Mining Bitcoin has become a fulltime job for some people. For others, they are limited to doing it as a hobby of hiring others to mine for them. If it was relatively easy, everyone would be doing it and making loads of cash. And in reality, the process of mining Bitcoin is fairly straightforward: You set up an account and a wallet, buy a computer, hook everything up, and let it start mining. So what’s the X-factor? The cost of electricity. The amount of money you have to spend on electricity can easily negate all of the money you make mining Bitcoin. In order to understand why this is true, it is important to comprehend the process behind the mining of Bitcoin.
What Is Bitcoin Mining?
As with all computer-related processes, you have two components: hardware and software. The hardware is the computer, and the software, in this case, is mining software designed specifically to mine Bitcoin. The mining software is tapped into a peer-to-peer network we are at has access to various transactions that are taking place. What the software does is it confirms these many, many transactions. The faster the software confirms the transactions, the more money the owner of the hardware and software gets paid. This is because people who use Bitcoin to buy things pay fees, and these fees get paid to the people with the hardware and software. If you are a Bitcoin miner, that includes you. As more and more transactions are verified by the computers and the software they are running, more Bitcoin is added to the network. Bitcoin miners also get paid by mining this Bitcoin.
What Else is Involved and Why so Much Electricity?
In addition to the process described above, there is also something called proof of work. In order to generate a mathematical proof of work, billions of calculations have to happen every second. All of these calculations have to take place before the calculated blocks can be accepted by the network, which consists of other Bitcoin miners. The average time it takes to find a block is 10 minutes. If this time goes significantly up or down, the value of Bitcoin will fluctuate too spasmodically. For this reason, the difficulty of the calculations is increased according to how long it took to solve the previous blocks. This means that computers have to be more and more powerful in order to compete when it comes to Bitcoin mining. If your Computer is powerful, it consumes more energy. Let’s take a look at some examples of this.
The Cost of Mining Bitcoin
As of the Summer of 2018, in Venezuela, because the electricity is so expensive, it only cost about $531 to mine one Bitcoin. But in South Korea, you’re going to have to shell out over $26,000 to get yourself one Bitcoin. Keep in mind that as of September 21, 2018, one Bitcoin is only worth $6,786.
So How Much Power Is That?
If we do some fairly complicated math using some of the more popular Bitcoin miners available right now, the power it takes to do all of the calculations, checking, verifying, submitting, and proofing of work equates to a grand total of about 2,663,863 kWh. How much is that? That is enough to power 247 average homes in the United States for an entire year, assuming the average home consumes about 897 kWh per month or 10,766 kWh per year. (Of course, this includes very small homes and apartments.) For this reason, many miners are headed to Iceland where power is cheaper and easier to obtain. Venezuela’s economic challenges understandably scare many away, but Trinidad and Tobago also have very reasonable Bitcoin mining costs and a more stable economy. If you are from one of the more developed countries, however, you are likely to pay much more to mine Bitcoin, which has lead many to outsource their mining operations.