In this article, we try to take a more in-depth look at the idea of mining as a whole and we will try to answer the question posed by many who are interested in digital currencies in general and Bitcoin in particular, about whether mining is still profitable or not or miners should use this money for direct investment.
During the following points we try to answer this question
What the cryptocurrency community consists of
- What is Bitcoin Mining?
- Bitcoin mining over the years
- Distribution of Bitcoin mining activity
- Is Bitcoin mining still worth it today?
- What to expect from Bitcoin
What the cryptocurrency community consists of
The cryptocurrency community is usually divided into three main camps when it comes to potential ways to make money from cryptocurrencies:
The first is inhabited by traders, believing that the best way to make profits is to take advantage of fluctuations in the market by trading.
The second comes in the form of long-term investors, also known as "Hodlers", as they believe in the value of cryptocurrencies (usually bitcoin) and that they will increase significantly over the years, so they don't trade them, they just keep them.
The third are miners, these are people who have invested a large amount of money in hardware so that they can extract a certain cryptocurrency.
What is Bitcoin Mining?
Although there are many cryptocurrencies that can be mined, we will give examples and explanations using Bitcoin, as it is considered the first to introduce the term "mining" in the crypto industry, being the first cryptocurrency ever to operate on this principle. Bitcoin miners use high-powered computers to solve complex computational problems, and the whole process is called a "proof-of-work" consensus algorithm.
In this endeavor, miners acquire new bitcoins and help verify every transaction, keeping the payment network safe and trustworthy. The latter occurs when miners group transactions together into "blocks" and then add them to a public registry called a blockchain. By doing so, they make sure that transactions are accurate, and that double spending cannot occur. In return, miners receive bitcoins as rewards for completing each transaction, and the amount of new coins issued with each block of mine is called the "block reward."
This brings us to our initial question presented as a title:
Will Bitcoin mining still be profitable in 2021 – 2022 or is direct investing better.
Bitcoin mining over the years
Back on the day Bitcoin was introduced to the public, mining was usually done on personal computers. At that point, profitability was very easy, because the miners already had the necessary equipment, so they didn't need to invest any money to get started. In addition, their biggest competition was other miners using the same type of equipment.
This changed rapidly with the introduction of ASIC devices that offer extremely higher capabilities than a regular personal machine, making the latter obsolete. It should be noted that after ASIC-based computers started, the hash rate of the largest cryptocurrency increased dramatically, ultimately making the network healthier.
Distribution of Bitcoin mining activity
With the introduction of new and powerful technology and the establishment of large mining centers, it became clear that these enterprises would control Bitcoin mining. China's share has grown to become the leading player in this game by controlling 66% of the total hash rate, but all that has changed after the Chinese government passed a ban on mining activity and distributed mining across the globe.
This means that the recent Chinese ban was a positive event as it made mining activity decentralized as no single entity has more than 25% of the total control over mining. The mining pool "Poolin" controls about 18.3%, followed by the F2Pool complex with 14.8%, both located in China.
Is Bitcoin mining still worth it today?
Here comes the big question, but it has no direct answer.
It consists of more complex issues that need to be explained before we can determine the outcome.
These rewards are halved every four years in a process called Bitcoin Halving. Every four years, Bitcoin is halved in half of the rewards miners receive for their efforts. So far, there have been three previous cases in 2012, 2016 and 2020 the first reduced the rewards for the block that was divided from 50 bitcoin to 25 bitcoins, the second from 25 bitcoins to 12.5 bitcoins and the third from 12.5 bitcoins to 6.25 bitcoins. It happens after every 210,000 blocks, and the next set will take place in 2024, reducing rewards from 6.25 BTC to 3.125 BTC.
Let's start with the four main factors we need to recognize:
- . The cost of electricity.
- . Computer systems.
- . Difficulty of mining
- . Availability and price of computer systems.
The first factor is somewhat personal and depends mainly on the location, as electricity costs vary depending on where the mining machine is placed. Bills also change with the seasons, and in most places the price is lower at night.
The difficulty factor is closely related to the bitcoin hash rate because it measures the validation of a transaction in a hash per second. Where the network is designed to produce a certain number of bitcoins per second, and when there are more active miners, it is more difficult to ensure that the distribution level is constant.
During the 2017 Bitcoin price increase and the increase in media attention, Bitcoin mining became very popular and many people were trying to get into it. Quickly, the hardware became scarce, which also led to an increase in prices, leaving a lot of potential miners on the street if you will. Nowadays, similar equipment can be found more easily and is usually cheaper. Competition can be the most important factor, as mentioned above.
As we can see from the previous paragraph, large mining companies have entered the field, leaving individuals in a futile race. We can now find out why there is no answer to the question with only "yes" or "no". By considering all these factors, every future miner must ask themselves whether or not it is worth it. But before heading to the hardware store to make big purchases with the idea of mining bitcoin, make sure you make sure you make all the required calculations.
What to expect from Bitcoin
Mining has become a multibillion-dollar industry in recent years, with many big players trying to exert more control. However, these changes generally exclude individual miners, yet many continue to do so and manage to make a profit.
In the next two years, Bitcoin will undergo a fourth division, halving the rewards that miners receive to 3,125 bitcoins. On the surface, this could drive away potential newcomers who ask the question of the feasibility of mining, and may turn to investment and storage. However, growth and rise are not guaranteed.
Through mining, people not only receive Bitcoin as rewards, but also maintain network security and validate transactions, making it one of the most important parts of the Bitcoin puzzle.
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