The COVID-19 pandemic and resulting lockdowns have changed the way the world works in many ways, including accelerating a digital revolution that has, among other things, shone the light on cryptocurrencies, such as Bitcoin and Ethereum.
A parabolic increase in the price of Bitcoin over the past year has also renewed focus on the concept of Bitcoin mining. (Throughout this article, we will refer to Bitcoin mining even though the concept applies to mining other cryptocurrencies as well.)
What is Bitcoin mining?
Suppose a person you are doing business with sends you Rs 100 through a bank transfer. At what point are you assured that the transaction has concluded? It is when the bank sends you a message or when you can check in your statement/passbook that you have received the amount. Your bank here acts as a settlement agent and once it confirms the amount is credited to your account, you can walk into your bank and withdraw the money.
Unlike the conventional monetary system, Bitcoin has no central clearing or settlement agent. Instead, users play the role of the bank in verifying transactions through a process called Bitcoin mining. As an incentive, miners are rewarded with the cryptocurrencies they mined for effectively working as an auditor of sorts.
The Bitcoin mining process is fairly technical and arduous. Though there is good news: Miners do not need any technical know-how — one can install Bitcoin mining software.
Having said that, there’s also bad news: Hardware required to mine cryptocurrencies can be expensive to install and running it can also incur steep electricity costs.
Besides, the difficulty required to solve the problems required to settle transactions always increases as one goes along, meaning the same set of hardware will be able to earn less in future.
So, on average, is Bitcoin mining in India a profitable venture?
Bitcoin mining hardware and software requirements in India
Mining is a hardware-intensive process and requires the installation of expensive computing machines, also called ‘mining rigs’. Here is a list of software and hardware you will need to mine.
The hardware element in mining can be a GPU or an ASIC (application-specific integrated circuit). As opposed to CPUs in normal computers, ASICs and GPUs are faster at solving complex calculations required to settle transactions. The more powerful the unit, the faster it will solve problems. The price of a decent ASIC unit, such as the Antminer S9, will be about Rs 1.5 lakh.
You also need mining software to mine and set up a digital wallet, to store the reward you will earn. There are several free mining software available online.
Is Bitcoin mining profitable?
The answer to whether Bitcoin mining is profitable is not cut and dry. Though as a thumb rule, you must know cryptocurrency mining is generally profitable only for those who can invest in powerful hardware.
The profitability of this endeavour will depend on four primary factors:
Hash rate: This refers to the number of complex calculations mining hardware can do. For instance, the ASIC referred to above has a hash rate of 13.5 TH/s.
Electricity cost: A mining rig consumes a lot of power as it has several other components besides the core computational hardware such as cooling mechanisms etc. A basic ASIC itself will consume about 1500 watts, or 1.5 hW of electricity per hour. On average, electricity rates in India tend to be about Rs 7 per kW.
Mining pool fees: A mining pool is a collection of miners who pool their hardware resources to increase the number of calculations. The synergy created by pooled hardware will always be more powerful than a single device. The rewards will also be divvied up with all the miners in the pool. This could decrease your profit though.
Price of the cryptocurrency: This is the most important factor when it comes to mining. The cost of cryptocurrency is highly volatile. And over the last year, the price has fluctuated dramatically.
Bitcoin Mining Calculator
Several calculators on the Internet allow you to enter key inputs such as hashing power, power consumption, electricity cost and pool fee. Based on inputs, the Mining Calculator will show the number of Bitcoins you can hope to earn through your activity. It will also tell you whether this amount will be enough to recover your electricity costs, besides your initial investment.