How much do Bitcoin miners
earn? Who has a real chance at a reward from mining? Why do users use the blockchain of the largest cryptocurrency at all?
One of Henrique Centieiro’s students asked him some interesting questions about Bitcoin mining. According to the rule that there are no stupid questions and the fact that bitcoin mining is not completely clear for everyone, the author decided to give them comprehensive answers. This article is a translation of the Centieiro study (link to the original version at the end of the article).
Is the mining fee only paid to the miner who succeeds? – Say 1 out of 8000 nodes? If so, it seems that most miners would go bankrupt, except for the fact that miners pool together. It would take one computer 270,000 years to mine one block. I can’t imagine how big a computer one miner could have to mine one block in 10 minutes. […] how much total electricity in kilowatts does it take to mine one block?
), or more precisely every 210,000 blocks, given that we have a new block every 10 minutes. So, the next reduction in the size of the Bitcoin block reward will occur in early 2024, and the reward will be reduced to 3.125 BTC then. source: coindesk
Additionally, every time a user sends a transaction on the Bitcoin network, they will have to pay a transaction fee. The miner will receive transaction fees for transactions that are included in the same block.
So for Bitcoin, the mining reward is currently 6.25 BTC plus the fees paid by users, and this is paid to miners on average every 10 minutes when they mine a block. How much money is that? Well, as I write this, I will simply take the most recently mined block. You can also check it for yourself by clicking this link
We’ll take a look at block 692365. The miner who mined this block (in this case, it was the F2Pool mining pool) received a block reward of 6.25 BTC plus a fee reward of 0.0079 BTC.
At current rates, this translates roughly to:
Block reward: 6.25 BTC = 209,800 USD
Fee remuneration: 0.0079 BTC = 265 USD
Since the rewards are quite attractive, many people devote a lot of resources to bitcoin mining, both in terms of equipment and electricity. In the early days of the network – in 2009 and 2010, you could simply mine BTC with a laptop and successfully get a reward. But now that there is so much competition, and all the participants in the mining industry are devoting so many resources, the probability of success in mining a block using a laptop is practically zero. It would take thousands of years to accomplish this with a regular computer.
Currently, mining bitcoin with a laptop is like trying to mine gold with one of those toy shovels that kids use at the beach. It’s not mathematically impossible, but it would probably take thousands of years to find gold using such a small shovel. Instead, we need heavy equipment.
Now let’s talk about mining pools. Now what miners do to get more stable rewards and avoid bankruptcy is to join a mining pool. A mining pool basically pools the resources of a large number of miners, acting as a single miner from the perspective of the Bitcoin network. If a mining pool has, for example, 10% of miners involved (which is the case with F2Pool, which we see in the link), this means that the pool will mine 10% of the blocks. 10% of bitcoin blocks is about 14 blocks per day. Miners who contribute to this pool will receive mining rewards in proportion to their contribution. You can assist with the computing power of your personal computer, which will be akin to mining gold with a beach shovel, and you will receive a reward proportional to that work (probably only a few cents). On the other hand, people who have heavy equipment will contribute more to the mining pool and receive rewards proportional to their contribution. Even large mining farms with lots of heavy equipment use mining pools to get a more predictable and stable reward.
To see more details on the number of blocks and rewards that F2Pool receives on behalf of its miners, check out this link: https://btc.com/stats/pool/F2Pool
Now for the second part of the question:
How much electricity is required to mine one block of Bitcoin?
The amount of energy used depends on the difficulty of mining. The difficulty is adjusted every 2 weeks to keep the block mining interval at an average of about 10 minutes. As more miners join the network, the difficulty must be adjusted and increases (because more miners means they would mine blocks faster than 10 minutes, and the network wants to maintain an average of 10 minutes). If miners leave the network, the difficulty is also reduced accordingly. This happened recently when miners experienced regulatory problems in China and had to suddenly shut down their equipment. The mining difficulty has been adjusted to match the new hash rate (or computing power) on the network.
At the current difficulty level, the entire
The Bitcoin network produces about 101 terahashes per second in terms of computing power and this is required to mine one block in 10 minutes. To give you a relevant idea, one terahash is 10¹² or 1,000,000,000,000,000 hashes and the network is currently using 100 times more per second. This is basically part of the proof of work (proof of work) consensus mechanism. In short, hash
rate means how much computation the computers on the network perform to guess the solution to the cryptographic puzzle behind the “proof of work”. To mine one block, we will need: hashes
per bitcoin block
= (network hash rate) * (10 minutes)
= (101 * Th / s) * 600 seconds)
= 60,600 thousand
= 60,600,000,000,000,000,000 hashes (that is, the number of calculations performed by all miners to mine one bitcoin block)
Performing all these calculations will require a fair amount of electricity. Still, compared to other industries such as gold mining, the financial industry, and even the air conditioning industry, Bitcoin’s electricity consumption is much lower and more efficient.
According to Cambridge University estimates, the annual energy consumption of the Bitcoin network could be 70 TW, which, if my calculations are correct, is enough to mine one Bitcoin block:
TW per Bit
= 70 TW / 365 days / 24 hours / 6 blocks
= 0.0013318 TW = 1.3318 GigaWatt = 1,331,800 KW
So… if my calculations are correct, mining one Bitcoin block requires 1,331,800 KW
By the way, I just wanted to take this opportunity to share a very cool slide prepared and presented by Nic Carter at the Bword
conference last week: Bitcoin energy consumption compared to other industries*** In the
case of the Bitcoin blockchain, will the fastest miner winthe block mining race all the time assuming no one with a faster machine joins the network?
Well, it’s not that linear. What miners do is try to find a number called a nonce. This nonce is a long string of numbers, and miners have to use brute-force, i.e. try different nonce values many times, usually billions of times, until one of the numbers generates a hash that satisfies the mining conditions. You can read more about this topic here
. Going back to the difficulty of mining, it is basically a measure of how hard it is to find a nonce.
The fastest miners, i.e. those with a higher hash rate, are able to perform more one-time calculations, i.e. those with more powerful machines or
large mining farms will increase the probability of extracting a block, but that doesn’t mean that this particular miner will always come out of this race as the winner.
Imagine for a moment that there are only 3 miners in the world:
- Krit has 40% of all mining power (total Bitcoin hash rate)
- Kent owns 35% of all mining power (of Bitcoin’s total hash rate)
- Henri has 25% of all mining power (of Bitcoin’s total hash rate)
Krit is the fastest and therefore will win 40% of the time, Kent will win 35% of the time, and Henri will win 25% of the time. When I say “will win”, I obviously mean finding the right number that will grant that miner the right to mine that block.
Third question: the main use of the bitcoin blockchain is to make payments. What are the other practical benefits for users of the Bitcoin blockchain?
Being a first generation blockchain, Bitcoin and other cryptocurrencies such as Litecoin, Bitcoin Cash and Dogecoin really only have one function: making payments and storing value.
I would say that the main use cases and advantages of Bitcoin are:
- Bitcoin is a great store of value. Bitcoin is deflationary and is 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 settling payments. Not only is it a very reliable way to transfer funds, but it also provides an incredible degree of certainty when it comes to settling payments. You can send $100 or $100,000,000 in the Bitcoin blockchain and you can be 100% confident that the payment has been fully settled in the blockchain after the miners process the transaction. You can trust that the Bitcoin blockchain will send $100,000,000 to the address you specify no matter where it is located, that in less than an hour the transaction will be fully recorded in the blockchain and there will be no way to undo it. No other system in the world offers this level of trust. Banks take days to process this kind of transaction.
- Bitcoin is also great for small payments. Lightning Network can be used to make quick payments at ridiculously low fees. You can send a fraction of $1 BTC, for example, and the transaction will be completed in less than 5 seconds with a transaction fee of less than $0.001.
Finally, I would say that a great use case for Bitcoin is this small but important word: TRUST.
The above article is based on a text by Henrique Centieiro titled Can Bitcoin miners ever go bankrupt? How much money do they make? And what are the use cases? which was published on 28-07-2021.