When Mining Will Stop Being Successful

When Bitcoin first hit the scene in 2009, its founder Satoshi Nakamoto spend the first year of the young cryptocurrency’s life mining it. It is estimated the enigmatic Namkamato had mine about one million coins before vanishing never to be heard from again nor of the one million Bitcoins. But Nakamoto, his real name and identity remain a mystery to this day, inspired thousands of crypto enthusiasts to get on the mining game. But game it is not. Online Bitcoin betting sites may be fun but Bitcoin mining is a serious business that involves verifying every transaction and adding it the blockchain. It is both time and energy consuming process since it tries to solve ever more complex mathematical problems while competing with other cryptominers in order to get the reward: small amount of the cryptocurrency itself.

History of mining

Before Bitcoin became the largest and most valued coin in the cryptocurrency world, it was just another digital product of interest only to a few geeks and crypto fans. They discussed Bitcoin on forums and chat rooms talking about implementing tougher security, ensuring anonymity, and mining. Following Nakamoto’s suit, many of those early users started mining Bitcoin as well. There was nothing else to do. Bitcoin had no tradable value and nobody had tried using it for payments. But as its popularity increased along with its value, dedicated miners were attracted to the lucrative mining business. Those newcomers had powerful computers with specialized hardware that could process the complex mathematical puzzles fairly quickly.

Because those professional miners were authenticating more transactions and earning more Bitcoins every day, the Bitcoin developers decided to increase the complexity of the mathematical problems. This practice got picked up by other altcoins such as Ethereum and Monero. Increasing the difficulty of verifying the transaction is meant to keep the field of cryptomining both competitive and stable. But it also means that more powerful rigs and more energy are required if a miner wants to stay profitable.

How profitable is Bitcoin mining

This new situation has made it rather difficult for many miners to stay in the game. Between the cut-throat competition and the increasing cost of creating a Bitcoin or even a fraction of it, miners were learning about the downside of the free market the hard way. But for a currency like Bitcoin, that shouldn’t be a concern, right? It is the most widely used and traded cryptocurrency, and more governments, businesses, and financial institutions are accepting it as a legitimate currency. Not only that, but its online use is blossoming including in Bitcoin betting. Surely its future is solid as gold, if not better.

While that may have been true at the end of last year when Bitcoin peaked to its highest trading rates ever, it has lost more than half of its value since then. This drop in value added to the miners’ woes. It has reached a point where the current prices make the cost of creating coins less than profitable. Some even estimate that most miners are breaking even at best.

For one thing, those monstrous computers use up a lot of electricity. So when the price of Bitcoin drops to a certain rate, many miners just turn off their machines, much like a motorist killing the engine at a traffic stop, and wait for the rates to go up again. Since the peak of late last year, miners’ profits have dropped by half, thanks to the growing competition, increased hash rate, and the drop in Bitcoin value.

Ethereum mining in the balance

If that’s the case with Bitcoin, imagine what the altcoins’ miners are going through – especially for those brave souls mining Ethereum which is seeing its worst price crash in months. While Ethereum’s value was growing in leaps last year, many miners switched from Bitcoin, with its ever so complex calculations, to the relatively easy Ethereum.

Remember, easier transaction authentication requirements translate into cheaper energy bills to pay at the end of the month, which translates into higher profit margins even if the coin you were mining didn’t have that much value. The influx of the new eager and better-equipped miners to the Ethereum world alerted the developers that they needed to do something about it. The next thing you know, the hash was doubled thus increasing the difficulty of mining.

And it’s not just Ethereum. This same pattern is the norm across the altcoin world. As soon as the network reaches its maximum of new coins per set number of minutes, the system adds new algorithms to increase the calculations needed to solve the puzzle and win the reward.

While most miners would consider shutting down their rigs if Bitcoin hits $4,000, for Ethereum, the critical rate may have already been reached. And with the mining field already saturated, many of these powerful machines may need to take a long break.

Matthew Hill

Matthew Hill has a background in computer science and engineering. He’s had a deep interest in Bitcoin since 2009. He likes to learn and write about cryptocurrencies, the most successful ways to apply them, and tracks the tendencies of the cryptocurrency market. Currently, he’s a writer and consultant for Sportsbet.io and other websites.

This content is sponsored and should be regarded as promotional material. Opinions and statements expressed herein are those of the author and do not reflect the opinions of The Daily Hodl. The Daily Hodl is not a subsidiary of or owned by any ICOs, blockchain startups or companies that advertise on our platform. Investors should do their due diligence before making any high-risk investments in any ICOs, blockchain startups or cryptocurrencies. Please be advised that your investments are at your own risk, and any losses you may incur are your responsibility.

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