CryprocurrencyEconomic Matters for Innovators

Now is the time for Bitcoin mining

Whatsminer M20S is a popular ASIC mining machine

The UK Financial Conduct Authority has noted that some young people are taking big risks by putting money into cryptocurrencies (Bitcoin), foreign exchange and other volatile investments. It warned recently that “some investors are being tempted into buying higher-risk products that are very unlikely to be suitable for them”.

Bitcoin )BTC) is the most prominent of the private cryptocurrencies. Its price rose 300 per cent in 2020 and, though it has since fallen, it almost doubled again in this quarter. For most investments, popular enthusiasm would normally be taken as a sign to sell. Bitcoin doesn’t even meet that criterion, however, because there is no time and no price at which it should be bought in the first place. The optimal amount of Bitcoin in an efficient portfolio is always zero.

Why? Because while it certainly has a market price, Bitcoin does not have any intrinsic value. It’s not like holding shares, which pay dividends (or notionally could do in future out of today’s retained earnings). Nor bonds, which pay interest (and, even in the recent phenomenon of negative yields, provide diversification benefits). Nor property, which pays a notional rental income.

These genuinely are assets, whose value lies in the future cash they generate for the holder. Bitcoin is pure speculation, where you hope someone else can be persuaded to buy at a higher price. Its adherents maintain that the cap on ultimate supply (which is limited to 21 million Bitcoins by the technology that underpins it) will support prices, but this is not true. It’s like the unfortunate woman who sank her life savings into a painting by Rolf Harris: if there’s no market, it doesn’t matter what the scarcity is.

Despite this warning, the price of 1 BTC is currently hovering at US$56,000. Bitcoin’s innovation lies in its ability to coordinate trust and facilitates the transfer of value without relying on  a centralized authority. The enabler is proof-of-work mining, a mechanism that adds new Bitcoin to the money supply and protects the network against nefarious actors attempting to spend the same Bitcoin more than once.

Through economic incentives, miners voluntarily secure the network by verifying “blocks” of transaction that proves that a miner has executed a costly computation. In exchange for providing the processing power that is critical to the network’s security, miners are rewarded with newly minted Bitcoin and transaction fees. 

The economics of Bitcoin mining

Bitcoin mining (mining) began as a well- paid hobby for early adopters who had the chance to earn 50 Bitcoin every ten minutes, mining from their bedrooms or basements.  Successfully mining just one Bitcoin block, and holding onto it since 2010 would mean the miner has US$450,000 worth of Bitcoin in 2020. This has further increased at the moment when the price of 1 BTC is US$56,000.

Ten year ago, the miner needed a reasonably powerful computer, a stable internet connection and the foresight of Nostradamus. These days, thanks to industrial bitcoin mining operations, it is not such a level playing field and for a lot of people it makes more sense to simply buy some Bitcoin on an exchange like Coinbase.

Mining is the backbone of all proof-of -work blockchains and can be described with three key concepts:

  • Transaction records

The verification and addition of transactions to the public blockchain ledger. This is where every single transaction that has ever occurred in the history of blockchain can be viewed.

  • Proof-of-work calculations

The energy-intensive puzzle that each Bitcoin mining machine solves every ten minutes. The miner that completes the puzzle before anything else adds the new block to the blockchain.

  • Bitcoin block reward

Rewarded with 6.25 Bitcoins. This number will reduce to 6.25 Bitcoins after the halving in May 2020. The reward plus the transaction fees are paid to the miner who solved the puzzle first.  

The process repeats approximately every 10 minutes for every mining machine on the network. The difficulty of the puzzle (network difficulty) adjusts every 2016 blocks (about 14 days) to ensure that on average one machine will solve the puzzle in a  10 minute period. Network difficulty is calculated by the amount of hashrate  contributing to the Bitcoin network.


Hashrate is a measure of a miner’s computational power. In other words, the more miners (and therefore computing power) mining Bitcoin and hoping for  a reward, the harder it becomes to solve the puzzle. It is a computational arms race, where the individuals or organizations with most computing power (hashrate) will be able to mine the most bitcoin.

The more computing power a machine has, the more solutions (and hence, block rewards) a miner is likely to find.

In 2009, hashrate was initially measured in hash per second (H/s). Due to the exponential growth of mining, H/s was soon commonly pre-fixed with the following SI units:

KilohashKH/s (thousands of Hashes per second)
MegahashMH/s (millions of Hashes per second)
GigahashGH/s (billions of Hashes per second)
TerahashTH/s (trillions of Hashes per second)
PetahashPH/s (quadrillions of Hashes per second)

The cost of Bitcoin mining

The underlying cost of Bitcoin mining is the energy consumed. The revenue from Bitcoin mining has to outweigh those costs, plus the original investment into mining hardware, in order to be profitable.

Mining revenue

In 2020, one modern Bitcoin mining machine (commonly known as ASIC), like the Whatsminer M20S, generates around US$8 in Bitcoin revenue every day.  You can think of it as though the miners are a decentralized Paypal, allowing all the transactions to be recorded accurately and making a bit of money for running the subsystem.

Bitcoin miners earn Bitcoin by collecting something called the block reward plus the fees Bitcoin users pay the miners for safety and accurately recording their Bitcoin transactions onto the blockchain.

Roughly every ten minutes a specific number of newly-minted Bitcoin is awarded to the person with a mining machine that is quickest to discover the new block.

Originally, in 2009, Satoshi Nakamoto set the mining reward at 50 BTC, as well as encoding the future reductions to the reward. The Bitcoin code is predetermined to halve this payout roughly every four years. It was reduced to 25 BTC in late-2012, and halved again to 12.5 BTC in the middle of 2016. Most recently, in May 2020, the third Bitcoin halving reduced the block reward to 6.25 BTC.

The second source of revenue for Bitcoin miners is the transaction fees that Bitcoin susers have to pay when they transfer BTC to one another. This is the beauty of Bitcoin. Every transaction is recorded in an unchangeable blockchain that is copied to every mining machine.

The profitability of Bitcoin mining

Bitcoin mining has a lot of variables. When done efficiently it is possible to end up with more Bitcoin from mining than buying bitcoin on an exchange.

One of the most important variables for miners is the price of Bitcoin itself. If like most people, you are paying for your mining hardware, and your electricity bills, then you need to earn enough Bitcoin from mining to cover your ongoing costs, and make back your original investment into the machine itself.

Bitcoin price impacts all miners. However, there are three factors that separate profitable miners from the rest: cheap electricity, low costs and efficient hardware and a good mining pool.

  • Cheap electricity

Electricity prices vary from country to country. Many countries also charge a lower price for industrial electricity in order to encourage economic growth.

According to, the most expensive household electricity price is in Germany, followed by Denmark whilst the cheapest electricity is in Qatar.

The following shows the electricity prices in the cheapest countries in 2020.

No.CountryElectricity rate (US$ per kwh)
2Saudi Arabia0.05
11South Africa0.13

Based on Bitcoin mining calculator,, mining at the price of 1 BTC of US$56,218.41 on March 28, 2021, the profit per year of Bitcoin mining in the countries with the cheapest electricity is as follows:

No.CountryElectricity rate (US$ per kwh)Profit per year (US$)
2Saudi Arabia0.054,032.23

Bitcoin mining operations, as expected, are concentrated in three countries, namely, US, Russia and China. In China, the Bitcoin miners are located in Sichuan Province due to the cheaper source of electricity and incentives from the local government.  Recently, miners are locating in Iceland and Canada due to cheaper electricity from hydropower.

  • Efficient hardware  

There are several hardware manufacturers to choose from to mine Bitcoins. The price of hardware varies from manufacturer to manufacturer and depends  largely on how low the energy use is for the machine versus the amount of computing power it produces. The more computing power, the more Bitcoin you will mine. The lower the energy consumption, the lower the monthly costs.

When choosing which machine to invest in, miners should think about the machine’s profitability and longevity. Profitability is determined by the machine’s price per TH, how many watts the machine uses per TH, and the hosting costs.  Longevity is determined by the production quality of the machine. It makes no sense to buy cheaper machines  if they break down after a few months of running.

The manufacturer with the lowest failure rate is MicroBT, who make the Whatsminer M20S and other Whatsminer models.

A list of income estimation of ASIC miners is shown the website,, which is updated every minute.

  • Reliable mining pool

These days, every miner needs to mine through a mining pool. Whether you are mining with one machine, or several thousand, the network of Bitcoin mining machines is so large that your chances of regularly finding a block (and therefore earning the block reward and transaction fees) is very low.  Mining pools make mining profitability more consistent and reliable.

The oldest two pools are Slush Pool ( and F2Pool ( F2Pool is now the largest mining pool and they support around 20 per cent of the entire Bitcoin network.

Example of mining pool pay-out method

According to, F2Pool’s method is called PPS+. PPS+ pools take the task away from miners, as they pay out block rewards and transaction fees to miners regardless of whether the pool itself successfully mines each block. Typically PPS+ pools calculate how much to pay out to miners in their pool. An example is shown below.

If the Bitcoin Network Hashrate is at 85 EH/s (85,000,000 TH/s), a Whatsminer M20S ASIC miner with 68 TH/s will earn around 0.000702 BTC per day before pool fees.

0.000702 BTC is calculated by 68 (miner hashrate) divide by 85,000,000 (network hashrate) times 144 (number of blocks per day) time 6.25 (block reward).

Pool fees are normally 2.50 to 4.00 per cent. So let use 2.50 per cent for the example, the net mining revenue is therefore 0.00068445 BTC.

It BTC is priced at US$56,000 (price on March 28th, 2021, than this MS20S has a daily revenue of US$38.33.     

Thomas Hueller, Global Business Director at F2Pool, which was quoted in, suggested that choosing the right mining pool is very important, as you will receive your mined bitcoin sent from the pool pay-outs every day. It is important to choose a pool that is reliable, transparent and offers the right suite of tools and services to help you optimize your mining operations.   

Fees when selling Bitcoin

Another variable of mining profitability is the fees one pays to sell the Bitcoin one mines. If you are a small time miner, you may have to sell the Bitcoins on a retail exchange like kraken or Binance. Sometimes your fees are low but sometimes your fees are high. It depends on the fee structure of the exchange and the state of the orderbook at the moment.

However, if you are a professional miner like F2Pool, you likely have advantageous deals with OTC desks to sell your coins at little or no fees, depending on the state of the market. Some miners are even paid above spot prices for their coins. Either way, professional mining operations deal with Bitcoin at a large scale and they have more leverage to secure deals that are good for them.


It is common knowledge that it has become very difficult for individual miners to get access to the best machines and the cheapest electricity rates. Bitcoin farms that operate at scale use these advantages to maximize their returns.

As the current price of Bitcoin is hovering around US$56,000, the Bitcoin mining industry is enjoying a boom in profits. It is to be noted this mining activity is clean, unlike the conventional commodity mining industry of iron ore and gold.

Source of references

  1. Malcolm Cannon and Jordan Tuwiner at www.
  2. ARK Invest Research. Bitcoin Mining: The evolution of a multibillion dollar Industry
  3. Various other articles