3. Bitcoin Minning

What Are the Economics of Mining Bitcoin?

At the end of the day, bitcoin mining is a business venture. Profits generated from its output—bitcoin—depend on the investment made in its inputs. 

There are three main costs in bitcoin mining: 

  • Electricity: This is the power used to run your mining systems 24 hours a day, seven days a week. It can run up to a substantial bill. According to some estimates, electricity is responsible for as much as 90% of bitcoin-mining costs. When you consider that the process consumes as much electricity as that used by certain countries, the costs can work out to be pretty big. 
  • Mining systems: Contrary to popular narrative, desktop computers and regular gaming systems are not fit or efficient for bitcoin mining. The process can heat up such systems and cause bandwidth issues in a home network. Application-Specific Integrated Circuit (ASIC) systems, which are customized machines for bitcoin mining, are the main infrastructure investment for bitcoin miners. The price range for such machines can range anywhere from $4,000 to $12,000. Even with such high costs, a single ASIC-equipped system generates less than a single bitcoin. Bitcoin miners organize thousands of ASIC systems into mining pools that run 24/7 to generate the 64-digit hexadecimal number required to solve a hash puzzle. 
  • Network infrastructure: Network speeds do not make a marked difference to the bitcoin-mining process. However, it is important to have an Internet connection that is available 24/7 without any interruptions. The connection should also have latency from nearby mining pools. Dedicated networks reduce external dependency and ensure that latency is minimized. Going offline does not necessarily stop the process of syncing transactions. But it can make the process time-consuming and, possibly, prone to errors once a connection is resumed.

The total costs for these three inputs should be less than the output—in this case, bitcoin price—for miners to generate profits from their venture. Considering the skyrocketing price of bitcoin, the idea of minting your own cryptocurrency might sound attractive.

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