Bitcoin is an exciting new form of digital currency, called “cryptocurrency”. It was created back in 2009 by an Satoshi Nakamoto who is basically anonymous. Aside from his name, no one knows much else about him, or her.
Since 2009 Bitcoin has grown in popularity to become a trusted form of payment for lots of companies, including Microsoft, Dell and Expedia. It's more often used at “progressive” companies that want to offer alternative payment systems.
Undeniably though, it's still very controversial. The price of Bitcoin varies wildly on a day to day basis. There are people that say it's all a sham, and that cryptocurrency is destined to die without government backing.
Others say it's the currency of the future. Big names are investing in (or jumping out of) the market for these coins, and there's an army of computers working 24/7/365 to dig out “virtual” coins.
Naturally, I wanted to look into this process to find out if you can really make money mining Bitcoin, and what's involved in getting set up to profit from this trend.
Table of Contents
Making Money Mining Bitcoin
Let's start at the very beginning, what is Bitcoin mining?
BIG FAT DISCLAIMER: I'm not a technical person, and do not have extensive experience with bitcoin mining. If I get some of the technical aspects wrong, please correct them kindly in the comments. The main focus of this article is to look at the profitability of bitcoins.
Technically, Bitcoin miners aren’t people. The mining is actually done by the hardware — little computers, or over sized calculators — used to perform the complicated mathematical calculations necessary to encrypt and decrypt transactions on the Bitcoin network.
In order to keep things simple for the rest of this post, we will call the hardware Bitcoin Miners, or miners. And those who operate the hardware will be referred to as Bitcoin ledger managers, or ledger managers. Yeah, it' s getting complicated fast.
One thing I quickly learned about Bitcoin mining is that is uber-technical. It’s fairly easy to do — in fact, you don’t really have to do anything — but it does involve complicated algorithms and lots of math… so, yeah, I’m not going to explain how all that works behind the scenes in any detail.
It's not necessary to know in order to actually make money. Do you know how your car works? For my generation, that answer is usually a NO. But you can drive, right?
Instead, I will only give you what is absolutely necessary for you to get started with mining and figure out if we can actually make money mining Bitcoin., and something you want to do or not.
But, just a super-brief history so you're not totally in the dark.
Bitcoin was created to avoid any kind of centralized control, like banks and governments have over the dollar. This is what makes it unique, and it's also what gives Bitcoin its strength as a currency.
You see, for Bitcoin to work — with no one person or entity controlling it — Bitcoin miners are used to help maintain the ledgers and track every single transaction made on the network.
Each time a transaction occurs, all the miners check their ledgers and adjust things accordingly.
Everything in the Bitcoin network relies on numbers: Each user has a number, each Bitcoin has a number, and each transaction has a number.
In fact, you could say everything is a number, rather than has a number.
Each time a transaction occurs, a number is generated and Bitcoin miners go to work trying to verify the transaction by decrypting all the numbers involved.
…or something like that.
Getting Started Mining Bitcoin + Startup Costs
If you want to get started mining Bitcoins then you will need to buy the necessary hardware. And let me tell you, it isn’t cheap. You can easily spend thousands of dollars trying to keep up with the demand and growing Bitcoin user base.
The image you see below is a Bitcoin miner that was suggested by one ledger manager as the “minimum to get started”. As you can see, it’s quite expensive.
However, I have seen miners for as little four hundred bucks.
In the early days, Bitcoin ledger managers started out with a bare-bones computer dedicated to mining Bitcoin. As Bitcoin grew more popular, mining them required more computer power.
Within a year, the ledger managers had to use a computer with a specialized card that was made solely for mining Bitcoin. Since then ledger managers have seen several more evolutions.
As more and more people adopt Bitcoin as a payment method, more ledger managers will join the network and look for faster, better ways to mine. Every time they come up with a faster solution, the old hardware becomes instantly outdated and useless.
It seems like this happens once every year or so, but it can happen at any moment.
Aside from your Bitcoin miner, you will also need a specific power supply. The power supplies can range in price from about $80, all they way to $600 and sometimes more, depending on your miner.
In addition to the cost of your mining equipment, you also need to factor in the cost of electricity. Bitcoin miners use quite a bit of power, so you need to pin down how much you are paying per kilowatt. If you pay around ten cents per kilowatt, one miner should cost you about $3 per day.
However, if you run the right hardware, and you live somewhere where power is near ten cents per kilowatt, it seems that you can expect to earn a few dollars per day.
Apparently, the price per kilowatt is wildly different from state to state, with states along the east coast typically being the highest. I have a friend in Florida who pays about fifteen cents per kilowatt. Based on that fact alone, for him, mining Bitcoin would be almost pointless because it costs so much to run the equipment versus how much he earns.
Suddenly, making money minding Bitcoins looks like it's going to require quite a bit of investment capital, and a commitment to the long term. This is not a weekend project!
How Much Money Can I Make?
The Bitcoin network is set up to send “blocks” of transactions every ten minutes. So you cannot decrypt each transaction as they are made. You have to do it in blocks.
Each block is currently worth about twenty-five Bitcoins, but the price of the actual coins depends on the current conversion rate of Bitcoin, which is always changing.
Just a year ago, one Bitcoin is worth about $350.
Now it's worth about $3,000 USD. That still doesn't change the fact bitcoin mining as an individual is no longer profitable due to electricity costs needed to “mine” one block.
There are a couple of ways to make money Mining Bitcoin.
The first way is called solo-mining. This is exactly what it sounds like. You get all the necessary hardware and you set it up to run. If you decrypt a block of Bitcoin transactions before the other miners in the network, you get paid.
The second way is called pool-mining. This involves you and a group of others who all work together to decrypt transaction blocks. For each block your pool completes you all get paid individually, according to how much work your hardware contributed.
So far, you are looking at about $3,000 just to get started with one simple miner. Most ledger managers operate multiple miners, increasing their odds of a payday, and reducing yours.
To make must one coin is going to take a lot of hardware. Coupled with the cost of electricity and the potential cost of startup equipment to keep up with competitors, it's clear that to make money mining Bitcoins, you have to invest a good deal of time, cash, and brainpower.
Other Methods Of Cashing in on Bitcoin Fever
Mining coins is not the only way to cash in on this market. You can also do some speculation trading in stock markets or by buying and selling bitcoins.
I looked at purchasing about $5,000 worth of coins back in 2010 when the cost was about $12 per coin. I didn't do it because I didn't understand how to secure your wallet so that hackers couldn't steal your coins. Three years later, the price of coins was over $1,000 per coin. I would have been a millionaire.
But if I held onto my coins, as you saw above, 2/3 of my fortune would have been decimated since the price is just above $300 now. Updated: I'd be a millionaire again now that the price is up to $3,000. Update 2: And once again, now that it's at $12,000 (was $20,000 just a couple months ago). Will update again when I become a millionaire now that I actually bought in (at $2000 USD).
As far as stock investing goes, there are a few ETF that trade based on Bitcoin price movements. It works in the same way you invest in a gold ETF or gold stock.
A company buys the commodity or invests in companies that rely on the commodity, then sells you a share of the company. You don't actually own the coins, but the stock moves in tandem (theoretically) with the price of the commodity.
ARKW and GBTC are two places to invest. MacAfee's MGTI is another one to look at.
If you are really scared of pure Bitcoin exposure, you could try companies that make the miners like NVDA or AMD, or even companies like Square, Amazon, or Paypal which could potentially integrate cryptos into their platform in the future.
The Bitcoin market and its moving parts are very volatile. Every part of it is dependent on something else, which makes it impossible to know what to expect when it comes time to collect your payment.
Combine that with the added frustrations of dealing with hardware costs and maintenance problems, I suspect that Bitcoin mining is something most folks do out of pure passion.
The startup costs are outrageous, if you aren’t technically savvy you are at a major disadvantage and stable income isn’t even in the realm of possibility.
Bitcoin mining actually seems like one of the worst ways to try to make money online. In fact, it might be THE worst I have ever seen, especially for newbies. However, there is a bright side to all this.
Bitcoin as a trend is very popular. You can find lots of people who are passionate about it. Those same people pump real dollars into the Bitcoin niche every day — just like RC car hobbyists pump money into their niche for cars, tools and accessories.
All this adds up to a nice little niche that you can take advantage of as an affiliate marketer (what I do for a living). Affiliates, like myself, don’t have to worry about storing hardware, maintaining physical items, or startup costs.
All you need is 11 bucks for a domain and you can cash in on the Bitcoin scene (or any scene) as an affiliate, and earn a percentage of every sale each time someone buys something like a Bitcoin miner — or any number of other items related to Bitcoin.
One great example of a person doing this is the 99bitcoins website. He does not have a huge technical knowledge of blockchain and bitcoins, but knows enough to educate people about the products surrounding the bitcoin community.
He has a huge website, and I can guarantee he makes a pretty penny (or Satoshi) off of his site. People are passionate about this topic, and when it comes to passionate buying, there is no better way to earn money online as an affiliate!
There are thousands of different side hustles you could do to earn some extra money on the side, and which one "clicks" for you depends on your personality and goals. However, there's one side hustle that makes an insane amount of money and works for anyone.
Starting an affiliate website is an incredible way to earn extra money because you can do it from your home on a laptop, and work on your business in the evenings and on weekends. The income potential is huge, and it's easy to scale