Can You Make Money Bitcoin Mining?
To answer the title question right away: Alas, I don’t recommend mining bitcoin.
Only at times can you make money bitcoin mining:
- when the price of bitcoin happens to be high,
- when you have quick access to equipment that lets you mine faster and cheaper than other people can;
- and when you have access to cheap energy.
If you buy new equipment to mine with, you not only have to pay for it but you have to get it running while conditions for mining are still good. You have to pay for the electricity you use, and the wear and tear to your equipment. You will most likely mine as part of a pool of miners, and the pool takes its little cut.
The reward for mining with any given computer setup decreases automatically at regular intervals, as I explain below, because the amount of computing work you need to do to complete a unit of mining keeps being adjusted upward, to keep the bitcoin production rate constant while the power of the world's computing stock increases.
So, I'm not saying you absolutely can't make money, but I'm saying that looking at the past few years and what is likely to happen in the next few years, it isn't a good bet.
My Experience Bitcoin Mining
In this article I talk about my 2013 adventures in bitcoin mining. At first it seemed promising and I decided to buy some equipment to mine bitcoin. Then the equipment became outdated as month by month the speed needed to mine became greater and the rewards smaller. I believe the lessons I learned continue to apply, even though increases in bitcoin price (as in late 2017) might make mining tempting.
What Does It Mean to "Mine" Bitcoin?
Most people are now familiar with bitcoin, even if they've never used it, as the new virtual currency. Bitcoin (BTC) is the first currency to be controlled by a cryptographic protocol rather than a central bank. Basically you pay for something by sending BTC from a virtual wallet in your computer to the merchant's computer.
So how can you make money from the creation of bitcoin? Well, theoretically, your computer can become a node in the network that processes and verifies the transactions. The history of all bitcoin transactions is stored in many places in the form of a “blockchain,” an encrypted public ledger. Transactions are processed by “hashing,” by creating an encrypted summary of the transactions, so that they can be added to the blockchain. When a block (batch of transactions) is processed, the person who completes the processing of the block gets 12.5 bitcoins as a reward. Creating these coins by processing transactions is known as bitcoin mining.
In 2013, when this article was first written, every block processed created a reward of 25 coins, a reward worth around $2500 at the prices at the time. In mid-2018, processing a block (which requires much more computer work than in 2013) creates 12.5 coins, a reward of around $75,000 at current prices.
How Much Can You Make Bitcoin Mining?
Here are a few examples, from a period over which the price of bitcoin varied widely and the power of the world's computers increased.
- In the summer of 2013, the 5 Gh/s Jalapeno mining machine I bought from Butterfly Labs produced about $15 a day.
- But, by just January 2014, the Jalapeno was hardly worth running; it only made a bit over $1 a day.
- In January 2018, Forbes reported that video cards in good gaming PCs could make $1-4 a day mining.
- But by mid-2018, that was down to $0.25 to $1.00 a day at most.
A Bitcoin Mining Profit Calculator
This calculator from Coinwarz calculates the profitability of bitcoin mining. Enter your hardware's hash rate (Gh/s), its power use in watts, and your electricity cost in dollars per kilowatt-hour. The calculator automatically enters current bitcoin difficulty, bitcoin block reward, and bitcoin price.
Brief Windows of Opportunity
In 2017, I wrote “Why You Shouldn’t Mine Bitcoin in 2017,” arguing that mining wouldn’t even pay back the cost of the electricity needed to do it, even if you already owned the computer doing the mining.
But in Jan 2018, after a huge rise in the price of bitcoin and a substantial rise in the speed of the graphics units in common gaming PCs, Jason Evangelho at Forbes reported that once again, video cards already installed in gaming computers, if used for mining, could make several dozen dollars a month, or $1-4 a day, mining bitcoin, “profiting enough to buy a new game every month.”
But by mid-2018 the price of bitcoin had fallen again, to $6,600, a little over half of its $11,655 value in mid-January 2018. And during these six months, along with the fall in price, the difficulty of mining also increased 250%. So hardware that made $4 a day at the beginning of the year could only be expected to make $1 a day by mid-year, and the mining difficulty rate will continue to increase even if bitcoin prices go up again.
The 2017 Bitcoin Price Spike
Increase in Bitcoin Mining Difficulty Since 2010
Increase in Bitcoin Mining Difficulty During 2018
My 2013 Adventure
In 2013 I invested in bitcoin mining as a source of passive income, to add to the income I made by publishing online. I expected that to have a chance of earning anything at all, I would have to invest in some equipment.
What You Need to Start Bitcoin Mining
Technically all you need to become a node in the network, and to start printing your own virtual money, is a computer with internet access. You can download a free wallet to your computer plus one of several free miner programs, and join in.
Sounds great doesn't it? The problem is that the computer power required is phenomenal.
How Mining Pools Work
If you work by yourself, with only a personal computer, it might be years before you see your first block. For this reason most miners join a pool, where the work and rewards are shared.
In a pool, when a block is solved and new coins created, you will only get a tiny fraction of a coin. But usually several blocks are solved in a day. The person running the pool takes a small percentage as a fee (say 3%), but you get (almost) instant gratification.
Mining Becomes More Challenging as the Network Increases in Power
One important aspect of mining is that the difficulty of solving the blocks increases with time. To solve a block (and this is greatly simplified) your computer needs to create a unique encoded summary or “hash” of the block. As the power of the network increases, the system increases the length of the hash needed—the difficulty of the solution—to keep the time needed to create a block constant.
What Equipment Do You Need to Mine Bitcoins?
So can you make money bitcoin mining with a personal computer? It does depend on how good your PC is. Strangely enough the processing needed for bitcoin mining is much better done by a graphics card (GPU), rather than a CPU. So if you have a gaming computer with a good dedicated graphics card, you can mine bitcoin, though you may mine so little that it will hardly make a difference.
Two GPU manufacturers provide the chips for all graphic cards, Radeon and Nvidia. In 2013, at least, Radeon cards were much better at bitcoin mining than Nvidia cards. There was some difference in the cards' architecture that didn't really make a difference in rendering graphics in games, but made a huge difference in mining. In early 2018, both makes were able to mine bitcoins at comparable rates.
My Experience Mining With an Nvidia GPU
In 2013 I decided to try bitcoin mining with my gaming PC, which had an Nvidia card, a GTX 660Ti if you are interested. The efficiency of your setup is expressed in megahash per second (Mh/s). My card worked at around 100 Mh/s.
Our pool, which had a collective power of 3000 Gh/s, sometimes hit the payload (completed our block) in less than an hour, or up to 10 hours, if we were unlucky.
I never got much of a share of the pool's haul, since I had trouble saying connected with the client and never mined a full 24 hours. I generated 0.002BTC, worth then about 20 cents. A full 24 hours of mining would have yielded closer to 30 cents.
Remember, of course, the increased electricity your graphics card uses if you run it full time, and the wear and tear that probably means it will not last as long as it normally would. So I'm not even sure mining with my graphics card in 2013 would earn money, rather than lose it. People said I might be able to do 3-5 times better with a Radeon card, or even better if my PC had two cards running in crossfire mode, but even then it honestly it hardly seemed worth the trouble.
By Jan 2014, it was definitely not worth the trouble to mine with my graphics card, because the difficulty was 50 times what it was in summer 2013.
Mining Litecoin was an alternative I considered, since Litecoin's hashing work is better suited to a GPU than a graphics card, but Litecoin also, at this point, doesn't seem worth the trouble.
My Experience Mining With an ASIC (Dedicated Mining Hardware)
In 2013, I heard about the concept of an ASIC (Application-Specific Integrated Circuit), a machine created on purpose for bitcoin mining. You connect this machine to your computer and use it insead of your own graphics card.
In mid-2013, the smallest ASIC being produced by Butterfly Labs could produce 5Gh/s, that is, it worked 500 times faster than my graphics card. Butterfly was also developing 50 Gh/s ASICs, big boys, called “Singles.” One other company, Avalon, made ASICs, but they were only selling them in batches, and there was a long waiting list; you could not get one immediately.
Butterfly Labs said their ASICs would draw 5W per Gh/s that they hash. For comparison, a 42" LCD TV is rated to use about 200W. So the 5Gh/s Jalapeno miner would use 0.6 kilowatt-hours per day, while the 50GH/s "big boy" would use 3 kWh; if you paid 15 cents for a kilowatt-hour, operating the "big boy" ASIC miner would add about $10 to your monthly electricity bill.
At the time, in mid-2013, a BTC mining profitability calculator estimated that you would earn $17 a day with the 5Gh/s Jalapeno ASIC, and $170 with the 50Gh/s ASIC, after factoring in the cost of the electricity you would use.
These machines were not cheap; the 50GH/s one sold for $2,500. However, according to the bitcoin mining profitability calculator at the time, the big boy would "pay for itself" in 15 days. And then you would be basically printing money. All you would have to do to make money would be to sign into an exchange once in a while, to sell the coins that you’ve mined.
In summer 2013, I bought a 5 Gh/s Jalapeno, which then produced about $15 a day. But the calculated profit was shrinking fast at that time. As of Nov. 2013 the estimate was already down to $3 for a Jalapeño and $30 for the 50Gh/s ASIC.
By Jan 2014, the Jalapeno was hardly worth running; it only made a little over a dollar a day. By that time, the big boy, the 50Gh/s ButterflyLabs machine, if I had bought one, would have made just over $10 a day—less than my Jalapeno was making the previous summer.
See What the 5 Ghash/s Jalapeno Looks Like
Mining With Block Erupters
There was also the option in 2013 of getting the little Block Erupter USB ASICS, which do 336 Mh/s. I had 6 of these mining for a while; they use little electricity and don't slow down your computer, so are superior to a graphics card.
The Lag Time in Shipping ASICs Cost Miners a Lot of Money
In mid-2013, buying the equipment and becoming a virtual money miner seemed like a no-brainer: it seemed you would be able to recoup your investment in a few days. However, there was a catch. At that time you couldn’t just go online and buy those lovely money-making machines; you had to wait.
(You can buy these Butterfly Labs ASICS on Amazon now, of course, but you don't want to.)
When Butterfly Labs first began producing ASICs, they did it with funding from pre-orders. People paid up to be the first to get the miners, and the payments were used to develop and make them. But of course there were the predictable hitches and delays along the manufacturing way.
The bottom line was that the smallest Jalapenos only began to be shipped months after people ordered them. By July 2013 they had almost caught up with orders paid for in June 2012.
The bigger miners were delayed even more. As of mid-2013 they were shipping the Singles (50 GH/s) from the first day of pre-orders, 23rd June 2012, and with the Little Singles (25Gh/s) they had only reached 24th June pre-orders.
Buyers understood that if they could actually get their hands on these machines, they would pay for themselves within a couple of weeks, unless they were unlucky and the cryptocurrency crashed right after they got their machine.
But if you have to part with a large sum of money when you buy your machine, and not start earning for months to come, not only are you inconvenienced by delaying the return from your investment, you are losing opportunity, as other miners' computing power increases, driving up the difficulty algorithm, and yours does not.
People Bought As-Yet-Unbuilt Butterfly ASICs on eBay
At the time I am writing about, people frustrated at these expensive delays tried to get the Jalapeno, and sometimes even the big boy 50 Gh/s ASIC, faster.
Some people who were on the waiting list sold their machines on eBay; to be more precise, they sold their place in the queue. The buyer paid at the time of the sale—and obviously, paid more than they would if they bought their machine straight from Butterfly Labs—but the seller didn’t actually have the miner in his possession yet. The seller would ship the item as the manufacturer shipped it to him or her. The end buyer would, of course, pay this premium for an as yet non-existent machine because he would get his (virtual) money printing equipment faster than if he placed the order with a manufacturer.
Of course there were other risks of buying on eBay. Some offers were apparently fraudulent. One notable eBay auction involved somebody buying an Avalon ASIC worth $1500 for over $20,000!
Butterfly Labs Was Shut Down by the Federal Trade Commission
The Verge reported that in September 2014 a judge granted the Federal Trade Commission's (FTC's) request to halt the operations of Butterfly Labs, in view of complaints about the great delays in delivering outdated machines. The FTC said a Butterfly Labs representative admitted that with the passage of time, their machines had become useful only as "room heater[s]."
Profitable Mining Can’t Go On Forever
In the short term, bitcoin mining did seem to be profitable again briefly in early 2018. But in the long run, it has no real future.
Remember that the difficulty of mining increases with time. So a supermachine that can get you 1.6 BTC per day now will produce only a fraction of that in a year's time.
One of the problems of people getting these very efficient miners is that the difficulty level is likely to rise quickly once they join the network, since the protocol is set up to produce a new block of 12.5 coins about every 10 minutes no matter how powerful the machines in the network are. This will make BTC mining much less efficient.
People buying powerful machines hope other miners drop out of the network and remove some competition, but when others buy even more powerful machines than you do, your own prospects plummet.
In any case, bitcoin mining cannot go on forever. Missed opportunities may be missed for good. When bitcoin was invented, the plan was always to strictly limit the total number of coins. The block size is halved every four years, so that the increase in total currency is limited (the block size has already been halved once between 2013 and 2018). In a few year's time there will be far fewer new coins generated than there are now.
Price Volatility: The Bitcoin Pizza
In 2010, few people used bitcoins, and their value was often negotiated between buyer and seller individually. That year, engineer Laszlo Hanyecz bought a pair of Papa John's pizzas for 10,000 BTC. At today's exchange rate that is the equivalent of over $6,000,000.
I hope the pizza was worth it!
Will Bitcoins Become a Mainstream Currency, or Will They Disappear?
In early 2013 bitcoin rose to what seemed then the insane height of $260, then in April fell to $50, and then later seemed to stabilize at the $100 mark. But bitcoin has been full of surprises. In late 2017, its price peaked at about $19,000, and fell to about $6000 by June 2018.
Since bitcoin supply is strictly limited by the algorithm, bitcoin proponents have always hoped that if the coins become used by more people their price will rise. But it is equally possible that their price will fall, or even become zero.
Should bitcoins crash, there will be no IMF rescue, and no meetings of G8 leaders trying to save the currency.
It’s possible that investors who are hoarding BTCs counting on their price rising in the future are taking even bigger risks than people spending $300-$2500 on an ASIC.
If you want to invest some money in the hope that bitcoins will be worth more in the future, you could just buy coins on an exchange, rather than mining them. It’s at any rate less complicated.
But whether you buy or mine, you have to suspect that the people who are helping you invest might be making a more reliable income than you are. Recall that in the California gold rush of the 1850s the people who helped the miners by supplying groceries and jeans made a more reliable income than the miners.
And gold, don’t forget, is an actual thing with an intrinsic value. If nothing else, it can always be used to fill teeth and make earrings. Bitcoin has a certain reality and security in that it is verified by a peer-to-peer network, data stored on a huge number of computers. But it is impossible to say how stable it will be in the long term, or any term for that matter.
So What Do You Think, is Buying an ASIC on eBay and Mining Bitcoin Wise?
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.