The two major costs involved in mining for cryptocurrencies are hardware and electricity. Hardware costs are similar around the world, and if you want to mine the most popular cryptocurrency, Bitcoin, it will cost upwards of $2000 for the latest ASIC Antminer S9.
You can mine with just a regular PC or laptop, but the returns are minimal unless you are an early adopter for an altcoin that becomes very popular. Some crypto enthusiasts are prepared to mine for altcoins as they wish to support the associated project, rather than for the financial rewards offered by mining.
Electricity usage for crypto mining
Cost of electricity varies throughout the world from two cents to over 30 cents per KWH. India and China have relatively cheap electricity, but temperatures in India are not ideal for running mining rigs. This leaves China running up to 70% of the worlds crypto mining hardware at present.
Countries like Canada, USA, and Iceland have a large proportion of the crypto mining capacity outside China, due to a combination of cool climates, hydroelectric energy, and geothermal power.
As shown in the chart, the power used to validate transactions for Bitcoin is now believed to be a staggering 55 Terrawatt hours per year. To put this into context, it’s more than the usage of two-thirds of the countries in the world. If Bitcoin mining were a country, it would be ranked 45th highest for electricity usage ahead of Greece, Portugal, New Zealand, and Ireland.
If mining production continues to increase at the current rate, it will be using as much electricity as the rest of the world by 2020. Pressure is mounting on the Bitcoin community to make mining more eco-friendly by using renewable energy or switching from the current hashcash proof of work (POW) to a proof of stake (POS) system for validating transactions. Russian crypto miners are calling for all rigs to be switched off for 1 hour on 24 March 2018 in support of Earth Hour.
Will mining rigs be switched off if the price of Bitcoin doesn’t increase?
If you are lucky enough to be able to purchase electricity for six cents per KWH, you will break-even when a Bitcoin is worth around $8,000. Towards the end of 2017, when Bitcoin was trading at close to $20,000, mining was very profitable, but in recent weeks, the rate has fallen below the break-even level.
As some miners will now be operating at a loss, they could decide to stop mining until the price of Bitcoin rises, but this is unlikely. Part of the cost of mining includes the hardware, and that cost has already been incurred, so most are likely to continue unless the price falls below $3,000.
Some crypto mining operations will be prepared to mine at levels well below break-even on the basis that, in the medium- to long-term, Bitcoin prices are likely to rise. As some of the businesses have thousands of computers, it’s not something they would be able to afford to do indefinitely though.
In the early days of Bitcoin, many people were put off mining because most of the online cost calculators indicated it wasn’t profitable unless you had a source of very cheap electricity. Many of those people are now regretting that they decided not to mine at a loss as Bitcoin has risen to a value that would now make most of them millionaires.
Financial analyst, smartphone app designer, technical writer, and crypto enthusiast. Blockchain verified graduate of MOOC 9, DFIN-511: Introduction to Digital Currencies, run by the University of Nicosia.