The process of earning new Bitcoins in exchange for solving complex mathematical puzzles and operating the verification process for Bitcoin transaction validation is known as Bitcoin mining. The transactions provide reliability and security for the network of Bitcoin. This in turn rewards miners by compensating them with Bitcoins. Miners make profit when the cost rewards won by miners transcends the cost of mining.
But is Bitcoin mining still profitable? Is it still worth it to mine Bitcoins? And what happens after the 21 million are completely mine? Let’s explore in this blog.
Bitcoin mining – Is it still worth the time and effort?
Satoshi Nakomoto (the inventor of Bitcoin) had capped the number of Bitcoins that can be mined at 21 million. This means that there’ll only be 21 million Bitcoins. Though this seems like a big number, you’d be shocked to know that 18.7 million Bitcoins are already mined and in circulation. Meaning only 2.3 million are left to be mined. The limited supply of this famous cryptocurrency makes it scarce. It might also control inflation which may arise from Bitcoin’s unlimited supply.
An important thing that affects Bitcoin mining and its profitability is its ‘halving’. Like mentioned above, miners earn some amount of Bitcoin for conducting successful Bitcoin mining. What exactly do miners get for mining Bitcoin? Miners are rewarded with a Bitcoin block. In the year Bitcoin was invented (2009), this block consisted of 50 Bitcoins.
Every 210,000 blocks or every 4 years, the block reward is halved. In 2013, the reward was halved to 25. In 2016, it came down to 12.5. After the last lalving in May 2020, the block reward currently is 6.25. The next halving will be in 2024 which will bring down the block reward at 3.125.
Strong competition is another thing that’ll affect profitability, and even the chances of individuals being able to mine Bitcoins. Earlier, anyone with a personal computer could try Bitcoin mining and that was profitable for multiple reasons. This is even possible today but the thing is that individual miners would be competing with professional mining rigs that pool resources which increase computing power.
Even for the big mining rigs, profits are being chipped away by Bitcoin mining expenses like buying and maintaining computing equipment and the electricity and other energy costs for operating the equipment (which is different in every geography).
Transaction fee associated with Bitcoin mining is another incentive for miners to mine. The miners get fees from transactions that are contained in the block of transactions they mine. The fees make sure that Bitcoin miners receive the incentive for mining and keeping the network going.
Has Bitcoin mining become harder?
Every two weeks (or every 2016 Bitcoin block), the cryptocurrency resets how difficult or easy it will be for miners to mine. In August 2021, the code of Bitcoin made itself 7.3 tougher to solve a block. Though the famous cryptocurrency has a history of making Bitcoin mining difficult for miners with time, this event marked the first substantial increase in difficulty since the mining ban in China.
From the looks of it, Bitcoin mining does not seem to be quite as lucrative as it was before the algorithm automatically made itself more difficult. However, Bitcoin miners are making more money now than they were prior to the cryptocurrency crackdown in China in May.
An analyst Quantum Economics (a crypto advisory firm), Jason Deane said “Hashrate levels are still down 42.1% from the peak in May 2021, when the China exodus occurred,” . This hashrate deficit implies those plugged into the bitcoin network right now are making a good amount of money.
What happens after the 21 million bitcoin are mined
If you are wondering what happens when all 21 million Bitcoins will be mined, which is expected to happen in 2140, here’s what we have for you. It is tough to predict what happens when all mine-able Bitcoins promised by Satoshi Nakamoto are mined.
But when all Bitcoins are mined, miners will have to rely only on transaction fees as a source of earning.This is because the ecosystem of Bitcoin is still under development. Initially, the currency was conceptualized just as a mode of exchange. Today, it is seen and valued more as an investing asset.
When Bitcoin almost reaches its capped limit, the block reward amount might not be sufficient to cover operational costs associated with Bitcoin mining, let alone be profitable profits. If (and when) the Bitcoin’s supply limit is reached, the rewards are supposed to vanish and transaction fees are supposed to pick up the slack.
The amount of and system for the fees will depend on the state of Bitcoin’s ecosystem and network at that point of time, that is, whether it is being used as a store of value or a medium of exchange. The former will make miners conduct fewer (and more expensive transactions), while the latter might incur reasonable fees to allow Bitcoin’s use in daily transactions.
It is also not likely that Bitcoin miners form cartels amongst themselves to might control the supply of the cryptocurrency in order to set high transaction fees or even a fee that guarantees them a certain minimum to maintain profitability.
Selfish mining is also a possibility. In this type of Bitcoin mining, miners conspire amongst themselves to stash new blocks and release orphan blocks that aren’t confirmed by the network of Bitcoin. Selfish mining will delay the production of the final block in the network and make sure there are high rewards for the new blocks when they’re finally released.
By 2140, there’s a high possibility that Bitcoin’s ecosystem and ways of working will undergo a drastic transformation. The world of cryptocurrency, including Bitcoin and other altcoins, is highly dynamic. While some experts think of blockchain and crypto as the future, some aren’t so sure about it. Whichever side you pick, whether you decide to mine Bitcoin, invest in cryptocurrencies or want to stay away from all of it, make sure your research is on point.
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