Even the best research shows how hard it is to get an accurate picture of bitcoin mining value.
The return on investment from bitcoin mining is mostly down to energy costs, but there are enough other factors that it’s very difficult to get a completely clear picture. One study, from (non-blockchain-related) home decor and light fixture company EliteFixtures.com has taken an interesting look at average bitcoin mining costs with three different rigs, and crossed that with average energy costs in each country around the world.
The cheapest per-bitcoin country to mine was Venezuela, where energy is heavily subsidised, with an average cost of $531 per bitcoin. The most expensive was South Korea where mining a single bitcoin would cost $26,170 in energy costs. Australia was between the two but higher than most, coming out at $9,913 per bitcoin mined.
The results are interesting in themselves, but energy costs aren’t the full picture and a walk through some of the confounding factors is a useful way of learning more about bitcoin mining.
How the results were discovered
The study involved three different ASIC (application specific integrated circuit) mining cards. These are machines that are specially designed to mine bitcoin. They are potentially thousands of times more efficient than trying to mine bitcoin on a home computer, and these specially designed machines are the only way of effectively mining bitcoin these days.
“We were able to calculate the numbers on how many days it would take to mine one coin and how much power that would use. Based on the mining difficulty when this study was finalized in early January 2018, the AntMiner S9 would use 17,773.344 kilowatts and take 548.56 days to mine a coin. The [Antminer] S7 would use 45,889.008 kilowatts and take 1580.2 days, and the Avalon 6 would use 55,294.344 kilowatts and take 2194.22 days for a single coin,” the blog explains.
The first thing you might notice is that it takes years to mine one bitcoin, even with a specially designed mining machine. That’s why professional mining outfits use hundreds of them simultaneously, filling entire warehouses with racks full of ASIC cards. This is how it can take so much energy per bitcoin. Those thousands of dollars in energy might be spread out over months or years.
“Mining difficulty” also makes a difference. This is exactly what it sounds like; how difficult it is to mine a bitcoin. The more mining power, the harder the mining difficulty. The reason it takes so long for one card these days is because the space is dominated by professional mining outfits now.
These numbers are probably a bit on the low side now because mining difficulty has been increasing relatively steadily, even as bitcoin prices slump. It might take months between purchase and arrival of the mining machine, so the last few months probably saw plenty of people fork over thousands of dollars for mining machines when prices were spiking last December, only for them to arrive with bitcoin prices being much lower. They are putting the new machines online anyway, causing the mining difficulty to increase even as prices drop.
Economy of scale
Profitable bitcoin mining means leveraging economy of scale. Smaller fish do this by joining a mining pool, where a bunch of users collective pool their mining power to increase rewards for all. Bigger fish do this by filling warehouses full of ASIC mining cards wherever they can find cheap energy and cold weather.
The average energy prices are well above what most big fish miners will be paying. The big fish tend to congregate near power plants and negotiate wholesale energy prices directly with the supplier, giving them a much lower per-coin cost. But because they have so many cards running, they also need to start worrying about the heat buildup, and air conditioning expenses turn into a considerable expenditure in their own right.
On paper, it might look like Venezuela ($531 per bitcoin), Egypt ($3,172), Iran ($3,217) or Trinidad & Tobago ($1,190) are good places to mine bitcoin. But in practice, you won’t find any mining factories opening up there.
Instead, they are increasingly heading to Norway ($7,784), Iceland ($4,746), Canada ($3,965), Russia ($4,675) and the colder climes of the USA, where hydroelectric power, or geothermal in the case of Iceland and Russia, is plentiful and the weather is frosty.
It’s difficult to estimate how much it costs these outfits to mine each bitcoin. Their individual costs will vary widely depending on how effectively their operations are optimised, and it keeps changing all the time as difficulty increases, and more mining rigs come online.
If nothing else, it’s always worth remembering that despite bitcoin’s hyper-dubious inherent value and status as a purely intangible asset, there are billions of dollars worth of very serious investments, sprawling commercial agreements, tangible physical infrastructures and an entire industry built on top of that coin alone, for better or worse.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, XRB
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