Data showed that miners pocketed $3 billion in revenue at the peak of the April 2021 bull run; thus, debunking popular claims that Bitcoin mining rewards is on a downward spiral. This figure translates to about $100 million daily on an average, which is a 10,000% increase from the $1 million averaged daily in 2016.
The spike in Bitcoin mining rewards also subsequently led to an increased demand for mining hardware as more people seek to tap into the potentials of one of the most lucrative and fast-growing industries. Before we delve into the financial intricacies of the industry, let’s briefly discuss what Bitcoin mining is, as well as its significance.
What is Bitcoin Mining?
Bitcoin mining is the process through which transactions are verified on the Bitcoin blockchain. In return for validating transactions, miners are rewarded with Bitcoin.
What do Bitcoin Miners do?
Miners can be likened to bank cashiers who process fiat transactions over the counter in traditional financial institutions. They are often referred to as gatekeepers of the blockchain. Bitcoin miners verify transactions, audit and prevent network users from spending the same cryptocurrency twice in exchange for rewards in Bitcoin.
How Does Mining Work?
When Bitcoin network users initiate a transaction, miners compete to solve a complex mathematical problem in order to add them to a block. To do this, they need a GPU (graphics processing unit) or an application-specific integrated circuit (ASIC). In the early days of Bitcoin mining however, a simple personal computer would suffice.
Why is Bitcoin Mining Significant?
New Bitcoin is released into circulation through mining. Currently, about 18 million Bitcoin are in circulation out of the 21 million total supply. When a miner successfully solves a complex arithmetic problem and adds a transaction to a block, new Bitcoin are formed.
What are the Financial Rewards of Mining?
Since Satoshi Nakamoto minted the first Bitcoin, every other Bitcoin that came into existence was as a result of mining activities. Though probably worth only a slice of pizza at the time, early day miners who held onto their rewards made a fortune from Bitcoin mining. In 2009, mining one block rewarded 50 BTC. In today’s market, this is well over $2 million.
Four years later, rewards were reduced to 25 BTC through a process called halving. The same pattern would see mining rewards reduced at the same sequence. This will continue until the last Bitcoin is mined in 2140.
This Reduction Doesn’t Hamper Profitability
The upward trajectory of Bitcoin’s price over the past decade has however ensured that reduction in mining rewards impacts very little on profitability. For context, block rewards at 6.25 BTC today is worth around $262,000; well over what 50 BTC was worth at the time of inception. With more than 3 million BTC yet to be mined, there’s still a lot of untapped potential which makes the Bitcoin mining industry one of the most promising and lucrative industries in modern times.
The recent bull run characterized by mass institutional adoption of Bitcoin further accelerated the growth of the mining industry. Data from Coinmetrics analyzed by Coindesk showed that miners generated about $1.1 billion in revenue in January 2021; a 62% increase from the previous month as Bitcoin price surged from $29k to $42k.
Soaring network fees contributed to the increase in mining revenue. In January alone, revenue from network fees amounted to $116 million (about 10% of the total Bitcoin mining revenue), representing a slight increase from December 2020.
There’s also a massive influx of new industry players seeking a piece of the pie. It is estimated that there are presently about 1 million active miners on the Bitcoin network. While the industry still remains as profitable as ever, the motive for mining has certainly evolved from ‘a leisure activity borne out of curiosity’.