In DepthOpinion

Cryptocurrency Mining Profitability – Should You Consider it This Year?

While the global crypto economy keeps rising, cryptocurrency mining is likely to remain and even become a lot more profitable in the next years. Miner profitability metrics are operating on a few factors regulating difficulty and emission, which are hard-coded into the blockchain’s functions, making it predictable to work with.

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Although predictability doesn’t always mean profitability, it gives a blockchain particular parameters to depend on in terms of predicting when mining cryptocurrency will become profitable, at which price level, and at which difficulty level throughout the emission cycle.

Behind Coins’ Emission Cycles

Some crypto coins, including Bitcoin, face emission cycles with events such as the halving. In BTC’s case, halvings take place once every 210,000 blocks, which means every four years, until the maximum supply of 21 million Bitcoin has been mined.

The function, self-adjusting difficulty, offers a stimulus for an individual miner to join or leave the network depending on the current Bitcoin price level. When mixed, both these incentives create a logarithmic price regression curve, which shows a probable BTC exchange rate, and, hence, predictability or profitability in the current emission cycle.

If the coin’s price drops under this regression curve where the bottom line is around the 200-week moving average in this emission cycle, almost all miners should be at a net loss. However, if the price remains above this figure, at least some of the miners should be at net profit.

Bitcoin mining difficulty is, for now, at an unprecedented high between 110 and 120 million terahashes per second, suggesting that a lot of new mining capacity has been added to the network, but because the price has not completely recovered from the dip caused by the emergence of this crisis we currency face, we should expect most of the miners to be at a loss.

Still, if Bitcoin’s price rises back up again into the current emission cycle and heads into a bull run, miners should gain some big profit.

Ethereum​’s Future

Ethereum​ mining has been, for some time, one of the most advantageous in the altcoin specter, mainly because of the high average price of its token. Still, Ethereum,​ as a network, has a focal point on developing a blockchain with a bit of a different purpose in comparison to Bitcoin.

Ethereum​ is a smart contract platform, and although mining has earlier supported the network in the stage where it isn’t widely used for transactions, in the future, the ecosystem will be forced to take on staking nodes as validators so it would be able to provide enough transaction capacity. In the long term, this may have a positive impact on mining if we presume that mining will be progressively disposed of. A massive amount of coins are believed to be locked in staking, which is going to lead the price.

Staking is a system that allows users to deposit a part of their coins into a staking address owned by a validator node and keeps them there for a period. The validator node then secures the system by creating blocks relative to the number of coins sent into it. The blocks are developed according to a hard-coded voting mechanism that calculates the staking reward from the total amount of coins staked in the network for each node.

Defining Aspects of Mining Profitability

The price of electricity is one of the main factors in miner profitability. At the moment, most industrial miners live in countries with cheap electricity on power buying agreements with electricity producers starting with hydropower and all the way to solar energy.

Still, the majority of retail miners mostly rely on retail price fluctuations and have to calculate this aspect into their investments. In addition, the price of electricity is not a factor when mining profitable altcoins with GPU rigs.

Gear prices usually fluctuate as per price cycles. At the bottom of each cycle, purchasing equipment is relatively advantageous, but heading towards each cycle peak, the gear may be expensive or even unavailable. At this point, it would probably be more beneficial to take a moderate risk in mining, more so in GPU mining.

In terms of profitability alone, mining Bitcoin would likely ask for investment beyond the reach of the majority of retail miners on the initial cost in order to be profitable at the peak of this emission cycle.

Besides from only providing a profit, mining is a way to generate coins with no prior history. For users especially concerned about their privacy, mining is economic freedom, making a means of payment with no associations to a specific entity accessible. However, this feature is only to be found in Proof-of-Work (PoW) cryptocurrencies.

Overall, is Mining Profitable Now?

For some entities, maintaining a blockchain at a nominal loss can be an investment either by supporting advantageous services or by maintaining infrastructure to operate services for public use.

Although this type of utility provision can be beneficial for an ecosystem of entities operating on a permissioned blockchain or a PoW blockchain with a well-defined use, on open public blockchain, in the long term, miners can be presumed to run on a profit motive.

With difficulty adjustments and profitability in public blockchains with important utility value such as Bitcoin, mining can be seen as an advantageous business in the predictable future. On the other hand, mining will probably not become profitable in the upcoming bull market, but more beneficial in ways that are not economically.

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