Crypto is now big business with many of the world’s biggest companies now entering the space. Bitcoin itself is now a trillion-dollar asset and is still the biggest cryptocurrency by market cap.
As Bitcoin went from niché technology to the world’s most recognized cryptocurrency, interest in Bitcoin mining has also increased. While Bitcoin mining is still profitable today, it is now a lot more costly to startup, both in terms of hardware and energy to remain competitive with other miners.
Below, we’ll explore whether it’s really worth Bitcoin mining in 2022 and whether there are any better alternative blockchains worth looking at instead.
What is Bitcoin mining?
Since its creation in 2009 by the enigmatic Satoshi Nakamoto, Bitcoin (BTC) has been the world’s dominant cryptocurrency. It was used for the first crypto purchase in 2010 when Laszlo Hanyecz spent 10,000 BTC on two pizzas (worth over $400 million AUD today), as well as seeing highs that no other cryptocurrency has thus far, reaching $89,000 in November 2021.
Throughout its lifetime, Bitcoins themselves have been “mined” using computers that help run the network.
Blockchain technology relies on decentralized peer-to-peer networks of computers that validate transactions and keep a record called the public ledger. The computers in the network run Bitcoin mining software, communicate with each other via the internet, and reach an agreement on which transactions are valid through the consensus model.
In Bitcoin’s case, the consensus model is called proof-of-work and involves “miners” (the computers in the network) racing to solve complex mathematical puzzles using their computer’s hardware. If a computer is the first to solve the puzzle, it earns the right to verify the transaction and add the “block” to the “chain” of transactions.
Miners are rewarded with a set amount of newly minted Bitcoin for their efforts and encourage further support of the network.
The amount rewarded to miners is pre-determined and changes over time. This is due to Bitcoin having a fixed supply of 21 million BTC, 19 million of which have already been mined. This makes BTC an increasingly scarce asset, similar to gold with a finite supply in existence.
While the majority of BTC has already been mined, the amount rewarded to miners halves every 210,000 blocks. The next BTC halving is expected in early 2024 and should make BTC even scarcer.
Regular halving also means the supply distribution will last until around 2140 when the last Bitcoin will likely be mined.
Validating Bitcoin transactions
Validating a Bitcoin transaction involves a mining computer solving a “hash” code.
With proof-of-work blockchains like Bitcoin, input data is “hashed” using a hash function. This results in a hash sum that masks the original input data.
Bitcoin’s hash function conforms to the SHA-256 protocol standard and was developed by the United States National Security Agency in 2001. It generates alphanumeric hash sums which are strings 64 characters long.
The hash sum of “Bitcoin” for example, is:
Bitcoin hash codes contain information about the previous and current transactions to ensure continuity and validate transactions.
We can think of a “hash” as a unique digital fingerprint that represents transactions. Bitcoin miners bundle together unconfirmed transactions into a block and this generates a digital fingerprint (a hash) of that block.
The Bitcoin network will determine that the value of this hash will need to be below a certain value. Miners race to determine this value by tweaking a variable called the “nonce” until the hash is generated.
Personal mining at home (Australia) vs Cloud mining
Mining at home requires a beefy graphics card, also known as a Graphics Processing Unit (GPU). You can also use standalone mining computers called Application Specific Integrated Circuit (ASIC) rigs. These are designed specifically to mine crypto and enjoy better hashing power compared to a typical computer.
Even with an ASIC rig, personal miners can find it difficult to compete against commercial mining operations so most choose to join a mining pool. These are collectives that allow persona Australian Bitcoin mining operations and those from elsewhere to work together to increase their chances of receiving rewards.
Rather than fork out for expensive hardware, some Australians choose to rent mining hardware in the cloud. Cloud mining services offer a lower barrier to entry where customers will hire mining hardware in a dedicated facility.
This gives the customer the ability to lease hash power for a set amount of time. The customer will then receive a cut of the profits received during the mining over this time.
For individuals, cloud mining is not profitable with the break-even points being fairly steep.
How profitable is Bitcoin mining?
Though not as profitable as it once was, Bitcoin mining can still generate profit for personal and commercial miners.
While hardware solutions are now much more efficient than they once were, the increase in competition, higher energy bills, and increased mining difficulty have made it harder for miners to secure profits.
For personal, home miners in Australia and elsewhere, energy costs will be the biggest challenge to making Bitcoin mining profitable. Running Bitcoin mining software is taxing on hardware and requires considerable electricity to operate.
Whether Bitcoin mining is profitable for you will depend on your own energy situation. If you have access to cheap electricity from solar panels or live in an area where fees are low, then you can likely make a good profit running mining rigs.
If you do not have access to renewable energy resources and your energy costs are quite high then Bitcoin mining may not be truly worth it.
Mining calculators are available to help you decide whether you can turn a profit from mining Bitcoin.
Bitcoin mining is still a growing industry with plenty of opportunities for individual Australians or commercial enterprises to make a profit. Nevertheless, with rising energy prices and increasing difficulty, challenges do remain.