Ever since the blockchain technology entered the market back in 2009 alongside the very first cryptocurrency we all know as Bitcoin, there were many endeavors founded on the idea of mining cryptos. Savvy entrepreneurs saw this opportunity to create a new type of business that will provide mining services to clients or simply trade in cryptocurrencies when the market conditions were suitable for it. Now, more than a decade has passed – these types of businesses are still ongoing, and blockchain tops the lists of the most in demand tech jobs. The main reason is that crypto mining hasn’t lost popularity since, even though the market itself has experienced some ups and downs.
As a matter of fact, the market has undergone some serious changes over the years. Extreme volatility and a very dynamic environment have given birth to some new trends. Furthermore, solving complex algorithms involved in mining cryptos became much more complex. However, the question remains if mining is still profitable. Whether or not mining will yield any profits depends on your practices. With that in mind, here are a few powerful tips for keeping your Bitcoin mining business profitable in the long run.
Consider the costs
It’s no secret that the costs of owning a Bitcoin mining business have drastically increased over the years. As you may already know, mining cryptos has become a major challenge since blockchain algorithms became more difficult to solve. If you’re focused on Bitcoin alone, you should know that 17 million Bitcoins have already been mined and there are only around 4 million left to be mined.
As the number of Bitcoins decreases, the complexity of algorithms increases. Back in the day, mining was more or less seamless. You didn’t need powerful hardware and there weren’t that many people interested in mining, to begin with. Therefore, to ensure the profitability of your business in the long run, you’ll have to consider a few major factors. Here’s an example of such factors.
- Hardware costs.
- The price of cryptocurrencies mined.
- Competition in the mining process.
- Hash rates.
- Power consumption.
- The complexity of mining.
Use proper hardware
As mentioned before, the difficulty of solving blockchain algorithms has increased the costs of mining. Specifically, your greatest expense is the power consumption. Simply put, it takes more time to solve complex mathematical problems within the blockchain algorithm which demands more power. Depending on the price of electricity in your country, the expenses may easily outweigh the gains. For example, average mining hardware consumes between 1500KW and 2000KW while it needs to work 24/7. Fortunately, by updating your hardware, you can reduce these expenses a lot. Today, you have a specifically-designed ASIC miner available on the market. These hardware-based devices are made for mining cryptocurrencies. They are energy-efficient and they have a high hash rate, which is the rate at which your hardware can solve the algorithm’s problems and get you the reward. The reward for solving a block is 12.5 Bitcoins so if your expenses are lower than the reward, you’ll ensure profitability.
Mining Bitcoins has always been popular, especially since the Bitcoin is the most valuable crypto, i.e. the one with the highest price, which is currently 8,778 USD. Therefore, the reward for solving the block would be around $110,000. On the other hand, the price of Bitcoin is known to fluctuate drastically so if you mine Bitcoin only, you may be at risk of losing profits. That’s why diversification is a good way to maintain your profitability in the long run. What it means is that you should mine other cryptos and altcoins as well. By adding mining algorithms, such as BCH and BSV, aside from Bitcoin’s SHA 256, you can diversify and spread your profits across multiple currencies. There’s also a risk involved in mining altcoins as market volatility doesn’t exclude them. However, the key is in developing a solid mining strategy that will help you minimize and mitigate those risks.
Plan for the future
Ensuring profitability in the long run means keeping a close eye on the market and its trends. If you want to prepare yourself for what’s coming, you’ll have to be updated regularly. As the market is highly volatile and unregulated, the future can be quite uncertain. For example, you might be familiar with the trend called the “Bitcoin Halving“. This trend occurs every four years and it happens when the network insurance, i.e. inflation rate, is reduced by 50%. This has already happened twice now and in May 2020, there will be a third Halving. In other words, fewer Bitcoins will be generated and the reward will reduce from 12.5 to 6.25 Bitcoins. Let’s not forget that the reward was 50 Bitcoins from 2009 to 2012. Therefore, anything can happen. Some experts suggest that the price of Bitcoin will skyrocket as it was with the previous Halving, whereas some argue that the price won’t change or that it will decrease.
Mining Bitcoins can still be profitable if you carefully plan out your strategy. As an entrepreneur, your job is to deal with the market’s uncertainty and find a way to overcome any challenge that comes your way so that you can ensure the profitability of your business in the long run.