Crypto mining equipment makers created improved machines, giving solo miners a chance to solve blocks or share rewards with larger mining pools. Technical innovations have turned the tide for Bitcoin mining. Let’s step back and look into the industry that spawned the cryptocurrency economy and its ramifications.
What is Cryptocurrency Mining?
Cryptocurrency mining is the process of performing so-called proof of work, using high-level computing power to provide cryptographic security and process transactions. Miners competing with more computational power also make the network more secure since no single miner can control cryptocurrency transactions or alter the state of the network.
Bitcoin mining is a highly competitive operation that combines several factors to be successful. Miners face the challenge of local regulations, as well as the technicalities of securing the right mining hardware. Big mining operations usually have the foresight to secure electricity contracts at a low price, as well as reliable spots for their data centers.
Crypto mining operations have grown over the past few years, competing with large-scale corporate players. Some mining pools are even ready to absorb losses while still fighting for block rewards and transaction fees. Miners also often retain their proceeds for a longer time frame, benefitting from BTC appreciation. Bitcoin mining opportunities and limitations are shifting for all participants.
Taking up crypto mining privately after over 13 years of Bitcoin history is a matter of calculating costs versus benefits. Mining Bitcoin is extremely competitive and requires investment in specialized hardware. Bitcoin miners can still choose to run a solo operation and absorb all computing costs. They often join one of the leading mining pools to earn a proportional share of the block reward.
Read: Bitcoin and gold line up as top outperformers in 2024
How Bitcoin Mining Works
The Mining Process
Bitcoin mining is, at its heart, energy-intensive number generation, where each output is tested against a predetermined value. It involves generating random numbers and then testing each of those numbers against the target value.
To mine Bitcoin also means to discover the alpha-numeric string to satisfy that value is the new block header. The header is a number that cannot be easily faked, and contains within it the hash of the previous block header. This process ensures blockchain security.
Each new block secures the Bitcoin network by making the previous block immutable. Any changes to the contents of the previous block will not produce the same header number and will reveal the tampering. Block production is thus the real proof of the immutable distributed ledger.
Miners produce block headers, which undergo additional cryptographic operations to produce the next block header. This process ensures that all transactions included in a block cannot be changed without leaving undeniable digital evidence. The Bitcoin mining process ensures the blockchain is protected against brute-force attacks and is the central tenet of building a secure digital currency.
As a reward for the energy—and computation-intensive task, miners receive a payout for each block. Rewards fall over time until they reach the targeted 21M BTC supply. Bitcoin has already gone through four halvings, cutting the reward from 50 BTC to 3.125 BTC per block.
Each block may also contain fees, which are also shared with miners. Fees have no predetermined level and grow during times of high network overload. Fees have grown up to 70% of the block reward and, in the future, may be the only payout for miners.
Mining is also a mix of power and luck, as some miners may produce the required number earlier. Every few months, a solo miner produces a block, taking the whole reward, where even the biggest pools do not succeed.
Profitability depends on the mining difficulty level
Miners have to compete at a predetermined metric of difficulty. A higher mining difficulty means the required block header is harder to discover. Difficulty is the metric that depends on available hashing power and adapts to the number of miners. Over time, Bitcoin miners pushed the hashrate to a record level.
The Bitcoin hashrate is near peak levels at 700 EH/s. | Source: Bitinfo
The Bitcoin network matches its difficulty to currently active miners and their hashrate. Whether it’s just Satoshi Nakamoto on one computer or millions of rigs around the world, it always takes 10 minutes to find a Bitcoin block header. Thus, if miners point more machines at the problem, the Bitcoin algorithm will just give them a more difficult problem, so it will take the same 10 minutes to solve.
Bitcoin mining requires the SHA-256 algorithm, which is one of the most widely used encryption tools. The cryptographic algorithm also defines the need for powerful mining rigs to create unbreakable cryptographic protection for each block.
SHA-256 chains cannot be brute-forced. Several coins use a similar mining approach, while other assets like Litecoin require Scrypt mining. Each mining algorithm requires specialized mining equipment with the right firmware to produce blocks in the most power-efficient way possible.
Miners also have another task – to keep track of the blockchain record and verify transactions, broadcasting them to other node operators. The presence of miners is easily visualized through the Bitnodes service, revealing the geographic distribution of Bitcoin’s network and the addition of new nodes.
Bitcoin nodes are distributed worldwide, though some use cloud services. | Source: Bitnodes
Node propagation is not rewarded, but requires some additional resources. The Bitcoin blockchain in its unpruned state is more than 200 GB. Running a node while mining requires additional RAM or even an SSD for higher speed. Storing a partial or pruned copy of the Bitcoin blockchain may require only 20GB in extra space.
Mining Hardware and Software
Mining rigs specialize in producing and testing potential block headers at a great speed. They can do that energy-efficiently but cannot discover an indefinite number of blocks. The goal is to produce a block just 10 minutes apart, on average. If the time between blocks starts to shorten, the Bitcoin algorithm will require a block header that is more difficult to discover. If time between blocks increases, the difficulty will drop.
Buying a mining rig can be a major upfront investment, and the cost of acquiring the hardware must be compared to just buying BTC on the open market. Mining rigs also move through market cycles, with the latest models commanding the highest rates.
Bitmain is still the biggest producer of mining machines and side equipment. The Antminer series always introduces new versions, usually launching at presale prices. As of September 2024, Bitmain’s S21 XP model retailed at $8,289 per unit or $5,800 with a discount. Buying the model would also require some upfront purchases of crypto coins, as Bitmain sells its machines for BTC, ETH, or USDT.
Antminer S21 Pro is the most powerful SHA-256 machine on the market and the only one competitive enough to be profitable. | Source: Bitmain
Having the newest mining rig is also no guarantee of receiving higher block rewards. By the time mining hardware hits the open market for small-scale crypto miners, large pools or even the producer Bitmain has used the model to front-run others. Additionally, even a high-capacity model can vary in their day to day revenue and profit.
Despite this, a new buyer can rationally decide based on currently available hardware and its comparative profitability. The best approach is to compare hardware through the Hashrate Index tool, choosing the best combination of upfront cost and profit margin.
Bitmain S21 XP, the latest ASIC machine, has varied revenues and profits depending on market conditions. | Source: Hashrate Index
Mining software for rig owners is simply a self-custodial wallet. Miners must always keep their private phrase well-protected. Mining hardware for cloud mining is not necessary, and may not be profitable. Mining rigs will also perform based on their latest firmware version from Bitmain, which is a key part of their efficiency profile. Owning a mining rig means also tracking firmware upgrades.
Choosing a mining solution may also involve some form of cooling or air circulation, especially if using more than one machine. Energy efficiency is also key to lowering mining costs.
Is Bitcoin mining still profitable?
Bitcoin’s network went through three halvings, cutting the block reward to 25 BTC, then to 12.5, 6.25 and 3.125 BTC. At the same time, the price of BTC continued to grow, allowing miners to cover costs and retain reserves. Crypto mining is only profitable after selling the rewards, otherwise the earnings from Bitcoin mining work are hypothetical. Crypto miners compete not only to discover blocks, but also to sell their coins at a favorable price.
Bitcoin miner reserves inched down, but are still close to 2M coins. | Source: Tradingview
Bitcoin solo mining is still possible, though not viable. A miner with a handful of machines has a better chance of sharing the block reward as part of a mining pool. Despite this, solo miners with sufficient hashing power solve a block every few months and retain the whole block reward. However, mining with a pool may offer more regular rewards, with the ability to sell and cover upfront and operating costs.
Mining profitability can be re-calculated periodically, to avoid mining during less profitable conditions. In the long term, Bitcoin profitability falls with each halving, but there are days or weeks where miners receive slightly higher rewards. If the profitability falls too much, some mining operations will shut down temporarily, until the difficulty metric turns more favorable.
The other factor for miners is their ability to hold onto the coins earned. In the long run, mining operations that were not profitable even at $6,000 ended up holding a reserve of coins. As of 2024, miner reserves remain close to 2M coins.
Miners in 2024 have an estimated cost basis between $43,000 and $75,000. The cost basis of mining one BTC varies for each operation and has risen significantly after the halving. The reason for that is that miners use the same or bigger hashing power only to produce 50% of the daily BTC.
Best mining pools to join
The landscape of mining pools will change in 2024. More than 40% of blocks solved will go to miners based in the USA. China is still a mining powerhouse, but it has lost its primacy as investments and technology shift to US-based operations.
Larger pools have a bigger chance to solve a block, but split the reward between a larger number of miners. | Hashrate Index
Mining pools show their track record of producing a share of the blocks on a daily or weekly basis. Top pools have the biggest share of the block, but they also share it with the widest circle of participants. A mining pool can combine computing power from both small-scale miners and big facilities, with no limits to geographic distribution.
The payout from pools varies according to periods and depends on how many miners have joined, how many blocks have been solved, and the pool’s payout policy. Almost all large pools can offer rewards over time.
The top five pools based on blocks solved are Foundry USA, F2Pool, Antpool, ViaBTC, and Binance Pool. Smaller pools solve blocks much more rarely.
Each pool also charges a withdrawal fee, ranging from 0% to 4%. Some pools offer additional services, such as multi-coin mining or savings plans. ViaBTC has automated withdrawals through CoinEx.
The main thing is to pick a pool that doesn’t have simulated mining or require upfront investments or additional payments. Some forms of mining may be non-viable and are in fact not real mining, but a simulation.
Solo mining is not viable at this point, except for large mining operations that also function as a pool. A solo miner, even with powerful rigs, can hope to solve a block once every few months.
Choosing the right mining hardware
Mining hardware or a mining rig is also known as ASIC, short for Application-Specific Integrated Circuit. The chips are tailored to solving specific hashing tasks for only one type of cryptographic algorithm. Blockchain technology can also use a graphics processing unit (GPU), but those are tailored to different cryptographic algorithms and other types of coins.
ASIC machines get rebuilt for efficiency every few years. The newer models often have dramatically higher daily earnings and are more efficient and competitive. The potential earnings of each rig depend on the market price of BTC.
S21 can mine Bitcoin, but also other SHA-256 algorithm coins like Bitcoin Cash and Peercoin. | Source: Bitmain
The profitability of general mining also depends on electricity costs and the ASIC hashrate. As usual, mining is not always viable and machines may be shut down during periods of unfavorable difficulty and increased competition.
Hardware is the biggest initial outlay, which can determine whether the investment in mining is viable. Even during profitable times, a small-scale miner will have to cover the upfront cost of the rig first.
One good metric for mining viability is the time period to pay down the initial investment. All initial investments in mining can be checked for ‘days to payback’, keeping in mind that electricity and other costs must also be covered even before the first Satoshi is mined.
Mining operations are becoming more competitive
Mining operations are in no danger of a capitulation event. The Bitcoin hashrate, an indicator of mining activity, constantly prints all-time highs. Mining operations may have a thin profit margin, but instead of giving up, miners are actually doubling down.
The highly competitive conditions mean a single miner will have to hope for a small share of the total rewards. While mining may be viable for small sums of money, the bottom line may not always work out. Mining does not mathematically guarantee rewards and may take time before offsetting the investment in a top-grade mining rig.
Mining operations are heavily subsidized and paid with outsized earnings. The constant addition of new mining facilities with high-powered machines may make small-scale operations less viable.
ASIC producers are also trying to retain viability, achieving more efficient hashing operations with lower power requirements. However, small-scale miners are fighting for small and diminishing profit margins. While big pools or Bitcoin mining operations can absorb some of the extra expenses, for a one-machine miner, the expenses may easily surpass all potential gains.
High energy consumption and carbon footprint
Mining Bitcoin has an estimated electricity usage of 91 TW/h, roughly the energy consumption of Finland. By 2027, the IMF estimates mining will make up 2% of global electricity use and 1% of global carbon dioxide emissions. Bitcoin mining has expanded its energy consumption 10 times since 2018, ranging between 110 and 172 TW/h for Q4, 2024.
Bitcoin energy consumption expanded again during the 2023 market recovery. | Source: Digiconomist
Bitcoin mining has slowed down during bear markets, but has not shown signs of capitulation. Rising local and domestic electricity costs, without alternative sources, may make personal mining operations less viable, but big companies can still absorb the costs.
Bitcoin mining legal limitations can also stall the work of both big operations and individual miners. Local laws on domestic electricity usage may ban mining cryptocurrency.
Miners can still choose to mine Bitcoin, which is still accessible to small-scale miners. However, bottom-line profitability may vary widely, and new mining equipment may not pay for itself for months or even years. Yet mining remains a popular tool for acquiring new bitcoins, with sufficient resources and technology available to start from zero.
Also Read: Bitcoin price prediction 2024-2030: Will BTC price surpass $100K post-halving?
Bitcoin mining is still growing to record levels, and is even more competitive. Starting a mining operation is a matter of calculating relatively thin profit margins, while navigating the landscape for new specialized mining equipment.
Amazon’s journey from a modest online bookstore to the world’s largest online retailer is a narrative of innovation, disruption, and relentless ambition. Today, Amazon dominates the e-commerce landscape, setting the standard for online shopping with its vast product selection, lightning-fast delivery, and customer-centric approach. This article explores the evolution of Amazon’s leadership in online shopping, examining the key strategies, innovations, and challenges that have shaped its rise to the top.
The Early Days: From Bookstore to Everything Store
Amazon was founded by Jeff Bezos in 1994 as an online bookstore, capitalizing on the internet’s potential to reach a global audience. The decision to start with books was strategic; books were easy to ship, did not require much storage space, and had a universal appeal. From the beginning, Bezos envisioned Amazon as more than just a bookstore. His long-term goal was to create the “everything store,” a one-stop-shop where customers could find and purchase anything they needed online.
The initial success of Amazon was driven by its innovative approach to e-commerce. While traditional bookstores were limited by physical space, Amazon offered an extensive catalog of books that was virtually limitless. The company’s early focus on customer satisfaction, with features like customer reviews, personalized recommendations, and a user-friendly interface, set it apart from competitors.
By 1997, Amazon had gone public, and its rapid growth continued. The company began to expand its product offerings beyond books, gradually adding categories like music, electronics, and toys. This diversification was essential to Amazon’s strategy of becoming the go-to online retailer for all consumer needs. The company’s ability to offer a wide range of products, combined with its commitment to customer service, established it as a leader in online shopping.
Innovation and Expansion: The Prime Revolution
One of the most significant milestones in Amazon’s evolution was the launch of Amazon Prime in 2005. For an annual fee, Prime members received free two-day shipping on eligible purchases, a proposition that was revolutionary at the time. The introduction of Prime was a game-changer, transforming customer expectations and further solidifying Amazon’s leadership in online shopping.
Prime was more than just a shipping service; it was a strategic move to create customer loyalty. The subscription model incentivized customers to make Amazon their default shopping destination, as the more they used Prime, the more value they received. Over time, Amazon expanded the benefits of Prime to include streaming video and music, exclusive deals, and other perks, making it an indispensable service for millions of customers.
The success of Prime can be measured by its membership numbers, which have grown exponentially over the years. As of 2024, Amazon Prime has over 200 million members worldwide, a testament to the value it offers. The Prime membership model has been so successful that it has influenced the broader retail industry, with many competitors launching their own subscription services in response.
The Technology Edge: Fulfillment and Logistics
Amazon’s dominance in online shopping is not just a result of its vast product selection and customer-centric approach; it is also rooted in its technological prowess. The company has invested heavily in building a state-of-the-art fulfillment and logistics network, which has been a critical factor in its ability to offer fast, reliable delivery to customers.
Amazon’s fulfillment centers, which are strategically located around the world, are marvels of automation and efficiency. These facilities use advanced robotics, artificial intelligence, and data analytics to manage inventory, process orders, and ship products with unparalleled speed. The company’s ability to deliver products quickly and accurately is a key reason why customers choose Amazon over other online retailers.
In addition to its fulfillment centers, Amazon has developed a vast logistics network that includes its own fleet of planes, trucks, and delivery vehicles. The company’s investment in logistics has allowed it to reduce its reliance on third-party carriers like UPS and FedEx, giving it greater control over the delivery process. This vertical integration has enabled Amazon to offer services like same-day and next-day delivery, further enhancing its competitive advantage.
Moreover, Amazon’s logistics innovations extend beyond its own operations. The company’s delivery service partner (DSP) program has created opportunities for small businesses to operate delivery routes for Amazon, while its crowd-sourced delivery platform, Amazon Flex, allows individuals to deliver packages using their own vehicles. These initiatives have expanded Amazon’s delivery capacity and ensured that it can meet the growing demand for fast shipping.
Expanding the Ecosystem: Marketplace and AWS
Another key component of Amazon’s success in online shopping is its ability to create a comprehensive ecosystem that extends beyond retail. The Amazon Marketplace, launched in 2000, has been instrumental in expanding the company’s product selection and driving revenue growth. The Marketplace allows third-party sellers to list their products on Amazon’s platform, giving customers access to a wider range of goods and enabling Amazon to earn a commission on each sale.
The success of the Marketplace has been staggering. Today, over half of the products sold on Amazon are from third-party sellers, many of whom are small and medium-sized businesses. The Marketplace has also been a critical factor in Amazon’s global expansion, as it allows sellers from around the world to reach customers in different markets without the need for a physical presence.
In addition to the Marketplace, Amazon Web Services (AWS) has played a crucial role in the company’s growth and profitability. Launched in 2006, AWS offers cloud computing services to businesses, allowing them to store data, run applications, and scale their operations with ease. AWS has become the backbone of the internet, powering everything from startups to large enterprises. The revenue generated by AWS has given Amazon the financial flexibility to invest heavily in its retail operations, including its logistics network, Prime, and original content for Prime Video.
Challenges and Criticisms
While Amazon’s leadership in online shopping is undeniable, it has not been without challenges and criticisms. The company’s dominance has raised concerns about its impact on competition, with critics arguing that Amazon’s scale and market power give it an unfair advantage over smaller retailers. There have also been concerns about the treatment of workers in Amazon’s fulfillment centers, with reports of grueling conditions and low wages sparking public outcry and calls for better labor practices.
Amazon has also faced scrutiny over its impact on the environment. The company’s rapid delivery services, which require a vast logistics network, contribute to carbon emissions and environmental degradation. In response, Amazon has pledged to achieve net-zero carbon emissions by 2040 and has invested in renewable energy and electric vehicles to reduce its environmental footprint.
Despite these challenges, Amazon continues to grow and innovate, constantly pushing the boundaries of what is possible in online shopping. The company’s ability to adapt to changing consumer preferences, invest in technology, and create a seamless shopping experience has ensured its position as the leader in e-commerce.
The Future of Amazon in Online Shopping
As Amazon looks to the future, it faces both opportunities and challenges. The rise of new technologies like artificial intelligence, machine learning, and automation will continue to shape the e-commerce landscape, and Amazon is well-positioned to leverage these innovations to enhance its operations and customer experience.
The company is also likely to continue expanding its ecosystem, integrating its retail operations with other services like AWS, Prime Video, and Alexa. This integration will further entrench Amazon in the daily lives of consumers, making it even more difficult for competitors to challenge its dominance.
In conclusion, Amazon’s leadership in online shopping is the result of a relentless focus on customer satisfaction, innovation, and scale. From its early days as an online bookstore to its current status as a global e-commerce giant, Amazon has consistently pushed the boundaries of what is possible in retail. As the company continues to evolve, it will undoubtedly remain a dominant force in the world of online shopping, shaping the future of commerce for years to come.
