Unfortunately, Bitcoin miners are not much happy these days as the price of the coin has fallen to a point where bitcoin mining it isn’t profitable much.
“Bitcoin currently trades essentially at the break-even cost of mining a bitcoin, currently at $8,038 based on a mining model developed by our data science team,” said Fundstrat’s Thomas Lee in a report on Thursday.
Fundstrat’s model that calculates the mining costs incorporates three factors: the cost of equipment, energy usage and cooling.
Bitcoin took a dip on Thursday and traded near $8000, earlier before the cryptocurrency was down to $7.676.
What is Bitcoin Mining?
Bitcoin mining is basically a process of solving complicated mathematical equations using high powered computers. Miners who successfully solve the equations get Bitcoin in reward.
However, Bitcoin mining is only profitable when Bitcoin prices are high so that the reward is much greater than the mining cost. Unfortunately, at this point, Bitcoin mining is not profitable as the cost to create the cryptocurrency is much more than the price of the reward.
“In some cases, the miners may simply turn off the machines until the price comes back a bit,” said co-founder and president of Blockchain Intelligence Group, Shone Anstey.
“It’s got to be getting to the point that some of them may be losing money.”
And Bitcoin mining is getting expensive day by day. Today the process requires custom hardware that costs hundreds and thousands of Dollars. And the biggest issue is that the mining equipment needs to be upgraded after short time periods. Electricity charges on the other hand also account for part of the cost as Sam Doctor, a researcher at Fundstrat assumes that at the rate of 6 cents per Kilowatt hour, the electricity charges alone estimate for $8,038. (Keep in mind Bitcoin is currently trading at $8,500).
Miners’ earnings have cut to half this month since December as Bitcoin mining interest has surged in the past few months. Moreover, the transaction fee, which was also a source of income for miners, has reduced from $34 (in December) to below 50 cents.
Bitcoin mining had always been a complicated matter as its cost varies country to country depending upon different electric charges.
For instance, mining in the biggest Bitcoin mining market, China is much cheaper due to low-cost electricity generated by hydropower. Chinese miners pay 4 cents per Kilowatt hour while miners all around the world pay 6 cents.
Though mining in China is less costly, miners in the country have an incentive to mine Bitcoin regardless of electricity costs as they find it as the only way to evade government’ capital controls by transferring money overseas. Due to this reason, out of the five biggest mining pools in the world, four are Chinese.
Bitcoin has lost almost half its value since December last year and is continuously falling, which is not good news for Bitcoin miners. However, miners are still mining the coin despite it being unprofitable. According to Sam Doctor, miners might end their operations when the cryptocurrency falls to $3,000 or $4,000.