How Much Does it Cost to Mine a Bitcoin? $20K with 4.7c/Kwh (2024)

Inthis article webreak down the essential costs and considerations involved inmining Bitcoin.

Bitcoin mining isthe process bywhich computers secure the network, process transactions, and unlock the newly issuedBitcoin. Specialized computers expend energy inarace tosolve acryptographic puzzle.

Whoever wins the race wins the ability toadd the next block ofdata into Bitcoin’s chain oftransactionhistory. That miner also earns the newly issued Bitcoin and the transaction fees for that particular block.

When deciding whether tomine ornot, afew factors must beconsidered. Mining allows you toessentially purchase Bitcoin atthe cost ofenergy rather than market prices.

Itcan beextremely lucrative toenter the market before large, upward pricemovements. However, ifenergy costs are too high, itmay not beprofitable tomine rather than buyBitcoin.

For Example: At4.7 cents per kWh: $5,170

Another factor ishash rate growth. Asmore miners join the network toprovide computing power, your existing computing power isdilutedgradually. Generally speaking, mining rigs will produce Bitcoin atadecreasing rate, becoming less profitable over time.

Bitcoin isanetwork, asset, and protocol that allows for the transfer ofvalue across the internet inapeer-to-peer way without the need for anintermediary. Imagine sending your friends cash through anemail.

This isdone inaverifiable way that cannot becounterfeited ordouble-spent, soyou always know the Bitcoin you hold isreal and legitimate.

Bitcoin mining started asaway for fairissuance. All people needed todowas run free, open-source software ontheir computers toearn Bitcoin asareward. Miners also process transactions.

Swan’s Yan Pritzker breaks down Bitcoin mining asalotterysystem inthis great Twitter thread:

Miners earn the newly minted Bitcoin and transaction fees byusing electricity tosolve acryptographic puzzle called 'proof ofwork.'

Asnetwork power grew, specialized computers were developed tomake mining moreefficient. They now serve asadigital security fence that keeps the network honest and secure.

Inexchange, miners receive newly issued Bitcoin and transactionfees. This iscalled the blockreward. The block reward iscurrently 6.25 Bitcoin was cut inhalf onApril 20th, 2024 to3.125Bitcoin.

This isknown asthe 'Bitcoin Halving' and isone ofthe mechanisms widely believed toprecipitate Bitcoin bull markets and large price predictions from institutional investors.

The block reward halving happens roughly every 4 years or210,000blocks. Itisthe mechanism bywhich Bitcoin’s 21,000,000 (or2.1 quadtrillion satoshis) hard cap isreached and iswidely believed toprecipitate bull markets.

New Bitcoin iscreated, onaverage, every 10 minutes asablock iscreated. Ascomputers worldwide race tosolve acryptographic puzzle, they are simultaneously arranging transactions into ablock ofdata.

This block isadded tothe history ofall Bitcoin transactions. Asareward, the miner who solves the problem first receives the 6.25 Bitcoin and transaction fees associated with that block.

Theoretically, aminer could goforever without ever winning therace. Toreduce this risk, miners will pool their computing power together tosolve the problem collectively.

Mining pools are groups ofminers that work together tosolve the cryptographicpuzzle. The more computing power they have, the higher the probability they will solve the next block.

Indoing so, they earn the reward and fees, splitting the payout proportionally based onhow much computing power each entity provides for the pool.

Inthis setup, miners opt out ofthe chance ofwinning the entire reward for themselves but, inexchange, receive more predictable income from their proof ofwork computations.

Itdepends onyour power cost and what type ofmachine youuse. Ifyou plug inthe latest mining computers into your home, itwill bequite expensive tomine.

Tocalculate the cost ofmining one Bitcoin, weneed toconsider several factors, including the efficiency ofthe mining hardware (measured inwatts per terahash), the hash rate ofthe mining operation (terahashes per second), and the total energy consumed over the period ittakes tomine one Bitcoin.

However, one ofthe most straightforward methods istouse the average energy consumption required tomine one Bitcoin and then calculate the cost based onthe electricityrate. This iswhat the formula looks like:

At10 cents per kWh:

Cost = 110,000 kWh × 0.10 $perkWh

At4.7 cents per kWh:

Cost = 110,000 kWh × 0.047 $perkWh

Tomine one Bitcoin, the cost at10 cents per kWh isapproximately $11,000, and at4.7 cents per kWh, it’s around $5,170.

Asmore computing power, orhash rate, joins the Bitcoin network, the mining algorithm difficulty will automatically rise tomaintain the 10-minute target average block time.

Asthe difficulty rises, the marginal contribution ofevery computer onthe network goes down, making them less profitable.Mining hash rate and difficulty have risen consistently, meaning miners slowly become less profitable overtime. There are still trade-offs, however.

Newer, more efficient machines will cost substantially more than oldermachines. Depending onthe circ*mstances, older machines may actually have abetter return oninvestment and ashorter payback period.

Mining Bitcoin allows you toaccumulate Bitcoin atthe cost ofenergy rather than the cost ofBitcoin and supports network security.

Many call itthe native way tohave recurring buys.However, there are two primary risks toconsider:

Some may choose tomine athome, however, ifthey want toaccumulate KYC-free Bitcoin, even ifthe cost ofelectricity exceeds the value ofBitcoin produced.

Everyone’s situation isdifferent, but these are afew factors you should consider before diving in.

Navigating the costs ofBitcoin mining can bequite the expedition. But don’t let the complexities ofmining overshadow the simpler pathways toBitcoinownership.

HashrateUp isapodcast that delves into Bitcoin mining and exciting projects, utilizing hashrate production tounlock new potentials inthe broader energyindustry.

Jesse sits down with Brad James, aseasoned consultant and the organizer ofthe Micro MineryClub. Brad shares his journey from discovering Bitcoin in2011 tobuilding and launching 42 global miningfacilities. They also share insights and predictions for the future ofBitcoin mining, including the rise ofmicro mineries and the shift towards more specialized, smaller-scaleoperations.

AtPacific Bitcoin 2023, Kaz Bycko hosted apanel with Zack Bomsta and Michael Schmid all about the world ofhome mining, how itcan befun, profitable and how it’s actually important for the radical decentralization ofBitcoin.

Ifmining seems too daunting orcostly, there’s astraightforward alternative for you.

Swan iscurrently mining over 7 EH/s. Equal toabout 1% ofthe entire Bitcoinnetwork. Start your Bitcoinjourney. Whether you’re new toBitcoin oraseasoned enthusiast looking toexpand your portfolio with aBitcoinIRA.

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