Is Bitcoin Profitable Despite its Energy Cost?

Cryptocurrency and energy consumption are two words we are hearing a lot recently. With the popularity of cryptocurrency, especially Bitcoin soaring to epic heights, there has been a prominent increase in the influx of Bitcoin miners who have entered this profession. Hence, more power-hungry machines and computers are being operated than ever before by miners to achieve a small profit from every Bitcoin transaction that goes through. Nevertheless, with rising electricity charges and the occasional fluctuation of the value of the Bitcoin, is mining Bitcoin just as profitable as it is made out to be? In this blog, we will closely look at the profitability aspects of Bitcoin mining at normal electricity cost.

Why are we Focusing on Energy Consumption?

Bitcoin mining incurs three major costs:

  • The cost of energy that is being consumed due to mining;
  • Expenses such as overheads incurred for the maintenance of a crypto farm or a single rig;
  • The cost incurred of purchasing, replacing, and renewing the mining hardware.

Out of these three, the cost of energy consumed is the primary element that is focused on. The reason for this is that energy is the only cost whose value can be accurately calculated with some approximation. Moreover, carefully analyzing the impact of Bitcoin mining on energy resources provides an overview of the growth of the industry.

In comparison, maintenance costs and overheads cannot be estimated precisely because they vary depending on the size, the location, and at what scale the crypto farm is operating. Furthermore, such details are not always available to the public either. Thus, an accurate cost analysis regarding this element cannot be calculated.

Similarly, at the rapid rate of technological development, even relatively recent mining hardware is becoming obsolete. However, it is not plausible that the Bitcoin mining industry purchases or renews their already existing hardware to the upgraded novel hardware. Hence, it would be more feasible to assume that there is a healthy mix of recent and old hardware systems coinciding within the Bitcoin network. Moreover, with the fluctuating progress of the development of the mining hardware industry, the market share cannot be ascertained. Thereby, it cannot provide a precise value for the cost analysis of Bitcoin mining.

How much Electricity Does Bitcoin Mining Consume?

According to the University of Cambridge Bitcoin Electricity Consumption Index, researchers state that Bitcoin mining consumes approximately 84.31 terawatt-hours (tWh) annually. For comparison, this amount of electricity consumption is more than what the countries of Argentina or Finland consume annually.

The above information provides more clarity to the phrase when we speak of power-hungry machines that run 24/7, which assist in cracking complex algorithms to validate Bitcoin transactions. These hefty computer rigs are expensive to run, and thus the electricity expense that is derived from it is the most significant cost Bitcoin mining farms have to bear. So, is bitcoin mining profitable at average electricity costs?

Is it Profitable to Mine Bitcoin at the Average Electricity Cost?

Back in 2009 when cryptocurrency and Bitcoin were still a novelty, its mining operations were being run by a few Bitcoin miners on their personalized computers. Thus, the scope to earn a profit back then was much higher because there were practically no equipment costs, and the algorithms that needed to be solved were fairly easier than they are now. Additionally, although the electricity cost varied from country to country, it did not impact the profitability of Bitcoin mining to discourage them from the profession.

However, in recent years, application-specific integrated circuit (ASIC) chips have revolutionized cryptocurrency mining. ASICs are implemented in powerful crypto farms and mining rigs. But the cost of running these power-intensive units has decreased the level of profit. Furthermore, with the introduction of ASICs, the difficulty level of mining has heightened that further restraining the level of profit that can be achieved.

In regards to energy, the average cost of electricity nowadays is anywhere between $0.05/kWh to $0.13/kWh. Up until last year, the maximum cost of electricity fell at $0.03/kWh, and the possibility of mining operative costs increased over $0.04/kWh the following year.

To complete one Bitcoin transaction, 1702.85 kWh of electricity is consumed, which is enough energy to power the average US household for approximately 58.37 days.

Now since electricity cost is directly associated with the income that is earned by a miner, it can be confidently said that the higher the revenue of the mining operation, the more powerful machines can be supported. Hence, increasing the electricity consumption level.

Moreover, as mining happens more on an industrial level rather than a residential or personal level, the revenue earned from mining can now finance for more kWh than before, despite mining revenues being nowhere near as high as they once were.

Furthermore, statistics by the Bitcoin Energy Consumption Index show that the annual income of mining revenues totaled $14,119,197,457 (taking into consideration the fee and mining rewards). In comparison, the annual electricity cost incurred is $7,477,566,860 while assuming that there is no fluctuation in the electricity rates and that the cost is fixed at USD 0.05/kWh. These figures illustrate that the approximate ratio of electricity cost to the miner income is 52.96%.

Meanwhile, the Cambridge Bitcoin Electricity Consumption Index created a mathematical model assuming the price of electricity fixed at USD 0.05/kWh. This model illustrates that the profitability level of Bitcoin mining is at a threshold of 0.33 J/Gh as of August 2021. This has been the highest threshold Bitcoin has reached since the past year, mostly assisted by the increase in the price of the Bitcoin that leads to an increase in profitability. However, this is predicted to be rectified soon and its effects to be canceled out because of the increasing total hash rate.

The Answer

The above statistics present the profitability ratio of Bitcoin against electricity cost, but do we really find Bitcoin mining profitable at normal electricity cost?

Well, the answer to that question is yes, Bitcoin mining is profitable at normal electricity cost if the cost is at a reasonable level. Although, the energy to mine Bitcoin is significant, its increasing value aids to its profitability. Additionally, in the past 10 years, even though Bitcoin mining activity has increased by 10 billion, the ratio between the cost of mining and the transaction cost has remained the same.

However, in order to increase your mining efficiency, it is advised to negotiate terms with your energy provider on your electricity contracts to ensure that the cost is below $0.05/kWh. Alternatively, you can opt for Dogecoin and Litecoin mining, as they require a fractional amount of power compared to what Bitcoin mining demands.