Is Bitcoin Mining Profitable in 2024? Calculating BTC Mining Profitability

Bitcoin mining is a multi-billion-dollar industry. But is Bitcoin mining profitable in 2024? And if so, what equipment, resources, and strategies are needed to cover costs and generate revenues?

Read on, this guide covers everything there is to know about Bitcoin mining. Learn about mining difficulty, hash rates, set-up fees, estimated earnings, and more.

What Is Bitcoin Mining?

Mining keeps the Bitcoin network decentralized. It ensures Bitcoin transactions are verified and confirmed without intermediaries, such as banks and other financial institutions. Bitcoin uses a mining mechanism called Proof-of-Work (PoW).

It’s based on cryptography and requires participants to solve complex mathematical equations. This can only be achieved with specialist hardware. This used to be Central Processing Units
(CPUs) and Graphics Processing Units (GPUs) but has since extended to Application-Specific Integrated Circuits (ASICs).

These are highly advanced and expensive, pricing the average miner out of the market. Nonetheless, ASICs are connected to Bitcoin mining software, and they’re tasked with being the first to mine the next block of transactions. In doing so, the successful miner earns the block reward, which is currently 3.125 BTC. This is in addition to transaction fees paid by transacting parties.

How Does Bitcoin Mining Work?

Bitcoin mining is essentially an arms race. Those able to generate the most output, known as hash power, stand the greatest probability of solving the next block. This is because of the PoW framework. Every 10 minutes, PoW generates a new cryptographic puzzle.

Its extreme complexity means that highly powerful devices are needed, which are currently ASICs. The more ASICs, and subsequently hash power generated, the more attempts can be made during the 10-minute cycle. The first miner to solve the puzzle earns the block reward and respective fees.

What’s more, the Bitcoin mining difficulty adjusts based on the number of participants. When competition increases, so does the difficulty rate. And thus, even more hash power is needed. The opposite happens when the difficult rate decreases, often due to a declining Bitcoin price.

Nevertheless, not only do ASICs cost thousands of dollars to purchase, but the required hash power consumes substantial energy. This means Bitcoin mining is only viable for those with significant resources. Not to mention sufficient expertise and access to cheap electricity.

Factors That Influence Bitcoin Mining Profitability

Now that we’ve covered the basics, let’s take a closer look at the question: Is Bitcoin mining profitable in 2024? Many factors can influence profitability, which we unravel in the following sections.

Network Difficulty

Understanding Bitcoin mining difficulty is imperative. In a nutshell, the difficulty rate depends on the number of market participants. It ensures that transactions take around 10 minutes to confirm, which is a vital requirement to secure the Bitcoin blockchain.

The PoW framework automatically adjusts it every 2,106 blocks (about two weeks). For example, suppose Bitcoin is currently in an extended bull market, meaning prices have increased for several months. This encourages more participants to mine Bitcoin, so the difficulty rate will increase.

Conversely, during bear markets, when prices decline, fewer participants will look to mine Bitcoin. This means the difficulty rate will be reduced, leaving miners in a Catch-22 situation. Bitcoin is less difficult to mine when prices are low.

However, this could lead to profitability issues, especially if miners need to sell their rewards immediately to cover costs.

On the other hand, Bitcoin is more attractive to mine when prices are high. This is because the cost basis is lower, so profitability increases. However, Bitcoin will also be more challenging to mine, as the difficulty rate increases. This is because there’s more competition between miners.

Mining Hardware Efficiency

Another important factor is the efficiency of mining hardware. This is determined by how much hash power the device can generate based on the energy consumed.

Ideally, miners should use hardware with a high output and low energy consumption. This increases profitability and makes devices more competitive.

• The best way to evaluate efficiency is joules per terahash (J/TH)
• J/TH measures the amount of energy consumed per 1 terahash

As mentioned, ASICs are the only way to realistically mine Bitcoin. They’re able to generate substantial output while remaining efficient. ASICs are constantly becoming more advanced, so miners should ensure they’re using the latest models.

Conversely, CPUs and GPUs cannot compete with ASICs. This would be like a Fiat Qubo racing against a Bugatti Chiron Super Sport.

Operational Costs

ASICs are an upfront cost that cannot be avoided—not unless you opt for a cloud mining platform, which we discuss later.

Operating costs should also be considered when mining Bitcoin. This includes everything from electricity and cooling fans to maintenance and premises.

Electricity Costs

The US Energy Information Administration estimates that Bitcoin mining uses between 0.6% and 2.3% of the electricity consumed by US households, an unprecedented amount of energy. Put otherwise, Bitcoin miners must have sufficient resources to cover these costs.

Just as important is the location. After all, there’s a huge disparity in electricity costs from one region to the next. This is why China previously dominated the Bitcoin mining space before it was outlawed, considering the cheap electricity supply available.

Cooling Devices and Maintenance Costs

Bitcoin miners also require cooling devices—and plenty of them. Otherwise, the mining equipment will overheat, owing to the sheer hash power generated. This will lead to downtime, which in itself results in costs.

Miners also need to consider maintenance. Mining equipment is highly demanding, so specialist teams should be available 24//7. Sufficient spare parts should also be on hand.

Premises

Suitable premises are also needed. This should be large enough for the host the required ASIC devices, cooling fans, and other equipment needs. It should also have reliable access to electricity supply.

Mining Pools and Cloud Mining

Those joining a mining pool should consider the added fees. These will be deducted from the generated mining rewards.

Similarly, cloud mining also attracts fees paid via contracts. This reduces the overall profitability, so adequate calculations should be made before proceeding.

Block Reward and Transaction Fees

The earning potential will also be determined by the following:

• Block reward
• Transaction fees included within the respective block

We briefly mentioned earlier that the block reward is currently 3.125 BTC. The reward was originally 50 BTC when Bitcoin launched in 2009. It’s reduced by 50% approximately every four years. This is known as the ‘Bitcoin Halving Event’.

The most recent was in April 2024, when Bitcoin’s reward went from 6.25 BTC to 3.125 BTC. The next Halving Event will happen in 2028, which will reduce the 10-minute reward to 1.5625 BTC. Halvings will continue until Bitcoin’s total supply reaches 21 million (expected in 2140).

In addition to the block reward, transaction fees are paid by people who transferred Bitcoin within the respective block. They’re paid directly to the successful miner.

BTC Market Price

The BTC price has a huge impact on mining profitability for several reasons. First, it determines how much, in fiat terms, participants can sell their Bitcoin mining rewards.

• Suppose a miner receives a 3.125 BTC reward when Bitcoin is priced at $60,000. This would value the payout at about $187,500, including transaction fees.
• However, suppose the Bitcoin price is at $20,000. The payout is reduced considerably to $62,500.

What’s more, the BTC price will also influence the difficulty rate. As mentioned earlier, the difficult rate typically increases when the BTC price is high. This is because Bitcoin is more attractive to mine, so there’s more competition in the market.

A low BTC price means the difficulty rate is normally reduced. This makes it less competitive to mine Bitcoin, and profitability will be impacted.

Regulatory Environment

Local regulations can also impact Bitcoin mining profitability. This includes the legal status of mining. For instance, mining has been banned in China since 2021. As per a Greenpeace report, other countries that are banning Bitcoin mining include Kuwait, Kosovo, Iraq, and Algeria.

Another regulatory area is crypto taxation. In most cases, Bitcoin mining is taxed as income. For instance, suppose the mining operation generates $1 million from Bitcoin sales. Operating costs are $800,000, leaving the firm with a taxable profit of $200,000.

What’s more, capital gains tax can also apply if the mining rewards are sold for more than the original cost basis. For example, let’s say 1 Bitcoin was earned when the market price was $30,000. The price was $40,000 when the mining operation cashed out, which would mean $10,000 in capital gains.

Types of Bitcoin Mining

We’re one step closer to answering the question: is Bitcoin mining profitable in 2024? The next step is to explore the different ways to mine Bitcoin.

ASIC Mining

ASICs are the de facto way to mine Bitcoin in 2024. This is because ASICs are the most powerful processing units, and they’re capable of generating sufficient hash power to meet the difficulty rate.

However, ASICs are not only super-expensive, but one device won’t be suitable. This means successful Bitcoin miners spend millions of dollars on devices alone.

Nonetheless, ASIC mining can be split into two categories:

• Solo Mining: This means miners connect directly to the Bitcoin network and compete to win 100% of the mining reward. Success means miners earn 3.125 BTC plus transaction fees for the respective block. However, solo miners are now dominated by large-scale operations, requiring significant upfront and operating capital.
• Pool Mining: The next best option is pool mining. This still requires at least one ASIC device, but miners contribute their available hash power to a larger pool. This means that collectively, the pool has a greater chance of winning the mining reward. Any rewards generated are distributed proportionately, less fees. For instance, if you contribute 2% of the hash power, you’ll receive 2% of the rewards.

CPU and GPU Mining

CPUs and GPUs were originally used to mine Bitcoin. At the time, Bitcoin was virtually unknown, meaning competition was non-existent. This also meant that the difficulty of Bitcoin mining was low, making it more cost-effective and less energy-intensive.

As such, early adopters were earning mining rewards of 50 BTC, often with nothing more than a laptop. However, this is no longer feasible. Neither CPUs nor GPUs can generate enough hash power to solve the PoW equation. Instead, ASICs are needed.

That said, CPUs and GPUs (desktops and mobile devices) can still be used to mine other cryptocurrencies. These are often small-cap cryptocurrencies with limited exposure.

Cloud Mining

Those determined to mine Bitcoin without spending obscene sums on ASICs, cooling fans, premises, and maintenance might consider cloud mining.

Put simply, cloud mining enables anyone to mine Bitcoin without buying equipment. No operating costs are needed either, including electricity. Instead, you’ll be purchasing contracts from an established mining company. This determines your share of the generated mining rewards.

A simplified example is as follows:

• You purchase $1,000 worth of Bitcoin mining contracts
• This amounts to 0.1% of the total hash power generated by the mining company
• The company successfully mines a Bitcoin block, so it receives 3.125 BTC
• You receive your proportionate share, which is 0.003125 BTC

Some important points to note about cloud mining. First, even the best cloud mining websites charge fees. These can be built into the contract value. Or deducted from the rewards generated. Either way, ensure you understand the fee structure before proceeding.

Additionally, many cloud mining websites are scams. There could be no mining operation behind the company. It could simply be a website that collects payments, meaning you’ll never see a return on that money. Let alone the original investment back.

Alternative Mining

It’s also possible to earn cryptocurrencies via alternative crypto apps. These aren’t traditional mining apps but still offer withdrawal rewards.

Some apps require users to complete tasks, such as logging in at least once per day, liking social media posts, or watching videos. Payouts can be made in Bitcoin but more commonly in new cryptocurrencies.

The only commitment needed is time. Ensure you assess what rewards are paid when completing tasks. The payouts should justify the effort. 

How to Start Mining Bitcoin?

The steps below provide a general outline of how to mine Bitcoin.

1. Calculating affordability: First, it’s important to be realistic about your budget. If you have significant capital available, assess how many ASICs you’ll need, and what electricity costs to expect.
2. Ordering initial hardware setup: Next, proceed to order the initial hardware, including ASICs, cooling devices, and spare parts for maintenance. Order directly from the manufacturer to ensure legitimacy.
3. Setting up the mining rig: The mining rig must be set up on a DIY basis. Those without technical expertise will need to hire a suitable engineer.
4. Choosing a mining pool and connecting the software to the rig: Consider joining a Bitcoin mining pool to increase efficiency levels. This will ensure consistent mining rewards, as you’ll be contributing hash power to a larger pool.
5. Keeping track of factors influencing profitability through cost analysis: Regular cost analysis is crucial when mining Bitcoin. Keep track of variable and fixed costs, and how these relate to mining revenues. You should eventually get a return on investment percentage. This will help you assess viability.

Paying Taxes on BTC Mining

Taxes can no longer be avoided in the crypto industry, including mining activities. Specific tax laws will vary depending on the jurisdiction.

However, crypto mining revenues are generally treated as income. The amount is based on the BTC value when the mining rewards are received.

For example:

• You receive 2 BTC in mining rewards
• On that day, BTC trades at $50,000
• This means your mining income is $100,000
• This is the case regardless of when you sell (more on that shortly)

Any expenses related to that income can be deducted. This includes standard operating costs, such as electricity and maintenance. Depreciation on ASICs and other mining equipment is often permitted too. Anything left over is taxable income.

Capital gains can also be implemented on the mining income. This happens if the BTC rewards are sold at a higher price when compared to the cost basis.

• You receive 1 BTC in mining rewards, which is worth $40,000 when received
• You hold that 1 BTC for a few months
• You sell 0.5 BTC when BTC trades at $50,000
• And another 0.5 BTC when BTC trades at $60,000
• The first sale generates capital gains of $5,000 ($50,000 – $40,000 * 0.5)
• The second sale generates capital gains of $10,000 ($60,000 – $40,000 * 0.5)
• The total capital gains is $15,000, which could be taxable

Conclusion

In summary, we’ve helped answer the question; is Bitcoin mining profitable in 2024? The simple answer is yes, but only for those who have significant resources. This includes fully-fledged mining rigs with powerful ASICs, cooling devices, and 24/7 maintenance teams.

The best alternative is to cloud mine Bitcoin with a reputable provider. This doesn’t require any equipment; just purchase Bitcoin mining contracts within your budget. The contracts represent a share in an established mining farm, with payouts made proportionately.

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