A while after I posted about Bitcoins in Brunei, I’ve received some questions about mining bitcoin. I’ve personally been interested in mining bitcoin before that but never actually started. One of the reasons for this is the actual startup capital needed to do it is no small value; hardware costs are in the thousands. Secondly, I didn’t like going through the hassle just to get bitcoins so I settled for just buying and storing bitcoins in my wallet.
A very interesting fact about bitcoin is that it’s being likened to gold; in a way, it has perceived value, is limited and can be “mined”. And just like the gold rush ages ago, many people are jumping in and looking at the end result of profitability. This post will talk about some key factors for consideration if you want to get into mining bitcoin. Hopefully by the end, you’ll have an opinion of “Meh, screw that” or “Yeah~ Let’s go grab that pickaxe!”
First thing’s first, as usual, here’s a warning for all who want to break into the cryptocurrency market.
Bitcoin, altcoins and other forms of cryptocurrency are extremely Speculative and Volatile markets. Security is also in the early stages so potential theft and unrecoverable losses CAN occur. As such, it’s up to you to do your due diligence and research before going into it. And never, ever put in more money than you are willing to lose.
I repeat:
It is possible to lose ALL the money you put in!
What is Mining Bitcoin?
Whenever someone says they’re mining bitcoin, I always imagine them having a little digital pickaxe and smacking digital rocks to look for Bitcoins. In a nutshell, this is indeed the idea of it! But technically, mining serves more than just finding Bitcoins.
Here’s a short video that explains exactly what bitcoin mining is:
In short, mining bitcoin does 2 things:
1. Confirming transactions
As part of a decentralised network, unlike having a governing body, bitcoin transactions need to be confirmed. Otherwise, how would you know if Mr. A actually sent you the promised amount for real? Miners solve mathematical problems which in turn add your transaction to the blockchain; thus, confirming it. When more blocks are added to the chain, the more previous transactions’ confirmations are solidified.
2. Getting more Bitcoins
This is the literal meaning of mining. Whenever a miner solves a block, they get paid in Bitcoins which add to the total circulated in the network. You can check the current amount in circulation from checking out the blockchain information.
Key Terminology in Mining Bitcoin
Before we dig into profitability and other juicy bits, essentially all miners (and even non-miners too!) should understand the key terms and concepts of mining bitcoin.
1. Mining Rig
This is basically the hardware you get to run your mining operation. Traditionally, people started off with GPU miners. Nowadays, more powerful ASIC miners are used.
a. GPU miner
A Graphics Processing Unit (GPU) miner simply links up multiple graphics cards such as nVidia GeForce in order to do the mining operation.
b. ASIC miner
An Application-Specific Integrated Circuit (ASIC) miner, as the name suggests, is a system built specifically for mining cryptocurrency. As such, these miners have the best output in coins mined compared to GPUs.
2. Hash Rate
This is the speed in which your mining rig solves the maths problems. A faster rate will translate to faster mining and therefore getting more bitcoins. Hash rate is usually seen as hash per second (H/s) incrementing up to kilohash (KH/s), megahash (MH/s), gigahash (GH/s) and terahash (TH/s).
3. Bitcoins per Block
There’s a finite amount of bitcoin you can get from mining each block. The current reward as of 1st Feb 2018 is 12.5 Bitcoins per block. This means if you mined the block, you’d get 12.5 bitcoin as the reward. But it’s not so easy because of…
4. Difficulty
The blockchain has a code that ensures bitcoin is mined at a certain rate. If hash rate increases (because more miners join), the difficulty increases and less bitcoin can be mined. The difficulty has been increasing quite a lot since Bitcoin has broken into the mainstream.
5. Block Reward Halving
In addition to difficulty, after every 210,000 blocks are mined, the Bitcoin reward is halved! The bitcoin reward is expected to half from 12.5 to 6.25 Bitcoins per block in June 2020.
6. Mining Pools
Recently, the difficulty is so high that the odds of a single miner getting a huge payout from a block is pretty much negligible. As such, mining pools have come up that allow you to combine hashing power with other miners and split the rewards.
7. Pool fee
Most mining pools are not free. You usually have to pay a fee of 1-3% of your payout for the opportunity to share in the rewards.
Calculating Profitability
To calculate if your mining operation would be profitable, you will need to dig out information regarding:
1. Rig Power Consumption
You need to know how much electricity your rig uses for mining bitcoin. It’s usually seen in Watts or kWh (kilowatt-hour).
2. Electricity rates
Brunei’s electricity rate is variable in the sense that it’s more expensive the more you use it. The electricity tariffs are available on the Department of Electrical Services’ website. For the purpose of mining bitcoin, it’s safe to take the most expensive rate (BND0.12) which works out to be around USD0.09. This it’s cheap in comparison to electricity prices in other countries particularly places with “cheap” electricity such as China.
Bear in mind, commercial setups in Brunei have a different way of calculating electricity based on maximum energy demand.
3. Hardware cost
Without factoring in your initial investment, you can’t estimate your breakeven point. After this point, your earnings (after deducting electricity and other things) will be your profit.
4. Cooling and noise-dampening system
Mining rigs are notorious for being loud and producing a lot of heat. If you want to take steps to mitigate this, it would be additional costs for you to factor in.
How to calculate profitability?
With all the information you have about your rig’s specs, you can simply input the data into a calculator such as Coinwarz. Be sure that the data you input is in the correct units such as hash rate (GH/s), price in USD and power in Watts. Simple right?
But how profitable depends on 3 key factors:
1. Mining Rig Efficiency
Not all miners are built the same. You’ll have to look into which manufacturing batch it comes from and determine specifically: the hash rate and electricity consumption. These two will directly affect your profitability in terms of coins mined and expenses payable.
2. Are you in it for cash or cryptocurrency?
In essence, are you mining bitcoin to sell to others? Or are you mining to hold it for future price movements or tech implementations?
3. Price of Bitcoin (or the crypto you’re mining)
Let’s face it, if you sell when prices are low, you’d miss out on some profit. But how long do you hold for? Are you willing to pay for the operational costs out of your pocket while waiting for price to increase? Selling your bitcoin at a comfortable price point for you translates to your immediate profit.
Quick Note:
A majority of the concept of “profitability” I’ve outlined is in terms of earning fiat currency. There’s a divide in the crypto world that “fiat is obsolete! Increase your crypto stash!” vs “I’m only in to make a quick buck.” Gaining returns in fiat is how we measure returns from stock markets and other types of investments.
It should be noted that a few responses have said mining isn’t the best way to profit in increasing your bitcoin stash. That would be altcoin trading and that is a whole different ball game with significant risks.
Bitcoin Mining Services
Recently, I’ve seen some services crop up that try to sell mining services to people. Most of them seem to come from Malaysia for some reason. But they all have the same characteristics: you pay them a fixed amount and they will send coins to your wallet over time.
Protect yourself by asking important questions regarding their specs and prices:
- How much is the buy-in?
- What equipment are they using?
- Hash rates and power consumption?
- How many people have invested?
- What coins are they mining and how much is forecasted per month?
With this data, you can calculate how much crypto they can realistically get and remember that you’ll need to split that amount with other investors. And if they seem to over-promise, consider getting out quick! Also, if the ROI is years later, why not just buy the cryptocurrency yourself now?
The most important point here is sometimes they promise returns in fiat. This is most likely a red flag for scam tactics to get people to “invest” in their service.
Conclusion
Mining Bitcoin can be potentially profitable if you have done your proper research. Blindly buying 20 Graphics cards and setting up a rig in your basement may not be such a good idea. GPUs are also less efficient than ASIC devices which can clock massive hash rates. Also bear in mind that if you do buy hardware, every minute it’s offline is costing you money. Until you breakeven, you cannot really say you’re profiting off your rig.
So, the answer to “Is Mining Bitcoin in Brunei Profitable”? Well, the answer is an annoying… “It depends”. But potentially, yes it’s possible due to somewhat cheap electricity we have here. However, I’ve also been seeing cutthroat prices for mining rigs too. Do your homework before you leap, people!
But as the tech improves over time, all I can say is… “HODL tight, ladies and gents.”
Bitcoin is a technological tour de force.
– Bill Gates
