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Bitcoin was built on rock and roll and miners.
Mining makes bitcoin possible by both confirming transactions and creating more bitcoins by solving complex mathematical problems. Miners receive some of the new bitcoins for volunteering their computing power. Bitcoin, however has a built in limited supply of 21 million, and the reward for mining is designed to be halved with every 210,000 blocks mined. The reward was cut in July from 25 bitcoins to 12.5 bitcoins. Is bitcoin mining still profitable after this event?
The mining reward was last cut in half on Nov. 28, 2012, but due to the low number of users, it had little effect on miners. Miners at this point were mainly citizens interested in this new virtual currency. Bitcoin in the following years gained a much greater following, and big miners started to pop up. The bitcoin network is designed to increase the difficulty of the algorithms based on how fast computers are solving the algorithms. As more miners jumped on board, it became more difficult for smaller miners to keep up.
"Even before the halving event that costs involved in building a bitcoin mining operation have been mounting for some time," Michael Vogel, founder and CEO of goNetcoins, said in an email.
Bitcoin mining rewards have now been cut in half, and some experts have worried this will lead to a mass exodus of miners. Byrne Reese, vice president of product success at Uphold, did not believe this to be a threat.
"The net effect [of the halving] will therefore most likely be zero because the people who are in the business of mining are committed," Reese said in a previous story. "They have invested too much in infrastructure, people, technology, etc. to simply give up, regardless of [where] they happen to reside."
The concentration of power in the mining world has already happened, and the businesses involved are in too deep now to give up. Chinese mining companies hold 70 percent of the mining pool. Miners have moved from basements in the U.S. to metal sheds in Tibet, according to a report by the Washington Post.
Bitcoin mining is still profitable for these big miners, even though competition is getting tighter, due to the demand for bitcoin.
"Bitcoin demand is consistently growing from our vantage point. The positive side about any event in the bitcoin world (including negative ones that have involved high-profile exchange hacks) is it helps new people discover bitcoin," Vogel said. "Even readers of negative articles on bitcoin are often intrigued to learn more deeply about bitcoin and may get started themselves."
Newer miners, however, might find it difficult making a lot of money by jumping into this heavily centralized and competitive mining environment. Bitcoin, however, is not the only virtual currency out there, and users might have better luck mining altcoins.
"If you're a solo miner looking to get involved in mining virtual currency, I would absolutely start with an alt-currency," Vogel said. "Of course there is no guarantees of any windfall (in fact the odds are the opposite), but if you're looking to do mining as a hobby there are a number of alt-currencies with solid growing communities that have a need for miners."