I have been receiving a lot of questions on the topic of Bitcoin mining. Without getting too deep into the complexities of the topic, Bitcoin mining is the process by which one can use their computer’s computing power to earn free Bitcoin. Your computer is tasked with solving complex math problems, and in doing so earns Bitcoin. It is called ‘mining’ since the comparison is made to the physical effort it takes to bring a commodity like gold or silver out of the ground. It is a way for the currency creator to get it into circulation by requiring the initial adopters to ‘work for it.’ Good news for miners, as there was an important ruling that came just days ago exempting miners from regulation as money transmitters.
Major Bitcoin mining enthusiasts go to great lengths, such as buying multiple PC’s dedicated solely to mining. In some cases, special stand-alone computers called ‘mining rigs’ are used.
The Mining Equation
I have been trying to figure out if mining is really a money making proposition or not. As noted above, most serious miners purchase computer hardware. Mining also consumes a not insignificant amount of electricity, so that is another consideration. There is also the problem of ever increasing ‘mining difficulty,’ The more people mining and the declining number of Bitcoins available (yes, there is a finite amount that can ever be created) creates an increasing difficulty level. This means less and less Bitcoins are earned for the same amount of computing power.
It appears that based on the current cost of most Bitcoin mining machines, the initial investment can be recovered in four to seven months. This is calculated on the current value of Bitcoin. Of course, this is a huge variable. For instance, if the value of Bitcoin drops it will take that much longer to pay for the mining equipment. On the other hand, if the price of Bitcoin goes higher, the pendulum swings in the other direction (reducing the time it takes to recover your capital outlay). One other unknown variable is faster mining machines being developed and selling for less and less each generation. Each time a new round of faster and less expensive miners hits the market, the difficulty level and number of people mining rises exponentially.
For a more precise method of calculating potential mining profits, I would recommend using a Bitcoin mining calculator. There are a number of these calculators online and you can find them doing a simple Google search. See example of mining calculator being used. In this example, I am using a 38 GHS Asic Miner that is available on e Bay for $429. It is interesting to consider that this miner (at current Bitcoin prices) would generate $197 monthly (Note that the below mining calculator does not factor in the cost of electricity). I used this power calculator and inserted 300W at 24 hours of usage and came up with $20 per month for electricity costs.
Buying A Mining Contract
There are some new services popping up such as Cloud Hashing.com that will sell you space on their Bitcoin mining rigs for a specified period of time. This seemed interesting to me at first, but after running the numbers I don’t see much profit going this route. The cost of their mining contracts are so high that I don’t see much end profit for the buyer of the contract. It is interesting to see Bitcoin mining contracts for sale on eBay. Quite a lot of interest in these right now. I guess if the price is right (via an auction), it may be a viable option.
If you are a Bitcoin bull, buying your own mining rig seems to makes sense to me based on the current numbers. You can get a starter mining rig for just a few hundred dollars. This is the way to dip your foot into the deep end of the pool without investing thousands of dollars. Also, it should be noted that mining on your own is the most difficult approach. Most experienced miners join online mining pools. By mining in a group (pool), you raise your chances of consistently earning more Bitcoins per day than working on your own. For more on mining pools, just do a Google search for the phrase ‘Bitcoin mining pools.’ I do touch on this in my Bitcoin course, as well.
James L. Paris
P.S. I just bought a Bitcoin Antminer, which mines at a rate of 1.6GH. You can get grab on Amazon for around $60. This one plugs right into your USB port, but based on its speed it will take about 6 months to recover your investment. It will generate about $8 monthly based on current Bitcoin prices. I bought this only to ‘test’ out the unit and don’t see it as a viable money maker. There are some people buying multiple Antminers and using a USB hub like this (to run them all off of one computer).