bitcoin mining profitability

Bitcoin mining has become drastically less profitable this year, despite soaring revenues. What’s behind this dip in profitability? Block Explorer editor Ben Brown explores.

New research from Diar reveals that Bitcoin mining has generated record revenues of almost $5 billion so far this year. That’s already higher than 2017 with three months to go.

However, that revenue hasn’t translated into profit.

High energy costs and increased competition in the space means the average bitcoin miner is struggling to make a profit.

In fact, September marked the first month when bitcoin mining became unprofitable for anyone paying retail prices for electricity.

Worryingly, this means bitcoin mining will increasingly be dominated by the “deep pockets” of mining corporations like Bitmain.

bitcoin mining profits infographic
Credit: Genesis Mining

Mining a Bitcoin Costs More Than Buying One

According to further data by Fundstrat, it currently costs $7,300 to mine one bitcoin.

Yet, we can go to Coinbase and buy one bitcoin for less than that – $6,600 at the time of writing.

To come up with its $7,300 figure, Fundstrat takes into account a $4,000 energy fee (at $0.06 kW/h) and $3,300 for equipment, wear-and-tear and other overheads.

So what makes bitcoin mining currently so unprofitable?

More Mining Competition Than Ever

Despite the bitcoin bear market, mining activity is stronger than ever. Bitcoin’s hash power has doubled since May, which means more and more miners are competing to generate Bitcoin blocks.

Hash rate explained: In order to generate a bitcoin block, miners compete to solve mathematical puzzles. The first to solve the puzzle with computational power generates the block and receives the bitcoin reward. The total number of attempts to solve the puzzle per second is called hash rate. The more miners working to solve the puzzle, the higher the hash rate.

The hash rate hit a record high in August. In other words, there are more miners working to generate bitcoin blocks than ever before.

bitcoin hash rate chart
Chart from: Blockchain.com

More competition means each miner requires more energy and computer power to generate a bitcoin block.

Energy Rates are Choking Mining Profits

Because miners need more and more energy to compete, electricity prices are choking their profits.

Diar estimates that anyone paying a retail energy price of $0.10 kW/h can no longer make a profit on bitcoin mining.

Add that to overhead costs such as equipment, rent, and salaries, and you begin to see why profits are declining.

It’s no surprise that 81% of bitcoin’s hashing power originates in China. That’s because energy rates are relatively lower – an average of $0.08 kW/h at retail price.

Bitcoin Mining: Dominated by “Deep Pockets”

Energy prices are even lower when bought at wholesale prices, which only large mining pools can afford to do.

In other words, the dominance in bitcoin mining will shift more and more towards big companies like Bitmain. Bitmain owns two of the largest bitcoin mining pools and commands up to 75% of the world market for mining equipment.

As you can see in the chart, bitcoin mining is already dominated by a small number of pools (Bitmain owns BTC.com and Antpool. At one point in June, Bitmain edged close to 51% of bitcoin hashrate).

bitcoin mining pools chart
Chart from: Coin.dance

With bitcoin prices in a bear market, hash rates at a record high, and fierce competition, miners are increasingly incentivized to join larger mining pools.

And here’s where it interesting. The vast majority of Bitmain’s revenue comes from selling mining equipment (95%). So it’s in Bitmain’s interest to keep bitcoin mining profitable for its miners, wherever they are in the world.

Since Bitmain can purchase cheap energy wholesale in China, where it owns 11 giant mining facilities, it can offset the more expensive mining costs in, say, the US. Bitmain can therefore lure miners to a larger pool by offering more security.

Big Companies Can Afford to Take a Short-Term Hit

The profitability issue is also linked to the fact that bitcoin is at a significantly lower price today than it was in January, offering a lower return. Companies like Bitmain can afford to play the long game, betting on higher profitability when the crypto market turns around.

By that point, Bitmain will have swallowed up more miners and increased its market share.

This all means that power, dominance, and control over bitcoin mining will shift yet further to just small group of mining pools.

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“Bitcoin is about to explode,” according to a tweet by CNBC cryptocurrency analyst and host Ran Neuner. He points to the upcoming bitcoin ETF decisions which he thinks will act as a catalyst for a new bull run. But how accurate is this prediction?

“I just bought Bitcoin for my parents. It’s too obvious that it’s about to explode…” That was the tweet from CNBC’s Ran Neuner this week.

Expanding on the statement, he said that bitcoin exchange-traded funds (ETF) will trigger the upcoming price rise:

Ran Neuner tweet bitcoin will explode

So what exactly does this mean?

Bitcoin “Futures” Triggered the 2017 Price Explosion

As Neuner writes, last year’s bitcoin price explosion was triggered by the launch of a bitcoin futures market.

The futures market allows traders to bet on the future price of bitcoin (without actually buying bitcoin itself). It was a new way of funneling big investors towards the crypto market.

And it worked. The speculation (and subsequent launch) of bitcoin futures sent bitcoin to an all-time high of $20,000.

“An ETF Is a Way Bigger Deal” Than Bitcoin Futures

Ran Neuner is absolutely correct about that.

Like the futures market, an ETF is a simple way for investors to put money into bitcoin, without buying the cryptocurrency itself.

ETFs track the price of an underlying asset, in this case, bitcoin. They trade on a public stock exchange, making it easy to buy and sell.

Crucially, ETFs are cheaper and more accessible than futures contracts. They are a phenomenally popular investment tool, making up a huge portion of institutional portfolios.

what's an ETF infographic
Credit: Stocks to Trade

The financial world has increasingly shifted towards ETFs instead of futures across the board. Pictet’s investment manager, Shaniel Ramjee explains:

“[Our] ETF usage has gone up, mostly because the cost has come down and the variety of ETFs has increased.”

ETFs are among the most widely used investment tool on the planet.

So a bitcoin ETF would allow mainstream investors and institutions to add bitcoin to their portfolios with less risk and hassle.

There’s a strong argument that “big money” would flow into bitcoin should an ETF become commercially available.

Do Bitcoin ETFs “Require Actual Purchase of BTC”?

Neuner’s second point is that bitcoin ETFs require the actual purchase of BTC, whereas futures do not.

The implication being that an ETF will directly push money into the cryptocurrency market rather than simply track its movements.

This is half-true.

Only some bitcoin ETF proposals are based on physical bitcoin. The recently rejected Van Eck ETF, for example, was a physical bitcoin product. It means Van Eck would physically buy bitcoin before pooling it to create an ETF.

Other proposals were “futures-backed.” In other words, the banks would not buy bitcoin itself. Instead, they would buy futures contracts to back the ETF.

It’s true that a physical bitcoin ETF is more likely to gain approval than a futures-based product. The Securities and Exchange Commission (SEC) has hinted that the futures market is not large or mature enough to support an ETF.

However, if and when a bitcoin ETF is approved, it remains to be seen whether it will involve the physical purchase of bitcoin.

Bitcoin ETF Deadlines Loom

The SEC has set a new deadline of October 26th for comments on nine ETFs. These ETFs were each rejected back in September. However, the SEC has changed the rules, allowing for public comments of support or opposition.

It suggests the SEC is taking these proposals seriously. But don’t take it as a hint that an ETF approval is pending.

Regulation Stands in the Way

Unfortunately, the US Securities and Exchange Commission (SEC) keeps rejecting ETF proposals.

It’s important to note that the rejections have nothing to do with bitcoin itself. instead, the SEC has an issue with:

  1. Small market size.
  2. Manipulation and fraud.
  3. High volume outside the US.

ETF Approval More Likely in 2019

Since very little has changed since the September rejections, don’t expect a miracle. The SEC is unlikely to reverse the decision in the near future.

Most in the industry expect an ETF approval in 2019 at the earliest. Ran Neuner predicts “before end Feb.”

Promising developments like Gemini’s new insurance and custodial services may take us one step closer, but this is a long game.

Will ETF Approval Trigger a Price Explosion (or Collapse)?

ETFs are coming. It may be weeks, months, or years away, but the stepping stones are in place. The approval will likely attract a new wave of “big money” to the cryptocurrency market.

However, let’s not forget what happened after bitcoin futures were finally introduced.

The market crashed.

That’s partly because bitcoin futures contracts also allowed traders to bet against bitcoin.

ETFs will allow a similar function. Traders will be able to “short” bitcoin ETFs, potentially sending the price down again.

One thing’s for sure. A bitcoin ETF will funnel enormous sums of money into the cryptocurrency market. It may trigger the next bull run, but it will also increase selling pressure.

Something to bear in mind as we edge closer to SEC approval and institutional involvement.

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bitcoin cash fork

There are lots of hard forks across the world of crypto, and even the veterans of the space can’t always keep up with the teams behind each project. While some Bitcoin forks become successful, such as Bitcoin Cash, inevitably most forks fizzle out or die.

This list is dedicated to those that never made it. These are five Bitcoin forks that failed.

For our analysis, we’ve used  this list of 34 Bitcoin Hard Forks. And while there is no scientific way to define the success or failure of a crypto project, we decided to focus on each project’s Twitter following and activity.

Why? The success of any crypto project depends on its community, and Twitter is a relatively good way to gauge the support, community, and updates around each forked coin.

We’ve checked the Twitter profiles (if any) of each project, figured out the number of followers and taken the notice on the date of the last update. The results were the following:

Project NameTwitter followersLast update
Bitcoin902,00021st September, 2018
Bitcoin Cash107,00018th September, 2018
Bitcoin Clashic2,90412th February, 2018
Bitcoin Gold74,10024th September, 2018
Bitcoin Diamond20,90021st September, 2018
United Bitcoin1,80020th September, 2018
Bitcoin Hot1,68620th August, 2018
Super Bitcoin1,44423rd September, 2018
Bitcoin X3,42717th September, 2018
Oil BitcoinAccount deletedN/A
ABitcoinAccount deletedN/A
Bitcoin World44220th July, 2018
Lightning Bitcoin4,64820th September, 2018
Bitcoin StakeNo Twitter accountN/A
BitEthereumNo Twitter accountN/A
Bitcoin Top1451st February, 2018
Bitcoin Gold3,78420th August, 2018
Bitcoin File3106th September, 2018
Bitcoin Cash Plus2,64629th April, 2018
Quantum BitcoinNo Twitter accountN/A
SegWit2x7,5655th July, 2018
Bitcoin Uranium71626th February, 2018
United Bitcoin1,79920th September, 2018
Bitcoin Pizza1,20514th January, 2018
Bitcoin AllNo Twitter accountN/A
Bitcoin Ore20731st December, 2017
Bitcoin Rhodium4,01224th September, 2018
Bitcoin SmartNo Twitter accountN/A
Bitcoin Interest4,96822nd September, 2018
Bitcoin LiteNo Twitter accountN/A
Bitcoin Atom2,64722nd September, 2018
Bitcoin Private51,70021st September, 2018
Classic BitcoinNo Twitter accountN/A
Bitcoin Lunar2316th March, 2018

(All metrics correct at 25th September, 2018).

Of course, some Bitcoin forks have no Twitter presence at all (or did something so bad that led to the termination of their social media account). For the purpose of this list, we’ve ignored those projects that failed from the start, and focused on those that worked on their project but never generated a true community.

So, five Bitcoin forks that fizzled out and died. Here goes:

Failed Bitcoin Fork #5: Bitcoin World (BTW)

bitcoin world fork logo

With 442 followers on Twitter and the last project’s update posted on the 30th of July, Bitcoin World initially aimed to create a faster, smarter, safer and more decentralized version of Bitcoin. Its main net launched on the 20th of December 2017 and BTWs were distributed to bitcoin holders in 1 BTC: 10,000 BTW ratio.

However, it didn’t go a long way. The last announcement posted by the team expressed cheerfulness about joining High-Performance Blockchain Node Election Plan. But nothing else has happened since.

Another weird claim made by the team is the disclaimer placed on the project’s website in the section related to exchanges. It says that “49 exchanges have expressed intent to support BTW, or have already implemented BTW”.

Among these exchanges are some big names like Bitfinex, Bittrex, and Bithumb. However the coin is not tradable on any of them and you can’t even clear things up by browsing Coinmarketcap, because the project is missing in the website’s database.

Failed Bitcoin Fork #4: Bitcoin Ore (BHD)

bitcoin ore fork

Bitcoin Ore has only 207 Twitter followers. The project’s mission was to make mining cheaper and less wasteful. They want to “take mining back to a time when anybody could mine.”

Some of Bitcoin Ore’s goals include:

  • Fork to take place at a block height of 501949 on the 31st of December 2017.
  • Bitcoin Ore Wallet will be temporarily released by the 15th of January 2018.
  • Proof of Capacity consensus mechanism to go online, shifting Bitcoin mining from POW to POC by the 1st of March 2018.
  • Zero-knowledge proofs added by the 8th of September 2018.
  • Dynamic checkpoint protection removed by the 8th of December 2018.

The last update about the project was posted on the 31st of December 2017 about the future fork schedule aiming to launch on 28th of January 2018. The announcement also contained the claims that several exchanges will support the fork, including zb.com, aex.com, and exx.com. However, it is not currently listed on any of them.

Another mysterious feature of Bitcoin Ore is that its website lists this Twitter account as official. The account only has 12 followers, and there’s not much to read there, just the couple of tweets. The first one was posted on the 19th of July 2018 and expressed some wild happiness about the fact that “BTCHD will be released at 3 Aug !!! it’s great!”. The last one is written in Chinese and dated by the 6th of September 2018.

Failed Bitcoin Fork #3: Bitcoin Top (BTT)

bitcoin top fork logo

Bitcoin Top has 145 Twitter followers and was last updated on the 1st of February 2018. It initially intended to lower the transaction fees of the net and decrease the cost of miners participation. Bitcoin Top also hoped to improve privacy features and speed up transaction confirmations by raising the block size limit to 8MB. It was all part of a massive on-chain scaling approach.

The fork was scheduled to happen on the 26th of December 2017 and bitcoin holders were supposed to receive one BTT per one bitcoin. It seems like the project didn’t ever take off and even updates posted before this aren’t exactly positive.

For instance, in the exchanges section of the project’s website is a list of 33 marketplaces. It includes the major players in the field like OKEX, Binance, and Huobi. But the only exchange to ever trade bitcoin top was ZBT. Currently, the crypto is still listed there with the current price of $0.34, but there is zero volume on the asset.

Another thing to mention: the last Twitter update is related to the fact the Bitgo wallet added support for BTT. Sounds like good news, but if you browse the relevant section of the Bitgo website it’s easy to notice that the Bitcoin Top is missing from the list of supported currencies.

Failed Bitcoin Fork #2: Bitcoin Lunar (BCL)

bitcoin lunar fork logo

Bitcoin Lunar has 23 followers on Twitter and last posted on the 16th of March (it was an unrelated retweet).

The project’s website is pretty much empty apart from a disclaimer:

“A new Bitcoin-friendly fork. Website and whitepaper launch spring 2018. Updates via twitter.”

Strangely, most of the project’s tweets were about the moon and related scientific findings, featuring articles from NASA and BBC.

Failed Bitcoin Fork #1: Bitcoin Uranium (BUM)

bitcoin uranium fork logo

Bitcoin Uranium (or BUM) aimed to “Make Bitcoin Great Again.” But as one Bitcointalk user put it, it became “the most hated fork of BTC.” The fork itself never actually happened.

BUM’s official websites both redirect to a suspicious (possibly malicious) website, which we shan’t link here!

The project’s last update was posted on the 26th of February and proudly says “Penis!”

¯\_(ツ)_/¯

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best cryptocurrency debit cards

With a cryptocurrency debit card, you can now walk into a store, cafe or restaurant and pay with bitcoin. It’s yet another step towards wider crypto adoption, but where should you start? Alan Wass looks at the five best crypto cards in 2018.

The rise in cryptocurrency debit cards is a true reflection of how far the crypto industry has traveled in a very short space of time. It seems like only yesterday when we had to jump through hoops just to buy bitcoin. Times have changed!

What’s a Crypto Card?

A cryptocurrency debit card allows you to spend bitcoin (or other digital currencies) as easily as you’d pay with fiat currency.

A bitcoin debit card makes the exchange from crypto to fiat for you. So you can use it at shops, ATMs and online, even if the vendor doesn’t directly accept bitcoin.

Bitcoin debit cards will help attract more mainstream consumers to crypto and bolster confidence in day-to-day blockchain technologies. If we’re to expand crypto adoption, it’s important the industry offers similar features you would find in traditional financial markets.

But before you choose the best cryptocurrency debit cards, you need to figure out which type of card suits your needs and lifestyle in the crypto-sphere.

paying at a store with bitcoin debit card app

Which Type of Cryptocurrency Debit Cards Suits You?

For example, do you want a physical crypto debit card or a virtual card? Or both? You can also opt for a pre-paid or non-pre-paid card.

Physical crypto debit card – A plastic card you keep in your wallet, just like your normal credit card (may come with an up-front fee).

Virtual debit card – Usually cheaper than a physical card and ideal for use online. A virtual card can’t be used to withdraw cash from an ATM, but may utilize an app, so you can still make payments at stores and restaurants.

Pre-paid cards – Allows you to load your cryptocurrency onto it, which will then automatically convert your crypto into fiat currencies and vice versa. Just make sure you fully understand the choices of fiat currencies available on your chosen pre-paid card because they can vary from card to card.

Non-pre-paid debit cards – These are usually linked to your online crypto wallet, which converts your bitcoin into fiat instantaneously when you make a purchase.

Cryptocurrency debit cards don’t come for free as there are usually some startup fees involved when obtaining a physical card. Prices can vary but don’t be surprised if you have to pay $50 (USD) upfront or more in some cases to initially buy the card. There may also be loading fees when you send your crypto to the card. This could be in the form of a percentage or a flat fee, so be sure to check out the type of loading fees for your chosen cryptocurrency debit cards.

Caution: always do your own due diligence when trusting a credit or debit card company. Read reviews, check which wallets are compatible, read the company’s internal policies and check out the team behind the card. The following should not be considered a recommendation, but an introduction to the most popular cards on the market.

Top Five Cryptocurrency Debit Cards

Here is our list of the top cryptocurrency debit cards in 2018 so you can compare the features, costs and loading fees.

Coinbase Shift Card

Physical card cost: $20
Loading fee: zero
Supported countries: Card available in 43 US states, spend anywhere Visa is accepted globally.

a hand holding coinbase shift bitcoin card

As Coinbase has already cemented itself as an industry-leading crypto exchange, it only makes sense that a debit card from the company would be a very trusted and reliable option.

It’s also the only card on this list available to those living in the US, due to financial regulations.

If you’re an existing Coinbase user, it’s easy. You just connect your Coinbase wallet with the Shift card.

The Coinbase ‘Shift Card’ is one of the world’s most backed cryptocurrency debit cards available across 43 states in America. With regulatory approval, this card is extremely trustworthy, allowing you to spend your bitcoin at any establishment that accepts Visa.

Although there are no monthly costs using the Coinbase Shift Card, there is an initial issuance fee of $20. There is also a flat fee of $2.50 when withdrawing at the ATM.

The best part about using this option is that payments made via the card are taken from the crypto wallet that is tethered to the Shift Card, which means you receive no fees when converting from bitcoin to fiat.

SpectroCoin Pre-Paid Card

Physical card cost: $50
Loading fee: 1%
Supported countries: Click to see if virtual and physical cards are available in your country (US not available)

Spectrocoin bitcoin debit card and app

This high quality pre-paid physical credit card is ideal if you are looking to convert your crypto into either USD or euros. If you want the plastic USD card from SpectroCoin, it will cost in the region of $50, although the virtual card for the euro costs only €9.

The card offers affordable loading fees of 1% and further charges on any purchase you make with the card. And although there are some cheaper card options out there, you can use the SpectroCoin card at any ATM around the world, which is a massive positive for the modern crypto user of today.

Wirex Visa Payment Card

Physical card cost: free
Loading fee: none
Supported countries: Not yet available in US. Physical Card available in 31 (mostly European) countries

 

green wirex bitcoin debit card, registered to Satoshi Nakamoto

If you are looking for a company that offers both physical and virtual cryptocurrency debit cards, Wirex is an inspired choice. One plus-factor is that the card is currently available for free delivery for a limited time.

The Wirex Visa Payment Card allows you to spend your crypto just like traditional money. You can instantly convert your crypto such as bitcoin, ripple, ethereum, and litecoin and use it anywhere that Visa is accepted such as in shops, restaurants, online and at ATMs. Wirex also offers a cashback feature called Cryptoback™, which gives you back 0.5% in bitcoin on every purchase you make.

Uquid Crypto Card

Physical card cost: free
Loading fee: none
Supported countries: 130 countries eligible for physical card (excludes US).

uquid bitcoin and altcoin debit card

As most cryptocurrency debit cards only convert bitcoin or just a small handful of other digital currencies, if you are looking for more altcoin conversion options, the Uquid crypto card is a dream come true. Uquid has debit card options for 90 cryptocurrencies, which really is unique and a way to simplify the spending of your altcoin portfolio.

Another massive positive is that Uquid has no loading fees with your crypto. One of the major drawbacks of this card is that you are limited to only four ATM withdrawals and six crypto purchases per day (unless you upgrade by providing more personal information).

CryptoPay Bitcoin Debit Card

Physical card cost: $15 / £15 / €15
Loading fee: 1%
Supported countries: 119 countries eligible for account (excludes US)

cryptopay bitcoin debit card on blue background

CryptoPay is a pre-paid bitcoin debit card that offers low commission fees, free worldwide delivery, and can be used where major credit cards are accepted. Both physical and virtual prepaid cards are available, although you will have to give your full identification to take advantage of all the card’s main features. Failure to provide ID will only give you limited access of the card features.

The card is available to buy at this moment in time for 15 USD/EUR/GBP respectively. There are affordable monthly fees of $1, and a 1% charge when you convert your bitcoin.

Conclusion:

Ultimately we want to spend our digital currencies as easily as we spend our traditional cash. Cryptocurrency debit cards are the first step towards wider adoption, and it’s an exciting time to be part of this monetary revolution.

This article was updated on October 11th to include information about eligible countries.

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Many years ago when I first stumbled across bitcoin, I’ll admit, I didn’t understand it. I remember reading explanations that looked like this: “Bitcoin is a decentralized, peer-to-peer, cryptographic currency, built on an immutable digital ledger called a blockchain…” I zoned out. It took me another year before I put in the time to learn how the technology worked.

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This thing is revolutionary. Not just bitcoin the cryptocurrency, but the whole ecosystem that makes it work. It could change everything.

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Block Explorer aims to bring bitcoin to the mainstream with simple, easy-to-understand guides. Absolutely Everything You Need To Know About Bitcoin is our flagship ebook, and starting point for all our crypto resources.

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