As a miner, you have already noticed how your profit from mining was reduced by half yesterday. Your hashpower, as well as the network’s remained the same however the reward per mined block dropped by 50%, from 12.5 to 6.25.
What happened is that yesterday May 11th, the 630,000th block was mined, which led to a planned halving of reward per block. Over its 11 years of existence, Bitcoin experienced three halvings. The first one happened in November 2012 when the reward went from 50 to 25, and the second one happened in July 2016 when the reward decreased to 12.5.
The halving takes place every 210,000 blocks mined, and it’s purpose is to create deflation. In other words, to reduce the creation of new tokens to keep the cryptocurrency economy healthier.
On paper, this will cause a price increase of the Bitcoin in the long run. However, what about the short-term?
How Profitable Is Mining Now?
There are several factors that affect mining profitability, the key ones being network difficulty, mining equipment, bitcoin price and electricity price. Let’s take a look at each of them separately:
As Cointelegraph stated, a lot of miners decided to hold their freshly mined Bitcoins right before and during the halving in the hopes of getting a better deal after the halving. It’s all about offer and demand, and slower Bitcoin generation will surely cause a spike in price. That being said, nobody can say for sure when the market will go bullish.
The most conservative analysts expect the market to remain the same until the beginning of next year, and I can see why. Even though the drop in Bitcoin generation per block is huge, there are currently 18,321,212.5 BTC in circulation, whereas the entire mining network produces 900 BTC a day. That’s roughly 0.005% of the total mass, a day.
The situation was different back in 2016, and especially in 2012 where the amount of existing BTC was times lower, and the amount of generated Bitcoins a day was times higher.
The more people (or more like, miners) mine the coin, the less is the share everyone gets. Some experts say a big share of miners will be bailing on Bitcoin soon. Bitcoin.com expects nothing less than a 30% hashrate drop as people will be turning their miners off.
Mining a coin isn’t free. Mining equipment consumes a considerable amount of electricity, which is why when it comes to profitability, power consumption is a critical variable to consider along with the cost of the hardware itself.
Big farms often have contracts for cheaper electricity. Some are also situated in countries and regions where electricity is either cheap or straightforward free. People who don’t have that luxury (mostly home miners) might see their mining earnings turning into losses.
Now, as for today, the network hashrate is higher than ever, and if there will be a wave of people quitting the network, it still has to come. Obviously, if the difficulty drops by 30%, mining will become more profitable, which might attract some of the miners back, kicking the network hashrate back up.
Another factor to consider is that big mining farms with cheap or free electricity might want to start buying miners from individuals and smaller farms. Even though the amount of people mining the coin might be reduced by 30%, the amount of miners might remain roughly the same.
As for today, I would not count on the network hashrate dropping significantly.
Yet another factor to consider, electricity price might be dropping significantly for certain regions in the world. All-time low oil prices, rainy seasons in certain industrial provinces of China and lockdown policies all contribute to certain regions getting better electricity rates.
This probably means that the biggest farms will remain active and profitable even after the halving.
Today, Bitcoin can only be mined with ASICs. Those are known for being expensive, have high power consumption and being high-risk investments because of how volatile cryptocurrency markets are, as well as how fast they become obsolete. Every year, new ASIC models are being released, and every new model features more hashrate and less power consumption.
Despite the halving, the ASIC race continues, with Bitmain announcing the release of the S19 Pro (110 TH/s at a power efficiency of 29.5 J/TH), and MicroBT getting ready to release the MS30S++ (112 TH/s, 31 J/TH). The price per unit range from 2,000 to 3,000 USD, which is comparable to the price of previous ASICs back when those were released.
All of this means that both individuals and mining farms that can’t keep up with the newest equipment will face an even more significant loss in profit once those new-gen units are shipped.
Will this halving kill Bitcoin? Certainly not. While some people will rush to the market to sell their coins, the amount of active miners and the network hashrate will most likely keep growing, and the BTC market will eventually go bullish.
The way fiat was weakened by the current events might contribute to the rise of BTC even more. If you already have mining equipment, holding on to it for now might not be a bad idea. Now, if you want to get into mining Bitcoin, waiting till the release of the new miners, or altcoin mining might be better alternatives.
With Bitcoins’s block reward halving from 12.5 BTC to 6.25 BTC, Binance is holding a bounty program with tasks to complete during the activity period, giving away a total of 12.5 BTC!
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Thank you for reading. As always, your comments, suggestions and questions are welcome.
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