Is Cryptocurrency Mining Still Profitable In 2021?

Introduction

Early adopters made a fortune from mining cryptocurrency, but it is pretty difficult to tell whether cryptocurrency mining is still as profitable in 2021.

According to Malcolm Cannon, successfully mining just one bitcoin block and holding it since 2010 would mean you have $450,000 worth of bitcoin in your wallet in the last quarter of 2020.

Cryptocurrency mining is a fundamental aspect of blockchain technology as it was a pioneering method of earning bitcoin. This made it very beneficial to early adopters.

Is Cryptocurrency mining still profitable in 2021?

Cryptocurrency mining provides a distributed way to validate transactions, secure the network and infuse newly minted coins into the market as rewards. Other consensus mechanisms that do not require mining are gaining traction, and as a result, the need for miners is on the decline. For instance, the Ethereum blockchain is shifting from proof-of-work (PoW) to proof-of-stake (PoS) governance model.

The reduced dominance of the Proof of Work created a stiff market for cryptocurrency mining compared to previous years. When most coins were cheaper in the early days of cryptocurrency mining, you could pick up a few GPUs or order an ASIC miner and start mining and earning with ease. Despite these factors, there are still opportunities for miners to earn.

The role and reward of cryptocurrency miners in blockchain networks

Blockchain networks have no central authority. Miners record, process, and validate blocks in the network. They do these in exchange for block rewards.

A striking feature of bitcoin mining is that block rewards will decrease after 210,000 BTC is mined. We term this “bitcoin halving”. Analysts predict it will occur in 2140 when all 21 million bitcoins must have been mined.

Bitcoin block reward was 50 BTC in 2012, while from 2016 to 2020, miners received 12.5 BTC per block. We estimate this to be around 6.25 BTC when the next halving happens in 2024. Judging by these, cryptocurrency mining is still reasonably profitable.

Costs of electricity are a salient demerit of cryptocurrency mining. This is clear from the research that has compared its energy consumption with some countries in the world. Cambridge Bitcoin Electricity Consumption Index shows that cryptocurrency mining consumes more energy than Sweden and Malaysia.

Bitcoin fell by over 10% after a recent tweet by Elon Musk, an environmental enthusiast, advocate for clean energy, and founder of Tesla.

Tesla revealed in February 2021 that it had bought $1.5 billion worth of bitcoin. A few weeks after, it started accepting bitcoin payments for vehicles. It later rescinded this decision because of the negative impact of mining bitcoin on the environment.

According to Elon Musk, “Cryptocurrency is a good idea but this cannot come at a high cost to the environment”. He also added that Tesla has sold none of its Bitcoin but had halted purchases of vehicles with bitcoin and intends to use it for transactions as soon as mining shifts to more sustainable energy.

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