How to Calculate Bitcoin Mining Profitability

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There are several factors to consider when determining the profitability of Bitcoin mining. To get a rough estimate of energy costs and profitability, any online Bitcoin mining calculator will give you a good ballpark number. However, there are other factors and expenses to carefully consider.

If seriously considering mining Bitcoin, one needs to consider the following:

  • Initial hardware costs for mining gear and its durability (from $2500-$6000 per Bitcoin mining machine, called an ASIC)
  • The network hashrate
  • Electricity prices in mining location
  • Mining pools
  • The future value of cryptocurrencies

Mining Rewards

Mining for Bitcoin can be very profitable if one is intelligent about it and has enough investment capital. Even with the recent mining reward halving to 6.25 BTC, that reward is valued in the range of $400,000 USD.

However, the 6.25 BTC reward is not all profit. Many costs come along with it. And more importantly, Bitcoin mining is a very competitive industry.

Difficulty and Hashrate

1 new Bitcoin is mined about every 10 minutes. To maintain that rate, Bitcoin’s code is set to adjust its hash difficulty. Hashrate is a measure of a miner’s computational power. That means that the more computing power mining Bitcoin, the more difficult it becomes to solve the hash puzzle. So, when a computer successfully mines a Bitcoin, it is because it was fast, but also because it was lucky.

A WhatsMiner M20S ASIC miner with 68 TH/s, has around a 1 in 1,470,588 chance of mining a Bitcoin block.

When Bitcoin was first mined back in 2009, the process was done using regular personal computers, and the reward was 50 BTC. Of course, in 2009, Bitcoin was almost worthless. Early adopters certainly got on the right bandwagon.

Bitcoin’s code is automated to halve the BTC reward about every four years. This rate is adjusted based on the consumption and popularity of the coin. The reward reduced to 25 BTC in late-2012, and then again to 12.5 BTC in 2016. The most recent halving occurred in May 2020, and the reward is currently 6.25 BTC.

This will continue until there is 21 million Bitcoin in circulation. The next halving is estimated in about four years, with the last Bitcoins predicted to be mined in 2140.

Electricity Costs

Even with Bitcoin at an all-time high, it is still difficult to make mining profitable at this stage in the process. The main reason is the cost of energy, combined with the difficulty of successfully mining new Bitcoin.

Here is an estimated calculation of energy costs:

  • Whatsminer M20S for one month will cost around $110 a month if the electricity cost is $0.045 kWh. This is the approximate price of energy in locations such as China, Russia, or Kazakhstan.
  • Compared to the typical cost of home electricity in the US, which is $0.12 kWh.

We must also consider hashrate calculations:

  • We must first calculate what percentage of the total global network hashrate that your miner would represent.
  • At the time of this example, the network hashrate is about 150 million TH/s. (terahashes per second)

Then use the following formula:

  • Your hashrate share = (your hashrate) / (network hashrate)

Mining Pools

A mining pool is the most profitable way for an individual to start mining Bitcoin. Mining pools are a collaboration of computing networks that combine hashpower. The profits are then shared with all who participate in the pool.

Two of the oldest two pools are Slush Pool and F2Pool. F2Pool is now the largest Bitcoin mining pool and supports about 20% of the entire Bitcoin network.

F2Pool’s payout method takes much of the risk away from miners. They pay out block rewards and transaction fees to miners regardless of whether the pool itself successfully mines each block.

This is referred to as PPS+ payment method. And the PPS+ pools calculate payouts based on this formula:

  • The Bitcoin Network Hashrate is at 85 EH/s (85,000,000 TH/s)
  • WhatsMiner M20S ASIC miner with 68 TH/s earns about 0.000702 BTC per day
  • Minus pool fees.
  • Pool fees are between 2.50–4.00%

For an estimate, using a 2.50% commission, net mining revenue is 0.00068445 BTC.

0.000702 BTC is calculated by 68 (miner hashrate) ÷ 85,000,000 (network hashrate) × 144 (number of blocks per day) × 6.25 (block reward).

If BTC is priced at $50,000 USD, then this M20S has a daily revenue of about $34 USD.

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