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Bitcoin’s mining profitability has plunged 66% in the past 4 years

Bitcoin’s mining profitability has plunged 66% in the past 4 years

Zuletzt aktualisiert am 11th May 2022
Hinweis
  • Bitcoin’s mining profitability has been on a downward trend in the last four years.
  • That venture has taken a 66% hit to date.
  • Several factors, including the increase in mining difficulty, explain this plunge.

Bitcoin (BTC) mining profitability has been on a steady decline. That’s according to a CryptoMonday.de data presentation that shows that the activity’s lucrativeness has dipped in the last 4 years. The site puts BTC mining profitability at 0.21 USD/day per TH/s today compared to 0.62 USD/day per TH/s, a 66% plummet in value.

CryptoMonday CEO, Jonathan Merry says, "Mining profitability is an essential metric in the BTC ecosystem." He adds, "It has a direct bearing on the number of miners willing to participate in block creation and validation."

Higher mining profitability attracts more miners, thereby enhancing the decentralization of the asset. The reverse is true too.

Why is BTC mining profitability declining?

So what’s behind BTC miming’s dwindling fortunes? Sector players concerned by the activity’s declining fortunes ascribe it to the following. First, there’s been an increase in the number of miners. Secondly, there’s an increase in BTC mining difficulty and an escalation in energy costs. Add the growing cost of mining equipment, and you have the perfect recipe for declining mining returns.

BTC mining and block halving

One feature that accounts for BTC’s value is its scarcity. Satoshi Nakamoto designed the king crypto to have a fixed number of coins (21 million), making it scarce. The premier crypto achieves its scarcity by combining two features: mining difficulty and BTC halving.

To verify BTC transactions, miners solve complex equations every 10 minutes. The BTC infrastructure has designed the complexity of those equations to increase per successive block. Therefore miners have to use higher computational power (hashing power), requiring more energy which eats into their profits.

Secondly, the ecosystem undergoes block halving every 210K blocks or roughly every four years. That comes with reduced mining rewards for the miners to share. Consequently, as BTC has aged, the earnings per successfully verified block declined.

Escalating energy and equipment costs

Energy costs are also a vital determinant of the profitability of BTC mining ventures. Global inflation has seen a general increase in energy prices. An escalation of energy prices sees a relative decrease in BTC mining returns. Throw in a growing number of BTC miners over the years and you end up with fewer earnings per miner.

Finally, the cost of mining equipment impacts profitability. As BTC has matured, its mining has required more computational power and energy for profitability. That has come with increased wear and tear, requiring frequent replacement of the worn machines. That costs the miners a share of their previous profits.

How will declining mining profitability affect the BTC ecosystem?

What then is the impact of declining BTC mining profitability? An obvious effect is that some miners will quit the business. It wouldn’t make economic sense for a section of the miner community to keep up their mining. Their expenses will likely outstrip their earnings or severely dent them, forcing them to unplug their rigs.

An exit of some of the miners could impact the BTC network’s transactional times. That’s because it would create gaps in the asset’s mining capacity. That would inconvenience users who already feel that the network is slow. Additionally, their unplugging could centralize mining activities, countering the coin’s basic principles.

Bitcoin has a fixed supply of 21 million coins, of which some 19M have been mined. It’s a matter of time before mining ceases to be the primary way of creating new BTC. When that happens, the remaining miners can adopt a new role as facilitators of transactions, thereby earning transaction fees.

Elizabeth Kerr

Elizabeth Kerr

Elizabeth ist eine Finanz-Content-Spezialistin aus Manchester. Zu ihren Spezialgebieten gehören Kryptowährung, Datenanalyse und Finanzregulierung.