Cryptocurrency mining is the process by which new coins are obtained by validating transactions and new blocks on the blockchain. This process has always been at the base of this technology, but after so much evolution, is it still worth mining Bitcoin?
Since the creation of Bitcoin in 2008, a lot has changed in the crypto space. The currency reached values that would have been unthinkable at the time of its creation, several other cryptocurrencies emerged, blockchain technology reached enormous relevance, and its uses surpassed the world of finance, being incorporated into games, art, and even politics. But one thing remained at its base: mining.
What does mining have to do with Bitcoin?
Bitcoin mining may sound ridiculous. After all, how can mining, an arduous labor process that shortens the life expectancy of countless workers around the world, apply to a completely virtual resource? While the use of the term mining in the context of crypto emerged as an analogy to the real process, both usages have more in common than one might think.
That’s because cryptocurrency mining also happens through extreme effort in order to find items of value. What changes is that in this case the effort does not come from a person, but from a computational processing unit.
Thus, the user of the Bitcoin network who mines the coin will be making available the processing power of their computer or even their cell phone, through the device’s CPU or video card, to solve complex computational problems that serve as validation of network transactions and the creation of new blocks. This results in more Bitcoins available, which are then divided among the miners who participated in its validation process.
As the problems are extremely complex, they require enormous processing capabilities to be solved. That’s why new and powerful parts are recommended, as the older ones end up not generating profit, consuming more energy than they are able to obtain from mining.
It is thanks to this process that blockchain technology has the characteristic of being decentralized. As the entire operation is based on validations carried out by countless users around the world, there is no central entity with absolute power over the network.
Read more about blockchain:
- The Blockchain Gaming Revolution
- Blockchain ecosystem: What is it and what are its elements?
- Simplifying Blockchain Technology
What is needed to mine Bitcoin?
The mining process is reasonably simple. The user connects their device to the Bitcoin network (usually a computer, although it is even possible to mine from their cell phone), configures it to carry out the network validation processes, and connects their wallet (digital wallet) to receive the coins. More experienced users do all the configuration themselves, programming the process, but there are several programs with friendly interfaces to make it easier for novices.
In addition, there are also programs like Nicehash that make the whole process even easier. This is because they are responsible for all the configuration of the device on the network, skipping the programming that the user would have to do. They also create a wallet for the user and function as an exchange, allowing the user to directly trade their coins for others or send them to other exchanges after obtaining their amount from the sale of processing power.
In Brazil, it was very common for users to use Nicehash to mine, and then send their earnings to Binance, an exchange that allows the conversion of crypto into real currency that can then be withdrawn to a bank account. This happened a lot during the pandemic, a period when many Brazilians were unable to work and ended up finding an alternative income in cryptocurrencies.
However, it is not recommended that a person start mining without reading a lot and understanding the subject well. As has already been said, this is because the process takes the device to the extreme, and without the correct settings and good cooling, it can greatly shorten the life of not only the part that will be mining, but the entire device. Therefore, experienced miners often use techniques such as undervolting to ensure that the computer remains healthy while mining.
There is also the fact that without extensive knowledge about mining, one may end up with losses instead of profits, as is the case when using underpowered and old devices.
Is Bitcoin mining legal?
As mining is a digital process that can result in profits, many people end up thinking that it is not completely legal. However, mining is absolutely legal in most countries, and anyone can do it without any legal repercussions.
The only legal issue that should be taken into account when dealing with crypto concerns to taxes. As this form of income is still quite recent, several changes have been made to make it taxable in a lot of countries, and therefore it is important to pay attention to the most recent laws. In this case, the recommendation is always to consult an accountant.
Is it still worth mining Bitcoin in 2023?
Bitcoin has an operating principle to prevent inflation: as more Bitcoins are created by mining, it becomes more difficult to mine the next ones. If the difficulty always remained the same, the currency would lose value as there was more availability of it in the market.
As a result, as validation of new blocks becomes more complex, more processing is required to mine the next ones, resulting in higher energy costs, and decreasing miners’ earnings, thus leading to fewer miners, stabilizing inflation. It’s a working method, but it also makes mining unprofitable in the long run.
This is noticeable when comparing the current moment of mining with its peak during the pandemic in 2021. According to the Nicehash profit calculator, in that year, an RTX 3070 video card, which cost around 500 dollars and was considered mid end within its generation, managed to earn between 3 and 4 dollars a day at certain times, already deducting the electrical cost. In 2023, just two years later, this card was no longer able to profit from mining, as, with the electrical cost taken into account, it would show a loss of 20 cents to 40 cents per day.
This may appear to be just a matter of updating devices, but it is not. The RTX 4070 TI, the current counterpart of the 3070, can only make a profit of less than 20 cents per day. Imagine how long it would take to actually make any profit that would justify this Bitcoin mining. So it’s pretty clear that this doesn’t present good profit opportunities for the average person these days.
However, there are still enthusiasts and companies mining. This is because they take mining to a level far beyond what an ordinary person would come close to, with chains of countless computational cards mining at the same time, maximizing profits as much as possible. It is due to these cases, too, that there are many criticisms of the mining method with its enormous energy costs, and its potential damage to the environment. Taking all this into account, it is quite clear that no, it is no longer worth mining Bitcoin in 2023.
What is the alternative to Bitcoin mining?
With that, it may seem confusing to those who are still starting to understand the crypto world how mining is becoming outdated if it is the basis of blockchain and the market remains heated. It turns out that there are already some alternatives being implemented.
The mining validation method that has already been described here is called Proof of Work (PoW), indicating that it is carried out through the work of miners, who seek their remuneration. However, there is a new validation method that has already been implemented on the Ethereum network, called Proof of Stake (PoS).
With this new method, validation is performed only by users who “stake” their cryptocurrencies in the platform, hence the name. From this, the network randomly selects among these users so that their devices carry out the validation process. Thus, the new method still encourages the participation of users in the network so that transactions and new blocks are validated but avoids the huge energy costs previously required.
As for Bitcoin, there is still no information about a transition to PoS. With that, it’s still possible to mine Bitcoins, but unless you have a room full of high-end cards, it’s probably not worth the trouble. Thus, the best way to obtain Bitcoins currently is to buy the currency on exchanges such as Binance.
Translation by Laura Bonci
