Bitcoin mining step by step - Profitability calculation

First post of a series of 2. Fin the second part here!

Miners are an fundamental part of bitcoin technology because they participate in the competition to update the blockchain with the new block and then they are responsible for the validity of the blockchain itself. The mining 'game' is a very interesting game theory experiment that lead to an astonishing result: no main problems in the blockchain from the beginning of bitcoin.

Mining bitcoin has been, and for certain still is, a very lucrative business, so it is normal that many people are now interested in mining. Let's explain how to compute the mining profitability.

The profitability of mining

To be clear from the beginning of this post, mining today is not a profitable experience unless you have an access to really cheap electricity or the possibility to do a huge scale investment. Here I show you why.

The basics of mining economy

So mining is a classical project where you invest upfront a capital and you expect to have some income during the life of the asset. So it is a cash-flow investment:

A real case example

So lets try to simulate the buy of the Antminer S9-B17 of BITMAIN, one of the miner producer leaders.

The Capex (capital expenditures), or the investment made upfront is the cost of the equipment, usually in the case of mining we have to count the Miner itself and the Inverter to supply the power. In our case (the bitcoin price refers to 14 of October):

For a total of 2.526 Btc.

The Opex (operating expense) will be the electricity cost and, in case of dedicated business of course rent, labor and other minor costs. Fortunately for bitcoin miners the electricity is a very easy cost to compute, since our miner will most likely run 24 hours a day at the maximum power. Assuming the rent, the labor and all the other costs as zero (careful!) all the expense will be the electricity.

In the case of the Antminer the electrical consumption is 1600W. So the cost of electricity per day is:

Assuming that the electricity cost in your currency is of 0.15€ (for example) you will end up with an electrical cost of 5.76€/day

We calculate the cost per day because the income will be statistically almost fixed until the next difficulty computation, so to have a good simulation we should count the days until the next difficulty.

Let's calculate the income!

For doing this we check really fast on Alloscomp, this website, as many others, will give you the first income of your miner, a good approximation until the first difficulty adjustment.

For our 13TH/s miner: 0.01264451 Btc/day. While I write the bitcoin price in euro is 582.42€. This allow us to convert our income to 7.354€/day.

Yes, you are not going to become rich with a miner.

Adjust the difficulty to next level

It could seem difficult to adjust the difficulty calculation, but the only thing you have to remember is that the bitcoin mining reward is proportional to the difficulty. So let's imagine the difficulty evolution in the next months.

I usually go Bitcoin Wisdom in order to have an idea of the difficulty evolution in the future. Watching at the difficulty history table we can see the percentage variation of the difficulty roughly every two weeks.

For this example let's assume that the difficulty will increase at a rate of 5% every 14 days. This is the best approach, but it is fast enough to understand of what we are talking about. Consider that in the last year there have been spike of also 20%.

This rough approach means that every 14 days (8 for the first period) you will have to lower your earning of 5%.

Let's create the following table (you can extend the table more):

You can use any spreadsheet to make your own bitcoin mining calculator.

In our case to only repay the hardware we would need 49 weeks, and in that time we would have a cumulative electrical cost of around 1982.16€... That you will never be able to repay with your miner.

Yes you already know, in order to mine today you need to have lower hardware prices, lower electricity prices (or sell your heating)...

But today no, no normal guy can make easy money with mining bitcoin...

Try to do these calculations on every miner you would like to invest in, and let me know if you find a secret miner that have completely different figures...

In an other post I will give some advice to mine today, with some edge case that still make it possible!

Update: The other post is available here!