NDV Practical Insights Profit and Cost Analysis of BTC Mining Industry

NDV Analysis of BTC Mining Industry Profit and Cost

Through the analysis of the recently released S21 and S19 miners by Bitmain, we have come to the following conclusions:

1) The S21 series can be considered a blow to the S19 series and earlier miners. In the current context of cost and coin price, the operation of many mining farms is unsustainable (including a large number of listed companies). If the coin price does not significantly increase or mining farms do not upgrade their equipment, it is expected that mining farms will gradually close down, and the strongest mining merchants will remain after the reshuffle.

2) Miners will not sell BTC significantly at $26,000.

3) Considering the narrative of BTC halving in 2024 and BTC spot ETF, it is still a good time to enter BTC and BTC-related products.

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I. Analysis of Mining Company Revenue and Costs

Recently, Bitmain, the world’s largest Bitcoin miner manufacturer, released its latest S21 series miners, which have reached the peak of existing miners in terms of hashrate and power consumption. What impact will this have on the mining industry? This article will introduce the basic profit logic of mining from the perspectives of revenue and costs.

1. Calculation method of mining revenue

Before calculating mining revenue, you need to understand several concepts: difficulty, hashrate, block reward, and 24h estimated mining revenue.

Difficulty: Simply put, mining difficulty is the level of difficulty in finding a valid new block. It is generally measured by hashrate. The difficulty of the entire Bitcoin network adjusts every 2016 blocks (dynamically adjusted based on the previous period’s network hashrate) to maintain a block time of around 10 minutes. Bitcoin generates approximately 1 block every 10 minutes (600 seconds), 144 blocks per day, so 2016/144=14 days, meaning that difficulty adjusts every 14 days. With a difficulty of 1 H/s, theoretically, you only need to calculate 2^32 hash collisions to mine a block. As of the time of writing, the mining difficulty of the entire network is 57.12T (57,119,871,304,635H).

Hashrate: It refers to the number of times the miner performs hash calculations on related mining data according to the hashing algorithm within a unit of time. The higher the hashrate, the higher the number of hash calculations performed per unit of time, and the more likely to mine a block. Conversion of hashrate units: 1 H/s = 1 hash collision per second, 1 EH/s = 1,000,000,000,000,000,000 hash collisions per second.

Block reward: It refers to the encrypted asset reward given by the blockchain to the miner who mines a new block. It is the main source of income for miners. The current block reward is 6.25 BTC. The next halving cycle for BTC is around May 2024, and the block reward will be reduced to 3.125 BTC after the halving.

24h estimated mining revenue: The number of BTC that a miner can theoretically mine in a day. This value does not consider the impact of luck and other factors and is a theoretical value. It is also the most important indicator for evaluating mining revenue.

When the mining difficulty is D, it requires (D×232) hash calculations to mine a valid new block and receive R BTC as a block reward. If the miner’s hash power is H, then the time required to complete (D×232) hash calculations is (D×232)/H seconds.

In theory, the miner’s mining income per second is P = R*H/(D×232). In a day of 24 hours, there are a total of 24×60×60 seconds, so the estimated daily mining income for BTC is:

P = 24×60×60×R×H/(D×232)

For example, for an S21 mining machine with a hash power of 200T, at the current mining difficulty of 57,119,871,304,635H, and a block reward of 6.25BTC, the daily mining income is:

24×60×60×6.25×200×1,000,000,000,000/(57,119,871,304,635×232) = 0.00044023BTC

Based on the current price of BTC at $28,000, the daily income per S21 mining machine is $12.33.

After understanding how mining income is calculated, let’s take a look at the mining costs of mainstream mining machines.

2. Mining Costs of Mining Machines

The main costs of mining are electricity costs and mining machine costs.

Electricity costs: According to the global distribution of hash power, the United States has the largest Bitcoin mining industry in the world, accounting for more than 38% of the total network hash rate. The New York Times has compiled statistics on 34 large mining farms in the United States, with the most farms located in Texas, New York, and Georgia. According to data provided by the Energy Information Administration, the average electricity price in these three states since 2020 is $0.0659/Kwh.

Figure 1 Distribution of large Bitcoin mining farms in the United States

Mining machines: The top three mining machine manufacturers on the market are Bitmain, MicroBT, and Canaan. Among them, Bitmain’s newly launched S21 series mining machines have reached the pinnacle of energy efficiency, with an energy efficiency ratio of 17.5J/T, and S21 Hyd even lower at 16 J/T. The lower the energy efficiency ratio, the lower the power consumption for the same hash power, and the lower the electricity cost. Before the launch of the S21 series, the mainstream mining machines on the market were mainly the S19 series. So next, let’s compare the mining costs of the S21 series and the S19 series.

2. Analysis of Typical Mining Machine Costs

When calculating costs, in addition to electricity costs, we also need to allocate the mining machine costs. Based on the financial reports of large mining companies such as Marathon and Riot, mining machines are generally amortized over 5 years.

After amortizing the mining machines, we can obtain the mining costs for each model:

Figure 2 Mining costs of S21 and S19 series mining machines

From the above figure, we can see that the S21 mining machine has an absolute advantage over the S19 series. Assuming the difficulty remains unchanged, the cost before halving is between 16,000 and 26,000, and the cost doubles after halving. Electricity cost is the main cost in operation, and when the coin price is lower than the electricity cost, the operation of the mining farm is difficult to sustain; when the coin price is lower than the total cost, mining is a loss-making business.

It should be noted that mining difficulty has been growing exponentially over the past decade, and the arms race among miners has intensified. It can be said that mining is a very harsh industry. Therefore, with the increase in mining difficulty, the cost of each BTC should be higher than the calculation result in the above figure.

Figure 3 BTC mining difficulty curve

Since the S19 series is the current mainstream mining machine in operation, it is not difficult to speculate that even with gas income added, the high mining cost and sluggish BTC price will still put considerable pressure on miners. After halving, if the coin price does not rise significantly, miners who do not upgrade their equipment will find it difficult to continue.

The above is our introduction to BTC mining income. If you want to learn more about cryptocurrencies or are interested in mining farms, mining pools, and mining machine manufacturers, please continue to follow our official account. We will provide you with more relevant content and information in the future. Writing is not easy, and your likes, reading, and sharing are the driving force behind our continuous free updates.

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