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Bitcoin Mining Margins Explained

Most Bitcoin investors and enthusiasts understand the process of mining. Over the past 12 years, the mainstream public has had plenty of opportunities to understand the network’s reward system for those who verify transactions on the blockchain.

However, the actual competitiveness of the industry and the profitability of mining is still a complex topic shrouded in mystery for many.

So what is Mining Margin anyways?

Different companies calculate their mining margins differently. At Argo, monthly mining margins are calculated after power and hosting costs, and before administrative and salaried expenses.

Bitcoin mining variables

A miner needs to account for several variables to ensure their operation is profitable. The price of electricity, hosting, and mining hardware efficiency are the most important factors to consider in terms of profitability.

Some of the other key factors to consider for a successful mining operation are hardware price, hardware availability, the climate of mining facilities location access to power.

However, the most important variable is the mining difficulty. Bitcoin’s network is designed to deliver a fixed number of freshly minted for every block that is mined.. The network difficulty is adjusted in order to maintain the average time between blocks to approx. 10 minutes, based on the hash rate on the network.

Simply put, more miners equals more difficulty and less profitability. The industry tracks this prime variable based on the US dollar revenue generated per terahash (TH). In early-2018, this index was $1.61 per TH. Since then, the market value of BTC is up significantly, which has attracted more miners and pushed difficulty to all-time highs. As a consequence, the index declined to $0.076 in October 2020 and is now around $0.238.

To stay ahead of the game, miners need to focus on variables they can control. Specifically, access to cheaper energy. As BTC’s popularity reaches new heights, miners with access to the cheapest energy could be the most profitable.

Access to cheaper energy

While cheap capital reduces financial costs, Bitcoin miners also need to focus on operational costs. The electricity needed to power server farms is the most important operational cost miners have to consider.

China had an early advantage in this arena. However, China’s dominance is gradually decreasing as mining costs increase. In recent years, miners have relocated to destinations with less regulatory uncertainty, cooler climates, and better access to sustainable and renewable energy.

Some of Argo Blockchain’s largest mining facilities are located in the Canadian province of Quebec, where much of the electricity is produced by hydroelectric power plants. Canada’s relatively cooler climate and favourable regulatory framework also make it a top destination for Bitcoin miners as the industry seeks out efficiency, both today and in the future.

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