Can Bitcoin miners ever go bankrupt? How much money do they make? And what are the use cases?

Krit, of my Udemy students from my blockchain course, asked me some really interesting questions about Bitcoin mining. As you can see from the article below, I get quite excited when I talk about mining!

Krit, this one is for you.

1st question: Is the mining fee paid to only a successful miner of each block, says out of 1 out of 8,000 nodes? If yes, it seems that most miners will go bankrupt, except that miners pool resources as a group. One computer will spend 270,000 years to mine one block. I can’t imagine how large a single miner can have computer capacity to mine one block in 10 minutes. Can you give any idea what is total electricity in KWatt to mine required to mine one block?

This is a really cool question! Let me break it down:

The block reward is fixed at 6.25 BTC, and it halves every 4 years or, to be more accurate, the halving occurs every 210 000 blocks, considering that we have a new block every 10 minutes, which translates into approximately 4 years. So the next Bitcoin block reward halving will happen sometime in early 2024, and the reward will be cut to 3.125 BTC.

Additionally, every time a user sends a Bitcoin transaction, he will have to pay a transaction fee. The miner will also receive the transaction fees for the transactions that were included on that same block.

So, In the Bitcoin case, the mining reward is currently 6.25 BTC plus fees paid by the users, and this is paid to the miners on average every 10 minutes when they mine a block. How much money is this? Well, I’m just going to pick up the most recently mined block at the time I’m writing this. You can also check the block by yourself by following this link.

Here, we will be looking at block 692365. The miner that mined this block (in this case was a mining pool called F2Pool) has received a block reward of 6.25 BTC plus a fee reward of 0.0079 BTC.

At the current rates, this translates approximately into this:

Block reward: 6.25 BTC = USD 209 800

Fee reward: 0.0079 BTC = USD 265

So the miner or pool that mines this block will get approximately USD 210 000 worth of Bitcoin, which is a pretty penny if you ask me!

Because the rewards are quite attractive, many people dedicate a lot of resources to mining bitcoin, both in terms of hardware and electricity. In the early days of Bitcoin, 2009 and 2010, you could just mine Bitcoin using your laptop and be rewarded. But now that there’s so much competition all these people dedicating so many resources, the likelihood of successfully mining a block with a laptop is extremely low. As you said, it would take thousands of years to successfully do it with a normal computer.

Currently, mining Bitcoin with a laptop is like trying to mine gold with one of those toy shovels that kids use on the beach. Mathematically not impossible, but probably it would take a thousand years to find gold with such a small shovel. So instead, we need heavy machinery.

Now let’s talk about the mining pools. Currently, what miners do to get more steady rewards and avoid going bankrupt, is to join a mining pool. The mining pool basically puts together the resources of a big number of miners, acting as a single miner from the Bitcoin network perspective. If a mining pool has, for example, 10% of the miners contributing to it (which is the case of F2Pool that we see in the link), it means that the pool will mine 10% of the blocks. 10% of the Bitcoin blocks it’s approximately 14 blocks per day. The miners who contribute to this pool will receive the mining rewards according to their contribution. You can contribute with your personal computer’s computing power, which is going to be like mining gold with a beach shovel, and you will receive the rewards proportional to that work (probably a few cents only). On the other hand, people that have heavy machinery will contribute more to the mining pool and receive rewards proportional to their contribution. Even big mining farms with a lot of heavy machinery use mining pools in order to have a more predictable and stable reward.

Check this link to see more details on how many blocks and much rewards is the F2Pool receiving on behalf of their miners: https://btc.com/stats/pool/F2Pool

Now the second part of the question:

How much electricity does it require to mine one Bitcoin block?

How much electricity is spent depends on how the Bitcoin mining difficulty. This difficulty is adjusted every 2 weeks in order to maintain the blocks being produced on average every 10 minutes. When more miners join the network, the difficulty needs to be adjusted, and it goes up (because more miners mean that they would discover blocks faster than the 10 minutes, and the network wants to keep the 10-minute average). If miners leave the network, the difficulty will also be adjusted in order to reduce the difficulty and keep the 10 min average. This is what happened recently when miners were banned in China and had to suddenly shut down their mining equipment. The mining difficulty was adjusted in order to adapt to the new hashrate (i.e. computing power) in the network.

At the current difficulty level, the entire Bitcoin network is producing approximately 101 Terahash per second in terms of computing power and this is what’s required to mine one block every 10 minutes. Just to give you an idea, one terahash is 10¹² or 1 000 000 000 000 hashes, and the network is currently using 100 times that per second. This is basically part of the proof of work consensus mechanism. Long story short this hashrate is basically how many calculations are the computers on the network doing to solve the mathematical problem behind the proof of work mining and mine Bitcoin blocks. So to mine one single block we will need:

hashes per bitcoin block
= (network hash rate) * (10 minutes)
= (101 * Th / s) * 600 seconds)
= 60 600 Th
= 60 600 000 000 000 000 hashes (i.e. number of calculations made by all the miners together to mine one Bitcoin block)

To do all these calculations will require quite a bit of electricity. Still, compared to other industries such as gold mining, the financial industry, or even the air conditioner industry, the Bitcoin electricity consumption is way lower and more efficient.

According to estimations by the University of Cambridge, the Bitcoin network may have an annualized consumption of 70 TW which if my calculations are correct, this is what it takes to mine one Bitcoin block:

TW per Bitcoin block

= 70 TW / 365 days / 24 hours / 6 blocks

= 0.0013318 TW = 1.3318 GigaWatt = 1 331 800 KW

So… if my calculations are correct, it takes 1 331 800 KW to mine one Bitcoin block.

By the way, I just wanted to use this opportunity to share a very nice slide prepared and presented by Nic Carter during the Bword conference last week:

2nd question: With Bitcoin blockchain, the fastest miner tends to be a winner of a mining block all the time assumed that no one with a faster machine joining the blockchain?

Well, it’s not that linear. What miners are doing is trying to find a number called the nonce. This nonce is a long string of numbers and miners need to brute-force, i.e. try different nonces many times, usually billions of times, until one of the guesses a nonce that will generate a hash that meets the mining conditions. You can read more about this proof of work process here. Going back to the mining difficulty, the mining difficulty is basically a measure of how hard it is to find the right nonce.

The fastest miners, i.e. the ones with higher hash rates, are capable of performing more nonce calculation, i.e. the ones with more powerful machines or big mining farms will increase the probability of mining a block but no single miner will always win the race.

Imagine for a second that there are only 3 miners in the world:

• Krit owns 40% of all the mining power (i.e. total Bitcoin hashrate)
• Kent owns 35% of all the mining power (i.e. total Bitcoin hashrate)
• Henri owns 25% of all the mining power (i.e. total Bitcoin hashrate)

Krit is the fastest, and for that reason, he will win 40% of the time, Kent will win 35% of the time, and Henri will win 25% of the time. With “win”, I mean, of course, find the right nonce which will award that miner with the right to mine that block.

3rd question: Bitcoin blockchain’s main use is for making payments. What are other practical benefits of users of Bitcoin blockchain?

Being a first-generation blockchain, Bitcoin and other cryptocurrencies like Litecoin, Bitcoin Cash, and Dogecoin really have only one functionality: making payments and being a store of value. Therefore, they don’t allow the creation of smart contracts, unlike other blockchains like Ethereum, EOS or Tron.

I would say that the main use cases and benefits of Bitcoin are:

• Bitcoin is a great store of value. Bitcoin is deflationary, and it’s often seen as digital gold. Bitcoin is a good hedge against inflation. Anyone can store any amount of money in the Bitcoin blockchain.
• Bitcoin is the best system for payment settlement. Not only Bitcoin is a very reliable way to transfer funds, but it also gives an amazing degree of assurance regarding payment settlement. In the Bitcoin blockchain, you can send USD 100 or USD 100 000 000, and you can trust at 100% that the payment was fully settled in the blockchain once the miners process the transaction. You can trust the Bitcoin blockchain to send USD 100 000 000 across the globe, and you can fully trust that in less than one hour, the transaction is fully written in the blockchain, and there’s no rolling back. No other system in the world gives this level of trust. Banks take days to complete this kind of transaction.
• Bitcoin is also great for small payments. The Bitcoin lightning network can be used to make swift payments with ridiculously small fees. You can send, for example, USD 1 worth of Bitcoin and the transaction will be completed in less than 5 seconds with a transaction fee lower than USD 0.001. In El Salvador, Bitcoin is now accepted as an official currency, and most people use wallets compatible with the lightning network. Here is a small list of lighting compatible Bitcoin wallets for Android and iOS:
• Breez
• Phoenix
• Muun
• Strike

A the end, I would say that the big use case for Bitcoin is this little but important word: TRUST.

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Source: https://levelup.gitconnected.com/can-bitcoin-miners-ever-go-bankrupt-how-much-money-do-they-make-and-what-are-the-use-cases-25fe064f627?source=rss——-8—————–cryptocurrency