What it means
Miners repeatedly guess at a mathematical puzzle attached to a block of transactions, and the first to find a valid answer broadcasts the block to the network and collects the reward. The puzzle has no shortcut, so the chance of winning is simply your share of the total computing power, measured in hashes per second.
The economics are those of a commodity producer rather than a technology company. Revenue depends on the Bitcoin price and on your share of the network, while cost is dominated by electricity, so miners chase the cheapest power they can find and treat power price per kilowatt hour as their key operating metric.
Two mechanisms make the business unusually cyclical. The network adjusts the puzzle difficulty roughly every two weeks so that blocks keep arriving about every ten minutes, and the block reward halves roughly every four years, which cuts issuance revenue overnight without any change in costs.
Accounting for mining is not fully settled, but the common approach is to recognise mined coins as revenue at the market value on the day they are received, then carry them as intangible assets. Under many frameworks those assets can be written down when the price falls but not written back up, which produces reported losses that look worse than the cash position.
The main risks are concentrated and hard to hedge. A miner is long the Bitcoin price, short electricity, and holds rapidly depreciating machines, so a price fall combined with a power price rise can push a whole fleet below cash breakeven within weeks.
In practice
Real-world examples.
Example
A listed mining company sells forward part of its expected monthly production to lock in revenue and cover its power contract. The hedge caps the upside if Bitcoin rallies, but it keeps the business solvent through a flat market. Lenders require the hedge as a condition of the equipment finance.
Example
An oil producer uses gas that would otherwise be flared to run generators powering a container of mining machines at the wellhead. The effective power cost is close to zero, which makes the site profitable even when larger miners are shutting down.
Example
A data centre operator signs a demand-response agreement with its grid, switching off its machines within seconds when the network is stressed. The payments for that flexibility now contribute a meaningful share of site earnings alongside the mining revenue itself.
Formula
Calculation
Expected daily revenue = (your hashrate / network hashrate) x blocks per day x block reward x Bitcoin price. Daily power cost = power draw in kilowatts x 24 x price per kilowatt hour.
Worked example: a small operator runs 10 machines, each producing 100 terahashes per second and drawing 3 kilowatts, so the fleet is 1,000 terahashes per second and 30 kilowatts. The network runs at 500 exahashes per second, which is 500,000,000 terahashes per second. Bitcoin trades at $60,000, the block reward is 3.125 coins and the network produces 144 blocks a day.
Network issuance per day = 144 x 3.125 = 450 Bitcoin
Operator's share = 1,000 / 500,000,000 = 0.000002, so expected daily output = 450 x 0.000002 = 0.0009 Bitcoin
Daily revenue = 0.0009 x $60,000 = $54.00
Daily power use = 30 kW x 24 hours = 720 kilowatt hours; at $0.04 per kilowatt hour that is $28.80
Daily gross profit = $54.00 - $28.80 = $25.20, or $9,198 a year
At a hardware cost of $25,000 for the fleet, simple payback is $25,000 / $9,198 = about 2.7 years. Breakeven power price is $54.00 / 720 = $0.075 per kilowatt hour, above which the fleet loses money every day it runs.Case study
Seen in the real world.
Cinderhill Digital is a fictional operator used here purely as an illustrative example. It runs 500 machines at a leased site, each producing 100 terahashes per second and drawing 3 kilowatts, giving 50,000 terahashes per second of capacity against a network total of 500,000,000.
At a Bitcoin price of $60,000 and a block reward of 3.125 coins, Cinderhill expects 450 x 0.0001 = 0.045 Bitcoin a day, worth $2,700. Its 1,500 kilowatts running flat out use 36,000 kilowatt hours a day, costing $1,440 at $0.04 per kilowatt hour, leaving $1,260 a day of gross profit before rent, staff and depreciation.
The illustrative twist is the next halving. With the block reward cut in half and no change in price, hashrate or power cost, daily revenue drops to $1,350 against the same $1,440 power bill, turning a healthy margin into a loss of $90 a day. Cinderhill's board therefore had to renegotiate its power tariff and replace machines well before the halving arrived, not after it.
Watch out
Common mistakes.
- Modelling revenue from today's Bitcoin price and network hashrate as though both will stay flat, when rising network hashrate steadily dilutes any fixed fleet.
- Ignoring the halving in a business plan that runs beyond the next scheduled reward reduction.
- Treating mined coins as pure profit and forgetting that machines depreciate quickly and may be near worthless within a few years.
Questions
People also ask.
Does mining create money out of nothing?
No, it converts electricity, hardware and capital into coins, and the total that can ever be issued is capped by the protocol.
Why does the difficulty change?
The network automatically adjusts the puzzle so that blocks keep appearing at roughly the same rate no matter how much computing power joins or leaves.
Is mining still viable for individuals?
Rarely on its own, because industrial sites with cheap power dominate, so small operators generally join a pool that shares rewards in proportion to contributed hashrate.
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