Is Bitcoin Mining Profitable in 2023?

What is Bitcoin Mining?

There are multiple ways to procure Bitcoin. One can either purchase BTC from the exchanges, swap Bitcoin in exchange for goods or services, or ‘Mine new Bitcoin’. Bitcoin mining is a process to create new BTCs and add them to circulation. The main actor behind BTC mining is a ‘Miner’ who validates the transactions and adds new blocks to the chain. This is when the miner is rewarded with Bitcoin, and the process is called Bitcoin Mining. 

But how does Bitcoin mining work?

Like in real mining, one must invest energy here to mine new tokens. The miners compete against themselves to solve a complex cryptographical puzzle to verify the blocks containing the transactions. The first miner who completes the tasks updates the ledger of transactions on the Bitcoin network and receives a reward of newly-minted Bitcoins. To do so, a miner requires a powerful computer, which helps him make more guesses per second, which in turn increases his chances of winning this race. 

So What is required to start the Mining work?

First and foremost, a miner has to set up powerful hardware resources, like their own rigs. Mining rigs are arrangements of hardware elements to perform the mining process. Besides, they may also require Graphics Processing Units (GPUs) with advanced graphic cards, field programmable gate arrays (FPGAs), or application-specified integrated circuits (ASICs). Further, the miner needs to install related software and e-wallets to store their rewards, i.e., Bitcoin. 

Once everything is well-set, the miner can begin the mining process. The mining software generates a cryptographic hash whenever a transaction is initiated on the Bitcoin network. The software bundles all the transactions together using SHA-256 encryption. This bundling process is called a Merkle tree or hash tree, where each leaf node represents a block’s hash. 

Once the Merkle tree is generated, the transaction data is administered and organized into blocks with their addresses by the Proof-of-Work (PoW) algorithm. If the block is mined at a specific speed, maintaining the integrity of the block, it is said to contain PoW and is hence certified as validated. Every block has its unique hash address, which is a 64-digit number.

All the miners in the race find the hash for a specified target by cracking the hash puzzle. The one who does it first wins the block reward. 

Bitcoin Halving Explained

Bitcoin Halving is an event that takes place every 4 years, where-in the Bitcoin rewards are divided in half. The process is automated by a pre-written mining algorithm, intending to reduce inflation by maintaining scarcity. The main objective behind halving is to reduce the new issuance of Bitcoin tokens, which will keep the demand and supply ratio unaltered. 

How does the Bitcoin halving work?

As mentioned above, a set of validators verify the transactions in a process called mining, and they are rewarded with 6.25 BTC. At the current BTC price of 6.25, BTC can be worth nearly $191,250, a decent incentive to keep the miners motivated to carry out the mining process. 

These blocks are added every 10 minutes, and the Bitcoin algorithm dictates the halving process for every 210,000 blocks created, which happens roughly once every 4 years. This is frequently accompanied by a fair amount of volatility. 

How Much Money do you Make Mining Bitcoin?

Earning money by mining cryptos like Bitcoin isn’t as easy as switching on the computer. Back in 2009, mining a Bitcoin was done using a simple PC. But with its growing popularity and attention, mining nowadays has become extremely competitive. The main problem associated with earning money by mining is balancing the costs. Technically, there is no barrier to entry, but practically, you require more computing power to mine.

In addition, one requires highly specialized GPUs, circuits, ASICs, etc. to set up a mining rig that fuels the fire, and to run this hardware, a lot of energy is consumed. Now that the BTC price has surged, miners have gotten into the game with vast server farms. The profitability of mining depends on the value of the crypto, the cost of energy consumption, and the hash rate. 

Read On: Bitcoin Price Prediction

Top Reasons Why BTC Mining is Profitable

Bitcoin miners’ revenue per Terahash (THs) has been falling ever since the 2018 bear market. The revenue of 1 TH peaked at around $3.5 in 2018, fell drastically below $1, and has maintained the same levels till now. In the entire Bitcoin network, there are around 85,000,000 THs. However, mining can still be profitable in 2023! But how?

The revenue from the mining is calculated after eliminating the expenses and also considering the original investment into the hardware. Another source of revenue for the miners is the transaction fees that the traders have to pay while performing a trade. Bitcoin mining can be profitable if the following 3 aspects are taken into consideration.

• Efficient Hardware
• Cheap Electricity
• Reliable Mining Pool
• Fees when selling Bitcoin 

The revenue is expected to improve in the future as the ASIC mining hardware offers more returns.

Taxes on Bitcoin Mining Profits

The taxes on the cryptos differ depending on the region and the rules and regulations of the country. In the US, Crypto mining is subject to two different taxes, Income tax when you receive mining rewards and Capital gains tax when you dispose of your mining rewards. It has to be noted that Capital losses are also considered in the case of a disposal event. If, in this case, the mining rewards are not reported to the IRS, then it is considered tax evasion, which is considered a serious crime and is punished with 5 years in prison and a fine of $100,000. 

In India, more or less, a similar policy is followed when it comes to cryptos. Crypto mining itself is not subject to taxation. If a person receives any crypto from mining activities, it needs to be reported as business income. However, the profits earned from the cryptos are subjected to 30% tax plus surcharge and cess and 1% TDS on every transaction.

Joining a Mining Pool 

A mining pool is where many networks combine their computing power, intending to join efforts when mining Bitcoin. The block rewards are then split among the pool members depending on their contributed computational power. In times when finding a block for an individual miner has become a daunting task,  mining pools come into play. 

The primary function of a mining pool is to ease the accessibility of mining around the world, regardless of the resources it has. Besides, the pools may also help beginners who have less knowledge of how to start on their own. These pools allow users to get started with any amount of mining power. To join a mining pool, 

• Choose the pool you want to join.
• After you have selected the pool, enter the stratum address into the mining software.
• Connect the wallet to deposit the mined coins 
• Configure your mining client for your chosen mining pool

Read More: What Happens After All 21 Million Bitcoins are Mined?

Conclusion

Bitcoin mining has become a more popular business in recent times, specifically after the 2017 bull run. The rise of the value of the BTC from ground levels has attracted many traders onto the platform and also raised many miners. However, before beginning with mining, one needs to understand the pros & cons, expenses, and revenue involved. 

The mining industry has swelled; hence, the competition among the miners has also increased. Besides, the value of Bitcoin also depends on the BTC reserve held by the miners. However, one has to remember that mining requires huge investments in expensive equipment. Hence, testing the waters before jumping in is always advisable. 

Follow: Bitcoin Halving Countdown Live