Profitability of mining is the level of reward that a user of the block chain network receives for mining (providing of his technical capacities for verifying transactions and solution of network tasks, resulting in a new data block on the network).
What does the profitability of mining depend on?
The profitability of mining depends on two related factors.
- The first one consists in the complexity of the process itself, on which the reward depends (the more difficult the process is, the smaller amounts of tasks can be made per technical resource unit and, consequently, the less reward you will receive).
- The second factor is the cost of bitcoin (or other crypto currency). That is, how much your reward is in terms of fiat currencies.
What influences profitability factors
The complexity of mining is influenced by the development of the blockchain itself. It was enough to have usual home computers to mine the first bitcoins, since the network itself was smaller, and fewer resources - technical and temporary – were required to process the information from it.
Now, mining requires powerful technical equipment, which has become the reason of the emergence of mining farms with huge energy consumption. Accordingly, the level of return on investment gradually becomes smaller: you invest more - but gain less.
In addition, given the limited emissions of bitcoins within the limits of 21 million (according to calculations it will be reached by 2033), the number of bitcoins created in each new block is halved every 4 years.
The cost of crypto currency is influenced by their market value. Taking into account the great excitement around this topic and the limited emission, the value of the crypto currency is showing strong growth. For example, during the very first bitcoin exchange in September 2009, one user exchanged 5,050 bitcoins for $ 5.02.
While in August 2017, the price of one bitcoin broke through the mark of $ 4,000, that is, the volume of the first transaction today would bring the user $ 20.2 million.
It is worth remembering that the unregulated market of crypto-currency is very volatile. Since many technical and legal issues on its functioning in the legal field still remain unresolved, any voiced proposal on how to regulate the market can cause not less fluctuations in the value of the currency than the purely economic factors.
Profitability parameters of mining
The average annual profitability of mining ranges from 120 to 200% per annum, and for some products in the period of "mining boom" from the end of 2016 showed even the best result. However, this indicator does not take into account additional investments: rental of premises, management of mining farms and energy costs. Adjusted for these factors in 2016, the profitability of mining amounted to about 10-50% per annum.
In 2017, the price of bitcoin has increased by 4 times since the beginning of the year, and the price of etherium (the second most popular crypto currency) has increased by 38 times.