The Difficulty of Mining Bitcoin

2019-03-23T04:24:29.000Z Honest Cash

Mining bitcoin is not as easy as it might seem. In this video, we highlight the biggest reason that most crypto miners end up losing money.

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Transcript below:


Welcome, welcome to One Minute Crypto! I'm your host, Chronos, and today I want to talk about why mining bitcoin is such a tough business to make money in. It's not intuitive that this would be the case, I mean, you buy the equipment, you plug it in, and you make bitcoins. What's so hard about that?

Two words: mining difficulty. Bitcoin has an internal control called the mining difficulty to regulate how quickly new blocks are mined. Basically, this means that if the amount of mining power on the network goes up, it gets harder to get a slice of the new coins. This means you're actually competing against every other miner on the network. Let me explain.

Let's say the network difficulty is at a certain level, and you're making a good profit. Everything's great, and the money is rolling in. But since mining is profitable for you, it's probably profitable for everyone else, too, so pretty soon some more competition joins the network. This pushes the difficulty up, which means your profit margin just took a hit.

But everybody is still making money, right? Wrong. Someone on the other side of the planet might have really cheap electricity, or really cheap mining equipment, and they just keep adding power until the difficulty is so high that you're running at a loss. That's right, for every dollar you spend in electricity, you might not even mine enough bitcoin to cover the cost! Some other guy is more efficient than you are, and it drives you right out of the market.

In the end, competition is so fierce, I would guess that most people end up losing money when they try to mine bitcoin.

What do you think? Post your comments below.