Why Bitcoin Mining Is Not Profitable For The Average Investor

When people hear the words Bitcoin mining, the first thing that comes to mind is a money-printing machine. Oddly enough, the visual of rows and rows of server racks or computers sitting somewhere generating money is not far off from the truth — however, the process of mining can be more complicated than the average joe would expect.

Bitcoin Mining Is As Difficult, If Not More So Than Real Mines

The easiest analogy we can use to describe it is real-world mines. Although it sounds easy to pick up a shovel and start digging in caves for hidden treasure and gold, most of the time, gold comes out in unprocessed rocks that hardly look like the luxurious jewellery we wear — and the process of mining it is even more difficult. Factors that need to be considered before investing in mining include:

requiring extensive equipment and machinery to safely extract, refine and process the ore
the obsolete location of most commercial mines in the middle of nowhere, and
the time and investment required to build up the mining facility

Cryptocurrency and bitcoin mining is no exception to such complications.

Bitcoin Mining Often Uses Specialized Hardware

Mining cryptocurrency efficiently and profitably today goes beyond simply downloading a piece of software on your computer.

While it is true that 7 to 8 years ago, Bitcoin mining on even laptops would result in multi-million dollar profit today, these days, most farms actually use specialized computers and mining hardware to perform the mining operations.

These systems usually come without the familiar graphical interfaces we are used to when we think about computers, making it difficult to simply jump into mining and expect to earn.

Mining Requires Cheap Electricity

Mining also requires electricity — a LOT of electricity. Most consumers of electricity around the world who are paying non-subsidized prices would actually spend more money on electricity than what they would reasonably earn from mining cryptocurrencies.

In fact, most commercial bitcoin farms are only profitable when operating in locations where the electricity is subsidized, cheap, or are investing in using long-term sustainable electricity generation methods such as hydroelectric power.

In fact, large-scale Chinese mining farms have already started to move towards cheaper sources of electricity for their operations.

Mining Generates A Lot Of Waste Heat

Heat management is also a huge issue.

Computers dissipate heat when they are operating, and with the intensity of Bitcoin mining, heat is one of the biggest considerations — a non-properly cooled mining system would not only perform poorly in mining Bitcoin but also literally burn itself out in the process.

While you could technically mine Bitcoin using commercially available rigs at home, unless you are living in a cold country and have adequate natural cooling, your house would be so hot that it’s almost uninhabitable.

Mining Hardware Can Become Redundant

And with that point, it’s also worth noting that mining hardware is not an evergreen investment.

Cryptocurrencies such as Bitcoin become more difficult to mine over time as a result of the way it is built; the mining hardware from 3 years ago would be too slow, insufficient or inadequate to profitably mine Bitcoin today.

The hardware is also prone to failure; computers operating at maximum load, as in the case of mining, will eventually start to fail, sometimes as soon as within a few weeks of operation.

With most mining hardware barely keeping up with the profitability requirements in a 6 to 10-month lifespan, mining cryptocurrency profitably is a tough operation.

Setting Up A Profitable Mining Operation Includes Labor Costs

Labour costs are also an issue. Operating a large-scale, profitable server farm optimally usually requires maintenance and technical management — everything such as regulating the airflow, heat, cabling, and system settings can require heavy technical expertise.

Without this critical personnel, even one or two days of failure can mean that the entire mining operation is no longer profitable for a long period of time, as the profit margins are uncomfortably small.

Governments Don’t Like It When You Mine Cryptocurrency

Lastly, governments are, at best, unfriendly towards mining operations, and at worst outright opposed to it happening in their jurisdiction.

Beyond the decentralization narrative that governments could be concerned about, other issues such as localized carbon emissions and abuse of electricity subsidies make it difficult for governments to support the activity.

While this has been somewhat eased in mining hotspots such as China as of recent; the reality is that governments still show a lack of understanding of cryptocurrencies and are unclear about how they should regulate mining activities.

Halved Rewards Since Early May 2020

The latest Bitcoin Halving event has only made mining even more difficult — with rewards now down to half of what they were, miners have to be ruthlessly efficient in their setup and operations.

Those unable to do so often have to move their operations elsewhere or sell their hardware to other miners where it would be profitable due to the circumstances.

Over 30 to 40% of the network is expected to be priced out of continuing to operate their mining systems after the halving, and while one could gamble that the price of Bitcoin would go up in the future, buying it outright from exchanges would be more feasible.

Unfortunately, Bitcoin Mining is no longer the easy money printing machine it once was. Retail investors may want to look into alternative forms of earning from cryptocurrencies, such as participating in DeFi loans or staking.

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