Minerals profitability metrics are based on a handful of factors that regulate difficulties and emissions, which are hard-coded into the attributes of the blockchain, making it predictable to work with. Although predictability does not always immediately translate into profitability, it provides a blockchain with certain parameters to rely on as a prediction of when mining cryptocurrency will become profitable, at what price level, and at what difficulty level during the issue cycle.
Some cryptocurrencies, such as Bitcoin (BTC), go through emission cycles with events such as halving. In the case of Bitcoin, halves occur once every 210,000 blocks – roughly every four years – until the maximum supply of 21 million Bitcoin is mined.
This feature, even customizing difficulties, provides an incentive for an individual miner to join or leave the network depending on the current level of Bitcoin. Together, these incentives create a logarithmic price regression curve, which represents a probable Bitcoin exchange rate and thus predictability of profitability in the current issue cycle. If the price of Bitcoin falls below this regression curve where the bottom line is roughly above the 200-week moving average in this issue cycle, almost all miners would have to make a net loss. If the price stays above this figure, at least some of the miners should be on a net profit.
Bitcoin mining difficulty is currently at a total of between 110 and 120 million terahash per second, indicating that a lot of new mining capacity has been added to the network, but since the price has not fully recovered from the dip caused by the rise of COVID-19, we should expect most miners to be temporary with a loss. However, if the price of Bitcoin goes up again in the current issue cycle and goes into a bull run, the economic risk miners at that point would have taken a lot of reward.
Ethereum mining has long been one of the most profitable in the altcoin space primarily because of the high average price of its token. Ethereum as a network, however, has a primary focus on building a blockchain with a somewhat different purpose compared to Bitcoin. Ethereum is a smart contract platform. Although mining has previously supported the network in the phase where it is not widely used for transactions, in the future the network will be forced to take strike nodes as validators to provide sufficient transaction capacity. In the long run, this could have a positive effect on mining if we assume that mining will gradually phase out. A substantial amount of coins is predictably locked in strike, which raises the price.
Strike is a mechanism by which users can deposit some of their coins into a strike address owned by a validator node and lock them for a period. The validator node then secures the network by producing blocks relative to the number of coins deposited there. The blocks are produced according to a hard-coded voting mechanism that calculates the striking reward from the total amount of coins placed in each network for each node.
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The price of electricity is a determining factor in the profitability of miner. At present, most industrial miners live in cheap electricity countries on power purchase agreements with electricity producers, ranging from hydropower to solar. However, most retail miners are most dependent on fluctuations in retail prices and need to take this factor into account in their investments. Moreover, the price of electricity is not a factor in mining profitable altcoins with GPU rigs.
Equipment prices fluctuate according to price cycles. At the bottom of every cycle, buying equipment is relatively affordable, but for every peak of the cycle, equipment may not be affordable but also unavailable. At this point, it would probably be profitable to take a moderate risk in mining, especially in GPU mining. In terms of profitability alone, Bitcoin mining would probably require an investment beyond the reach of most retail miners at the initial cost to be noticeable at the peak of this issue cycle.
Unless it’s just a profit, mining is a way of producing coins without prior history. For users who care about their privacy, mining represents economic freedom, making a means of payment accessible without ties to a specific entity. This unique feature is only present in proof-of-work cryptocurrencies and connects many people on the fronts of society with often legitimate uses to the wider world, and serve as a guarantor of human and social rights.
For some organizations, maintaining a blockchain at a nominal loss can act as an investment either by supporting profitable services or by maintaining infrastructure to run services for public use. In legacy systems, this type of scheme is comparable to public services, as a utility.
While utility provisioning can be an advantage for a network of entities running on a permitted blockchain or a PoW blockchain intended for a well-defined use, on open public blockchains, in the long run, miners can be hired to trade on a profit motive. With effort adjustments and profitability in public blockchains with key utilities such as Bitcoin, mining can be seen as a profitable business in the foreseeable future.
The only plausible factor that could shake the status quo in the mining of PoW cryptocurrencies at the moment seems to be the theoretical introduction of widespread quantum processing with enough accessible tools to create an incentive for attacking public blockchains. However, these types of risks can be exaggerated because quantum computing evidence algorithms exist and are likely to be precisely developed to limit a risk arising from this highly predictable factor.
In this light, mining is unlikely to become profitable in the coming bull market, but more relevant in ways that are not only economic.
This article does not include investment advice or recommendations. Every move of investing and trading involves risk, readers need to do their own research when making a decision.
The views, opinions and opinions expressed herein are those of the author only and do not reflect or represent the views and opinions of Cointelegraph.
Iskander Khasanov is a crypto-miner and trader. He first established himself as a real estate entrepreneur and then became involved with the crypto company in 2016. Iskander is the director at Crypto Accelerator community and shares ideas about mass adoption of cryptocurrency.
