Bitcoin and Crypto Miners Are Losing Money

Bitcoin and other cryptocurrencies may have been struggling over the first quarter of the year but it still hasn’t lost its charm. You still hear cryptos in the news often, and more companies have made their way towards the crypto market despite the dangers of its highly volatile price.

Recent events were just rough on investors. In fact, miners are already losing money. Just after Google announced that it is going to ban crypto-related advertisements, Bitcoin price slipped to $7,676.52 before recovering around the $8,000 level.

Miners Earning via Bitcoin

The charm of blockchain technology is seen in its ability to process transactions without the need for third-party agencies. On paper, this means that you can send cryptocurrencies without the need for a bank.  But in lieu of a third party, transactions are confirmed by miners.

But what makes Bitcoin and cryptocurrency mining tricky is the fact that miners could actually be losing money now in some parts of the world. Bitcoin mining is an energy-extensive process that requires powerful computers in order to solve mathematical equations. After completing an equation, miners are then rewarded in cryptocurrency. But what if the reward is no longer enough to cover the entire cost of the operation?

So what exactly can miners do at this point especially those who invested a good amount of money on hardware recently? If you will ask Shone Anstey, the co-founder, and president of Blockchain Intelligence Group, he mentioned that “miners may simply turn off the machines until the price comes back a bit”. He also added that “It’s got to be getting to the point that some of them may be losing money”.

There are a number of factors that are involved in order for Bitcoin miners to earn some profits. First, you have the hardware that can cost easily around a few thousand dollars. The good news is that there are those machines that are becoming more efficient. Unfortunately, you have to deal with the fact that your mining rig could easily become obsolete. The need to replace hardware costs more than half of the mining cost.

From December to this month, the surge in the interest in Bitcoin mining has decreased the profits of miners by half since December. That is according to Charlie Hayter who is the CEO of industry data site CryptoCompare. To give you a perspective regarding how much they are actually earning, median transaction fee from $34 in late December fallen below 50 cents.

Is the End Near?

It is no secret that Bitcoin’s number is finite. There are only around 20% of the 21 million bitcoins remaining that could still be mined. If you will look at traditional commodities such as gold, whenever the cost of production is already equivalent to the actual cost of the commodity, this could signal depleting supply.

But of course, if you are serious about mining, you have to consider the electricity cost in the equation. In countries such as China, for instance, you only have to pay 4 cents per kilowatt-hour. And for this reason, despite a crackdown on crypto activity, China remains as the center of crypto mining. In fact, four out of five largest bitcoin mining pools are located in China.