Cryptocurrency Mining: Is It Still Profitable?

Updated Sep 20. 2022 at 2:37 am

The combination of rising energy prices, falling cryptocurrency prices and the Ethereum Merge has made it much harder to profit from cryptocurrency mining. With the surges announced in 2021, more and more people wanted to learn how to mine cryptocurrencies. However, the situation has changed significantly. Is crypto currency mining still profitable in this context?

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The golden age of mining in recent years:

Cryptocurrency mining involves using powerful computers to validate blocks of transactions on the blockchain to collect rewards in the associated cryptocurrency.

We will explain the process: take the example of bitcoin, the main cryptocurrency allow mining. However, there are other tokens that can be mined with greater volatility, but the principle remains the same.

Bitcoin mining is therefore the process by which new bitcoins are created, a process that is limited to 21 million BTC according to the Bitcoin protocol.

Over time, bitcoin mining becomes more and more difficult, because more and more miners compete for the reward of the next block. Today, individual bitcoin mining is rarely profitable unless you have access to very cheap electricity.

Every bitcoin transaction is recorded in a public ledger called the blockchain. When a new Bitcoin transaction is made, it is sent to miners for verification.

This check includes: a mathematical proof of work created by performing billions of calculations per second. Once the complex math problem is solved, the transaction is confirmed and added to the blockchain, and the miner(s) who solved it are rewarded with new bitcoins.

As more bitcoins are mined and the supply of new bitcoins decreases, the number of bitcoins released with each new block decreases over time.

This is called the halving of bitcoins (halving). In general, bitcoin value rises after periodic halvingby compensation (to maintain the attractiveness of the process).

Bitcoin listing from March 01, 2022 to September 9, 2022 in UT Daily
Bitcoin listing from March 1, 2022 to September 9, 2022 in UT Daily.

While bitcoin mining may seem lucrative, it requires specialized machines built and tuned specifically to mine cryptocurrencies. You also need space to house and cool these energy-guzzling machines that run 24 hours a day.

The mining market is dominated by large companies purchasing large warehouses to house their army of ASIC mining rigs.

Some of these companies can manage mining pools (groupings) to which small miners can contribute to obtain some of the rewards of certain blocks in exchange for a small fee.

Cryptocurrency mining in general had its golden age a few years ago, especially when the major cryptocurrencies eligible for mining were born because the rewards were high and the difficulty of calculation lower (less competition between minors).

Mining was also profitable when cryptocurrencies experienced strong increases in valuations with electronic components available (no shortages), reasonable energy prices and competition still under control (2017/2018).

However, circumstances have changed and cryptocurrency mining has become less and less profitable over time and geopolitical and macroeconomic developments.

Energy Prices, Merging ETH: The Problems Of Mining

Bitcoin mining can be an expensive process, both in terms of hardware and software, and the energy required to run the mining equipment.

Secure, this dynamic is constantly changingso the best cryptocurrency to mine today may not be the best tomorrow.

With unprecedented pressure on energy prices and current and upcoming increases in most parts of the world, cryptocurrency mining is likely to become increasingly unprofitable, with energy costs being one of the main costs of this activity.

Historically, the only times altcoin miners made significant profits were while mining lesser known and cheaper coins in the weeks and months leading up to a wave prices, or an “alt-season”.

This has happened twice so far – once in 2017 and again in late 2020/early 2021. Smaller altcoins tend to be less difficult to mine, allowing more to be mined in a short amount of time.

Graph of electricity price trends and expectations according to energiesdev.fr
Graph of the evolution of electricity prices and expectations according to energiesdev.fr.

In addition to cost issues, Ethereum miners are finding it increasingly difficult to make money after the merger as too many of them switch to other currencies, reducing mining profitability.

Indeed, a groundbreaking event in the history of cryptocurrencies – The Merge of Ethereum – has just dealt a major blow to cryptocurrency mining. In reality, the second largest cryptocurrency no longer allows mining despite the fork with ETHW.

For more information on the subject, read: this comprehensive article.

Now redundant, which is why Ethereum miners are turning around to other proof-of-work tokens after the network adopts a proof-of-stake consensus mechanism and find few choices.

Recently, Ethereum, the second largest blockchain network in the world, changed its consensus algorithm from proof-of-work to proof-of-stake to increase efficiency and reduce power consumption.

Tweet from Buterin announcing the success of The Merge
Tweet from Buterin announcing the success of The Merge.

However, the software update – dubbed “Merge” – also rendered miners useless to secure the network, so rig operators moved their machines to other PoW blockchains (enabling the process of mining).

However, the three largest mining blockchains have very low profitsand the only tokens showing profits have no reasonable market cap or liquidity.

The hash rate, or computational power, used to mine PoW altcoins such as ethereum classic (ETC) and ravencoin (RVN) doubled within hours of the merger.

The increase in hash rate however, comes with an increase in difficultymeaning miners are less likely to successfully mine a block and reap the reward.

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Cryptocurrency Mining Alternatives:

Anyone looking to make cryptocurrency mining an afterthought these days will likely be disappointed.

The time when it was possible to profitable self-mining of cryptocurrencies is over for a long time, although other opportunities such as mining pools are another way for individuals to get into cryptocurrency mining.

But Bitcoin mining is not the only way an investor can grow their cryptocurrency holdings. An easier way to earn an attractive return on your committed cryptocurrency investments is to stake.

Indeed, when you want to start mining crypto currencies, you have to invest to buy the computers and pay the electricity bills. Your mining activities will bring you income valued by profitability (income/investment).

Similarly, you can invest the same amount by buying cryptocurrencies and placing them on proof-of-stake protocols for a fixed or variable return. The latter use the tied up capital to validate the blocks on the blockchain in exchange for rewards.

So it’s an interesting way to get a potentially significant return on your investments. Strike and farming are the main ways to make this type of investment profitable.

To help you and maximize your profits, there are yield optimizers such as: Yearn Finance, Gherkin, Alpaca or Beefy Finance, which you can find here an opinion like’a complete guide.

However, this type of investment remains very risky and it is advisable to inquire about the tokens and the offers offered. These investments are prone to hacks and fluctuations in cryptocurrency prices.

In addition, there are also investment pools and services that offer automated cryptocurrency investment strategies so that you can maximize your profits on the variations of this market.

Are you interested in mining and cryptocurrencies? Learn how to grow your cryptocurrencies. Crypto Rider training gives you insight into the market and how to implement real trading strategies:

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