• The Block Reward and Transaction Fees
• Miner Revenue
• The Impact of ASIC Costs
• Opportunity Cost
• Other Upfront Costs
• Potential Upsides of Mining at Home
• Conclusion

Originally published at Medium on January 11, 2023

This article is intended for bitcoiners who are considering mining at home and includes information about the economics of bitcoin mining, historical bitcoin revenues for three recent generations of ASICs and some of the hidden costs and upsides of mining that aren’t often discussed. The bitcoin mining cost and revenue comparisons provided are presented in bitcoin terms in order to calculate the difference between mining at home and simply buying bitcoin with the money that would be spent on ASICs and electricity. This will hopefully provide more signal when it comes to the real costs and revenues of at-home mining for bitcoiners who are focused on stacking sats as opposed to making fiat gains.

§The Block Reward and Transaction Fees

Bitcoin miners provide security for the Bitcoin network using a proof-of-work process that confirms and provides final settlement of Bitcoin transactions. Bitcoin miners are currently compensated for their security and transaction processing services from two separate funding sources, 1) the block reward subsidy and 2) bitcoin transaction fees.

The block reward is the distribution mechanism for the complete quantity of 21M bitcoin and will not be exhausted until block height 6,930,000 (currently on track for July of 2138). The block reward is cut in half every 210,000 blocks (~ 4 years) and as such, Bitcoin’s rate of inflation declines exponentially following a fixed and predictable schedule and is currently at a modest 1.7% annual inflation rate.

The term “inflation” seems to have grown to include an extremely wide range of potential definitions as it becomes more relevant in politics and the media. Therefore, although it should be obvious, the rate of inflation referred to here is simply the inflation of the total circulating supply of bitcoin. The total number of bitcoin in circulation is increased approximately every 10 minutes via the block reward subsidy. As many bitcoiners have already learned, increasing the supply of a currency debases, or devalues, the currency and bitcoin is no exception.

As with all currencies, inflation of the total circulating supply of bitcoin is also a form of taxation that is imposed on all bitcoin holders. This means that in the early days of Bitcoin, while the block subsidy is still greater than the transaction fees, bitcoin holders are mostly paying for Bitcoin’s security via currency debasement. In the future, Bitcoin users (specifically Layer 1 on-chain transactors) will be responsible for funding that service via transaction fees. As a point of reference, “in 2022 transaction fees averaged only about 1.5% of miner revenues.”

Unlike inflation of fiat or physical commodity money, inflation of Bitcoin’s supply has complete consensus. Bitcoin’s inflation schedule is well known, can be verified, and has not changed since Satoshi mined the genesis block. In agreeing with Bitcoin’s supply schedule, every user of Bitcoin is agreeing to the rate at which Bitcoin is being debased, the final terminal supply of bitcoin, and perhaps most importantly, the process for determining the recipients of the added money supply (i.e., miners).

Thus, Bitcoin is perhaps the only example where taxation via inflation is not a form of theft. The difference, as a libertarian would put it, is consent. There is complete consensus among all users of Bitcoin that its inflation rate schedule is important to fairly distribute the total supply, protect the network, and incentivize miners to process transactions until transaction fees alone can support this function.

Because bitcoin transaction fees are determined as part of an open, free market, the market will inevitably normalize to a fee level that is deemed acceptable by market participants. As the block subsidy continues to shrink, the transaction fee market will eventually need to price in the cost of security and transaction processing which is currently largely covered by the issuance of new bitcoin. This article will not speculate in detail on the future of the transaction fee market; however, if you are interested in learning more, this recent report from Joe Burnett and Pierre Rochard that discusses the future of bitcoin transaction fees, is highly recommended.

§Miner Revenue

As stated in the opening, mining revenues presented in this article will be provided exclusively in bitcoin terms. As such, fiat conversion rates will be used to convert all costs that are likely to be incurred in fiat (i.e., purchasing ASICs and paying for electricity) such that all costs and revenues can be compared in bitcoin terms.

Figure 1 shows actual miner revenues (block reward + transaction fees) on a per kwh basis for three different generations of miners as defined by their efficiency. Miner efficiency can be calculated as its power in Watts (1 W = 1 J/s) divided by its hashrate in TH/s, resulting in an efficiency metric with units of J/TH. It should also be noted that in generating this figure a couple of key assumptions are made.

First, no ASIC down time is included (i.e., 100% capacity factor). Although zero down time is unrealistic, home miners can generally have very high capacity factors given they are likely pulling from a stable grid and, if they are located inside, they will be protected from large fluctuations in temperature that can cause down time.

Second, zero mining pool fees are included. This is a reasonable assumption if you are using the Braiins OS+ firmware and you direct your hashrate to the Braiins Mining Pool (which is recommended if their firmware is available for your miner).

The three miner efficiencies shown in Figure 1 are representative of three popular ASIC models, the Bitmain Antminer S9, S17, and S19, but generally apply to those three generations of miners. The black line on this figure shows a fixed, representative residential electricity rate of $0.1/kwh that is converted to sats/kwh. As shown above, the S9 generation of miners (98 J/TH) have crossed from profitable to unprofitable several times since 2017 and today are extremely unprofitable in bitcoin terms. It also shows that the S19 generation (29.5 J/TH) has just recently become unprofitable for the first time.

Figure 1 shows that because transaction fees are still a small fraction of the block subsidy, miner revenues (in sats) are primarily driven by the network difficulty. When viewed in bitcoin terms, it’s the electricity price that fluctuates with the bitcoin-fiat conversion rate as opposed to miner revenues. Therefore, bear markets in bitcoin’s price are shown as periods of increasing electricity costs, when measured in sats/kwh.

The bitcoin mining industry can be thought of as a form of electricity price arbitrage against the value of the Bitcoin security budget (i.e., block reward + transaction fees). This is well articulated in a report published by Blockware Solutions and summarized by Joe Burnett in a recent tweet.

Bitcoin mining is a cyclical business. If the chart in Figure 1 looks bearish, it’s because we are currently in the midst of the longest ever Bitcoin bear market which came on the heels of the largest ever boom in capital allocation to bitcoin mining. The bitcoin mining industry, in its current state, has essentially fully closed the electricity price arbitrage gap for most miners, and has even overshot a bit, opening up a reverse arbitrage opportunity. In the reverse arbitrage, bitcoin miners are incentivized to stack sats rather than stack ASICs. This is highlighted by what we are seeing play out as mining giant Marathon Patent Group recently announced that it purchased 4,813 bitcoin for its treasury. As will be covered in the next sections, the reverse arbitrage play looks even better when you factor in the cost of ASICs and the opportunity cost of not simply buying bitcoin.

While it’s no secret that we are in a challenging period for bitcoin miners today, similar to the transaction fee market, bitcoin mining also exists in an open, free market. This means that creative destruction in the mining industry (i.e., ASICs flowing to the lowest cost electricity and highest efficiency miners) combined with the impact of the reverse arbitrage opportunity (i.e., investments flowing into bitcoin rather than ASICs) will eventually result in positive miner profitability once again.

§The Impact of ASIC Costs

The figure discussed above is a reasonable illustration of the profitability of ASICs that have already been purchased. However, Figure 1 does not account for the cost of the ASICs, which generally decline in value over time (in both fiat and bitcoin terms). The machines themselves will degrade somewhat (fans, boards, connectors, etc.) however, the primary driver for ASIC devaluation is the continual growth of the Bitcoin network hashrate, which drives difficulty higher and lowers their profitability over time.

Miner depreciation cost is something that is often overlooked by people outside of the bitcoin mining industry. There is a general perception that as long as an ASIC is generating more revenue than its electricity costs, then it must be cheaper to acquire bitcoin by mining it than it is by simply buying it. Following this logic when electricity is free, bitcoin mining will be profitable forever, right? Well, not exactly. Technically, miner profitability depends on how much the ASICs (and any additional infrastructure) cost to acquire, how long they are expected to last and how much overhead is required to maintain them.

One reason that makes it difficult to include ASIC devaluation into miner profitability calculations is that ASICs are also priced in an open market environment. ASIC prices indexed per TH are presented for three generations of miners in the Bitcoin ASIC Price Index shown in Figure 2.

It can be challenging to determine if ASIC prices are low enough to result in a positive return on investment (ROI) in bitcoin terms for your home mining operation. In order to determine if you are going to come out ahead in bitcoin terms, you will need to speculate about the next several years of bitcoin price, network difficulty and local electricity prices.

As most bitcoin miners are likely to be bullish on bitcoin price, this likely means they are also bullish on bitcoin’s total hashrate. However, in order to estimate your ROI you will effectively need to decide which of those two metrics (price and difficulty) you are MORE bullish on. On top of that, there is also generally a lag in hashrate compared to bitcoin price fluctuations that often puts the two out-of-phase over the course of a 4-year cycle. Finally, electricity rates for home miners may also vary and can impact profitability; this should be considered when attempting to project future income from mining at home.

§Opportunity Cost

One of the largest costs that is virtually always overlooked when deciding to mine at home is opportunity cost. Opportunity cost is the loss of the potential upside of choosing to do something else with your capital. Investing in miners is effectively choosing against one of the largest opportunity costs ever… buying bitcoin. Beyond the initial cost of the ASICs, the electricity cost you will incur while running your miner also needs to be considered. Therefore, measuring the opportunity cost of bitcoin mining is really a comparison of buying an ASIC and paying for the electricity to run it vs. buying bitcoin and dollar cost averaging (DCA) with the money you would have spent on electricity.

To illustrate some of these points, this article presents four case studies that use historical data in order to avoid the need to speculate about future bitcoin market conditions. Each case study will select an ASIC at a specific point in the past and compare the performance, in bitcoin terms, of mining vs. buying bitcoin. It should be noted that these case studies assume that at-home miners are intending to stack sats and not to arbitrage electricity rates for fiat gains. It is therefore assumed that mining revenues will be allowed to simply accumulate in bitcoin and electricity bills will be paid with income from other sources.

The initial data used for these case studies are listed below, which are intended to represent reasonable time periods and prices that might have been available to at-home miners at the time. There will always be better (and worse) prices out there, and this study is not attempting to pick particularly good or bad times to start mining. These case studies should only be used as anecdotal information that may or may not be applicable to your specific situation.

Case Study 1: Antminer S9 (13.5TH/s, 1320W = 98J/TH)

• Purchase Date: 1/1/2017
• Price Paid: 2.16 BTC ($2087)
• Date Mining Started: 2/1/2017

Case Study 2: Antminer S9 (13.5TH/s, 1320W = 98J/TH)

• Purchase Date: 1/1/2019
• Price Paid: 0.83 BTC ($305)
• Date Mining Started: 2/1/2019

Case Study 3: Antminer S19 (110TH/s, 3250W = 29.5 J/TH)

• Purchase Date: 9/1/2020
• Price Paid: 0.25 BTC ($2857)
• Date Mining Started: 10/1/2020

Case Study 4: Antminer S19 (110TH/s, 3250W = 29.5 J/TH)

• Purchase Date: 9/1/2021
• Price Paid: 0.22 BTC ($10325)
• Date Mining Started: 10/1/2021

Historical ASIC pricing data that is applicable to U.S. based, at-home miners is somewhat challenging to attain reliably; however, links to references for price estimates that are used are included below. It is also noted that it may be challenging for at-home miners to get access to new generation ASICs soon after they are released without pre-ordering far in advance. This has been only partially accounted for here by assuming a modest 1 month delay after payment until the units are assumed to start mining bitcoin. In reality, shipping times may be shorter than this but they can be significantly longer as well. Also note that all of these case studies assume a fixed residential electricity pricing of $0.1/kwh.

Figure 3 shows the results of the four case studies; this figure shows cumulative revenues from bitcoin mining operations with solid lines and the equivalent buy, hold and DCA strategies with dashed lines. Note that the dashed lines start at the bitcoin price that would have been paid for each ASIC and continue to grow based on how much would have been spent on electricity to run each miner.

Figure 3 shows that in only one of the four scenarios outlined in Table 1 (an S19 Purchased in Sept 2020) would the mining operation have outperformed the buy, hold and DCA strategy when measured in bitcoin terms. Compared to the other three cases, this case also happens to represent the scenario where the miner was purchased closest to its initial release date. However, in all of these cases there are a number of additional potential upfront costs that were not included; these will be outlined in the next section and can have a significant impact on the opportunity cost of a home mining operation.

§Other Upfront Costs

Some of the other additional costs that were not included in the case studies above are still worth mentioning and should be considered for your specific home mining operation.

First, and perhaps most importantly, no costs for things like new or upgraded electrical panels or installation of additional wiring or outlets are included. Some of these components or services may be required for your home mining setup and should be performed by a licensed electrician to avoid potentially dangerous situations in your home. However, costs for these services will vary significantly depending on the specifics of your operation and were therefore not explicitly quantified for this article.

Sound reduction or protective enclosures for you miners may be preferable for the benefit of other family members or to minimize the impact on daily life in your home. An example of this is the OhmmTM Black Box manufactured by Upstream Data, which is a substantial upgrade to running a miner on a desk in your basement or garage. In addition to significant sound reduction, it is also fire-resistant and can be located outside. However, these types of enclosures can also have a meaningful impact on your bitcoin opportunity cost covered earlier as they are priced between $2495 — $4,600 depending on its capacity.

Finally, no additional overhead costs are included. The time you spend setting up, tinkering, optimizing, maintaining or reconfiguring your home mining setup is assumed to be free.

§Potential Upsides of Mining at Home

Ok, enough bearishness on mining at home. There are also some really cool, fun and potentially important upsides to mining at home that are not necessarily going to get quantified in the calculations above.

Probably the most obvious benefit of mining at home is the opportunity to stack sats in a way that does not require you to submit your identity to centralized exchanges who are required to meet Know Your Customer (KYC) standards. The number of ways to buy a small stack of KYC-free bitcoin are slowly growing; however, these sats often come at a premium. There is a very wide spectrum of potential needs, use cases, and worst case scenarios that no-KYC bitcoin can be important for and even at-home mining may not cover all of them without jumping through some extra hoops. However, mining at home is certainly a vastly more private way of acquiring bitcoin than buying from a regulated exchange.

Given that it’s winter for most of the northern hemisphere, it’s hard not to mention the potential upside of using ASIC waste heat to help warm your home. Table 1 offers some rough calculations that I performed for my home in Western Massachusetts that show the potential savings from heating using ASICs vs. other more traditional heating sources.

As shown in Table 1, mining revenues can be considered as a subsidy to the price of electric heat (which in my case is $0.23/kwh!). Ok, so for me, being stuck here in Western Massachusetts, bitcoin mining in a bear market is always going to be hard compared to my oil burning furnace, even when recapturing waste heat. However, this added benefit can make a significant difference in other parts of the country where electricity is cheaper or when mining revenues are higher compared to electricity costs.

Another potentially significant upside that is not captured earlier in this article is the potential opportunity to resell a miner after it is no longer profitable. Oftentimes even when a miner is unprofitable at low or moderate electricity prices, you may be able to sell it for some percentage of what you paid for it (in fiat terms). If you don’t want to resell it, even when unprofitable, solo mining has significantly better payout odds than the traditional lottery. Plus, if there is ever a catastrophic disaster to large scale mining infrastructure, at-home miners could be important to help get the network across the finish line to a potential significant downward difficulty adjustment.

Finally, if you are a bitcoiner, you have to admit that bitcoin mining is pretty awesome. Bitcoin miners are machines that convert electricity into bitcoin and literally anyone with power and an internet connection can run one. In the early days of Bitcoin, essentially everyone who was running bitcoin was mining at home. Certainly we are way past the days of mining hundreds or thousands of bitcoin on a spare laptop, but it’s still pretty cool to be contributing hashrate to the network from your home.

§Conclusion

As with everything in Bitcoin, the author highly encourages readers to do their own research and figure out if at-home mining is worth it for your specific circumstances. The price of ASICs for retail home miners often makes the opportunity cost of simply buying bitcoin too large to overcome, even in areas with moderate electricity prices. This shouldn’t be surprising given the scale of the commercial mining industry that can deploy miners strategically in areas with very low electricity costs, purchase ASICs with bulk pricing, and borrow to participate in the upside of creative destruction caused by mining bans or bankruptcies.

Many fiat based ROI calculators for home miners do not include a number of real additional costs associated with bitcoin mining. At the end of the day, if you are trying to accumulate as many sats as possible, it is really hard to beat buying bitcoin combined with regular DCA. During the course of the bitcoin mining and price cycles, there is a time to buy ASICs and a time to buy bitcoin; the author recommends that you run the numbers before you pull the trigger on your home mining operation.

I would love to hear what you think about this article! If you have comments, questions, criticisms or want to have a conversation about some of these ideas, please comment on this article. Your time is valuable so I hope that you were able to extract some value from this.

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