryptocurrencies offer a great opportunity to profit with a long-term strategy. When it comes to potential earning strategies, the cryptocurrency community is typically split into three main camps.

The first category includes investors who trade to profit from market turbulence. To maintain consistency, they adhere to strict risk management.

The second group consists of long-term investors, also known as “HODLers.” You don’t trade it; Instead, they keep it simple because they believe bitcoin has long-term value and that its price will increase significantly over time.

Miners are the third. These are people or companies who have spent money on hardware so that they can participate in the bitcoin mining process.

In this context, we will focus more on mining and examine it in more detail, trying to determine if it will still be profitable in 2022 or if miners would be better off investing their earnings directly into Bitcoin.

What is mining for bitcoin?

Bitcoin miners use powerful machines to solve demanding mathematical calculations. That “Proof of Work” The consensus algorithm that forms the basis of the Bitcoin 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 fake transactions or double-spending.

Furthermore, they group these transactions into blocks and publish them on the network, giving rise to the term “blockchain”. For this, the successful miner is rewarded with a block reward. Every four years, the Bitcoin Halving is an event that cuts this premium in half.

The bitcoin halving

The Bitcoin Halving reduces the rewards miners receive for their work by 50% every four years. So far there have been three cases from 2012, 2016 and 2020. In the first case, payouts were reduced from 50 BTC per block to 25 BTC. From 25 BTC to 12.5 BTC is the second. The last time the reward was reduced from 12.5 BTC to 6.25 BTC.

The next one will be in 2024, further reducing payouts to 3,125 BTC. It occurs every 210,000 blocks (roughly every four years).

The development of bitcoin mining

When Bitcoin was first released to the general public, mining was often done on personal computers with traditional GPUs. The miners already had the necessary tools, so at that point getting the reward was pretty easy as they didn’t have to put up any money upfront.

Additionally, there was little competition as few people knew about cryptocurrency, let alone how to start mining it.

However, this changed as bitcoin mining became more and more of an energy-intensive process. PCs couldn’t handle the demands of mining. To solve this application specific integrated circuit chips (ASICs) were introduced, which had dramatically higher capabilities than the typical personal computer.

It’s important to highlight that Bitcoin’s hash rate skyrocketed after ASIC-powered machines were up and running, resulting in a much healthier, faster network.

Spread of bitcoin mining

With the introduction of new and powerful equipment, as well as the formation of huge mining centers, it became clear that these facilities would monopolize bitcoin mining. For many years, China was the dominant country in terms of hash rate (at over 66%), but the government officially banned mining, shutting down all mining in the country. Businesses have been required to turn off their devices or move to a region where it is legal to do so.

However, the network recovered almost immediately, proving once again just how resilient it is Bitcoin and that there is no central authority that can “turn it off”.

In terms of the units that make up the larger part of Bitcoin’s hashrate, AntPool is the largest recognized pool, although a significant portion of it is scattered around the world with unknown origin.

Is bitcoin mining really profitable today?

The big question is there, but there is no easy solution. There are four key elements that need to be examined before we can even determine if BTC mining is still worthwhile today:

• The cost of powering computer systems with energy.
• mining difficulties.
• Availability and cost of computer systems.
• Contest.

The cost of running mining equipment is primarily driven by geography as energy costs vary. Another important factor to consider is the power source – how do miners power their devices? Some rely on hydroelectric power, while others rely on solar, wind, or even fossil fuels. All this must be taken into account when performing the calculations.

The complexity ratio is closely related to Bitcoin’s hash rate, which quantifies transaction validation in hashes per second. The network is structured to generate a set amount of BTC per second, and as more miners join the network, it becomes more difficult to ensure the level of distribution remains constant.

Although the distribution of processing power seems to be without problems, this is not always the case. Bitcoin mining grew in popularity during the parabolic price surge between 2017 and 2021, as did increasing media attention, and many individuals sought to join. Mining hardware became scarce, resulting in exorbitant costs for components such as CPUs, graphics cards, etc.

Competition can be the most important aspect. Large mining companies dominate the market, leaving little room for independent miners.

With this in mind, it is difficult to answer whether Bitcoin is profitable or not. In reality, considering all these aspects, every potential miner should decide whether it is worth it or not. However, before heading to the hardware store to make any major purchases with Bitcoin mining intentions, make sure you have completed all the necessary calculations.

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