Is Bitcoin mining worth it?

It is a question asked often.  Let’s get straight into the crunchy numbers.

We’ll assume that you’re an average person who wants to mine some bitcoins.  You have a typical desktop computer at home, and you plan to only run one miner.  You live in the US in an area with fairly low electric costs, say $0.08/kwh.

Right now, the most efficient Bitcoin miner is the AntMiner S4 (it can currently be purchased through Amazon for about $1,400).  Efficiency in terms of gigahashes per watt is key, as a lower efficiency will make the miner obsolete more quickly.  The longer your miner runs, the more time you have to recover the initial cost.

Now at current difficulty (35985640265.1, or about 257.5 PH/s), the 2TH/s AntMiner S4 will mine about 0.85074029 BTC in a month, assuming no downtime.  That’s $304.41 at current exchange rates.  It uses 1400w of power (and we’ll tack another 100w on for your idling computer that is used to host it), so at $0.08/kwh, it would cost $86.40 to run, leaving you with a net profit of $218.01 monthly.

Given these numbers, your break-even point is less than 7 months away.  Sounds great, right?

Well, it is on the surface, but the difficulty changes, usually in the wrong way.

Essentially, no matter how few or how many machines are mining, Bitcoin attempts to self-regulate and only release 3,600 bitcoins per day. As additional miners are added to the Bitcoin network, the difficulty is automatically increased to compensate.  Those same 3,600 bitcoins are split between more and more people.

Bitcoin difficulty chart

Bitcoin difficulty chart

It is difficult to predict the future of the Bitcoin difficulty.  One thing is for certain though – with exception of a short period in 2010 and one two-week period in 2011, the difficult has never dropped.  You can probably count on it continuing to increase as long as Bitcoin is considered valuable.

That said, we can do our best to predict future difficulty changes using past difficulty changes.  Certainly, this cannot be entirely accurate, especially as we approach the point at which miners will begin to stop purchasing new mining hardware and the next point where miners will actually start to turn off equipment, but we can perhaps come up with some reasonable expectations.

In the last 6 months, difficult has increased 15 times by an average increase of 11.76%.  If we assume the same going forward, then by April 23, 2015, difficulty will have increased by more than 500%.  In the meantime, while your income was predicted above at $304.41/month, in the first month you actually only made $289.61.  The month afterward, only $214.02.  By the time April rolls around, you’d only be mining $71.56 of bitcoins a month, not even enough to pay the electric bill.  Your total bitcoins would amount to $878.59 worth, less electricity costs of $518.40, leaving you with a measly $360.19 and a mining machine that can no longer make a profit.

Of course, it is not really fair of us to assume a steady increase in difficulty to the point that no miners are profitable.  As the break-even runpoint draws near, miners would begin shutting off mining machinery, likely starting with those in higher-cost electricity areas.  If you hold the most efficient Bitcoin mining machine, and you are in an area of the world that approaches the very lowest of electric costs, then it is unlikely you would ever have to shut your miners off due to lack of profitability.  But it is very likely that the profitability would be squeezed to a very small amount, leaving you mining for years to attempt to recoup the initial costs.

But what if the price of Bitcoin increased during this time, thus making mining more profitable in the future to help offset future increases in difficulty?  This may happen, but if that ends up being the case, why not invest directly in Bitcoin instead?  It would always come out ahead of an investment in mining in such a case.

All of this considered, I must emphatically recommend against an average person from investing in Bitcoin mining machines.  Without the advantages provided by a huge datacenter running hundreds of machines in an area with extraordinarily cheap electricity, it is too difficult to compete in the mining world, and you would likely end up losing money on your investment.  Instead, consider investing in bitcoins directly by buying them.

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3 Comments

  1. Pingback: How does Bitcoin make money? | Ask the Bitcoin Guru

  2. Austin

    Thanks for the write up! Fully addressed my questions and concerns about mining Bitcoin.

    Reply
  3. H. H. S

    … well… this article was written October 14, 2014 and now, may 5th, 2015 a Antminer S4 is still making $151.21, splitting it $80.64 @ 0.08 per kW and $70.57 in profit,. about 40-45% of the monthly profit. Your .. estimate is flawed in some way,.. that’s for sure.

    Reply

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