Mining: Electricity Against Reward

Michael Whitman · Trading since 2017, full-time since 2020 · Reviewed 2026-09-06

Mining is the process of computers competing to add the next block to a blockchain, with the winner paid in newly issued coins and transaction fees. The economics reduce to electricity cost against reward, which is why the activity concentrates wherever power is cheapest.

How it works

A labelled diagram comparing one machine's guess rate with the whole network's. The headline reads: Computers competing to add the next block. — Computers competing to add the next block. Illustrative figures - not a real company.

Mining is a guessing competition. Machines try enormous numbers of combinations looking for one that satisfies a mathematical condition, and the first to find it gets to add the next block.

A labelled diagram showing a block reward plus transaction fees giving the total paid to the winner. The headline reads: The winner is paid in new coins and in fees. — The winner is paid in new coins and in fees. Illustrative figures - not a real company.

The winner is paid twice. Newly issued coins, which is how supply enters circulation, plus the fees attached to the transactions included in the block.

A labelled diagram comparing a target time per block with the actual average. The headline reads: And the difficulty rises so blocks keep arriving on schedule. — And the difficulty rises so blocks keep arriving on schedule. Illustrative figures - not a real company.

The difficulty adjusts automatically. More machines competing means a harder problem, so blocks continue arriving at roughly the intended interval regardless of how much hardware joins.

Which makes it a race nobody wins permanently. Illustrative figures - not a real company.

Which means added capacity does not increase total rewards. It only redistributes them. Every machine that joins reduces everybody else’s share, and that is the mechanism that keeps the whole activity at the edge of profitability.

The economics

A labelled diagram showing monthly revenue less electricity and hardware depreciation leaving a small remainder. The headline reads: The economics are electricity against reward, and nothing else. — The economics are electricity against reward, and nothing else. Illustrative figures - not a real company.

Revenue minus power minus hardware wear. There is no third factor of any consequence, which makes this one of the simplest businesses to model and one of the hardest to run profitably.

A labelled diagram comparing an industrial power cost with a domestic one. The headline reads: So the only durable edge is cheap power. — So the only durable edge is cheap power. Illustrative figures - not a real company.

Power price is the whole competitive question. Everybody buys similar hardware and faces the same difficulty; the one variable that differs materially is what a unit of electricity costs.

A labelled diagram showing domestic revenue less domestic electricity giving a negative result. The headline reads: Which is why home mining stopped being viable. — Which is why home mining stopped being viable. Illustrative figures - not a real company.

Domestic electricity is several times industrial rates. At those prices the arithmetic is negative before hardware is counted, which is why the activity concentrated into industrial operations near cheap generation.

A labelled diagram comparing an expected solo reward over years with a steady monthly amount from a pool. The headline reads: A pool shares the reward so the income is steady and smaller. — A pool shares the reward so the income is steady and smaller. Illustrative figures - not a real company.

A pool converts a lottery into a wage. Participants combine capacity and split rewards, which does not change the expected amount and removes the variance — a small machine mining alone might wait years for a block.

A labelled diagram comparing a block reward before and after a scheduled halving. The headline reads: And the reward is cut in half on a fixed schedule. — And the reward is cut in half on a fixed schedule. Illustrative figures - not a real company.

The reward halves on a published schedule. Revenue per block falls by half overnight, and the industry adjusts by shutting down the least efficient hardware — a scheduled shock nobody can be surprised by and many are.

In practice

A labelled diagram comparing zero electricity required with a deposit required. The headline reads: Proof of stake replaces the electricity with a deposit. — Proof of stake replaces the electricity with a deposit. Illustrative figures - not a real company.

The main alternative removes the electricity entirely. Proof of stake selects who adds a block based on a deposit at risk rather than on computation, which changes the cost structure completely and is why several large networks moved to it.

A labelled diagram showing a value received on the day taxed as income. The headline reads: And what is mined is income at the value received. — And what is mined is income at the value received. Illustrative figures - not a real company.

Mined coins are income when received in most systems, valued on the day, and that value becomes the cost basis for a later sale — two separate taxable events from one holding, which the crypto tax page covers in full.

A labelled diagram comparing a monthly revenue estimate with a monthly power bill. The headline reads: Work out the electricity cost before buying any hardware. — Work out the electricity cost before buying any hardware. Illustrative figures - not a real company.

Do the power calculation before anything else. Machine consumption multiplied by hours multiplied by your rate, against current network difficulty and coin price. If that number is negative before hardware depreciation, nothing later in the process improves it.

One consequence of the difficulty adjustment is worth stating on its own, because it explains the shape of the whole industry: mining revenue is a fixed pool divided by participation. The network issues the same coins regardless of how much hardware competes, so every machine added dilutes every other machine’s share.

Which makes it structurally different from most businesses. A bakery that improves its ovens sells more bread; a mining operation that adds machines increases its share of an unchanged total and reduces everybody else’s. Growth in the sector cannot increase the sector’s revenue — only the coin price and the fee market can do that.

That is also why efficiency, rather than scale, is the durable position. When the reward halves or the price falls, the machines shut off in order of efficiency, and the operators left running are the ones with the lowest cost per unit of work. Everything about the industry follows from those two facts, and both are visible in the difficulty adjustment.

It is not free money. Revenue less power less hardware.

It is not scalable by adding machines. Difficulty adjusts.

It is not a way to acquire coins cheaply at domestic power rates.

And it is not universal. Several large networks no longer use it.

When it fails

It fails on the power bill. A machine running at domestic rates consumes more in electricity than it produces in coins across most of the cycle, and the discovery usually arrives after the hardware.

A second failure is planning around a price. Revenue depends on the coin price, the difficulty and the reward schedule simultaneously, and a forecast that assumes only one of them moves is not a forecast.

A third is ignoring the halving. A scheduled fifty per cent revenue cut is not a market event, it is a calendar entry, and hardware that was marginal before it is not viable after.

A fourth is buying hardware second-hand at the top. Used machines flood the market when the cycle turns, which is precisely when they are least worth owning.

And a fifth is treating it as passive. Heat, noise, maintenance, failures and monitoring are all real, and none of them appears in a profitability calculator.

The original data

Of the 31,760 trading and investing videos in this site’s corpus, 29 have “mining” in the title at a median of 29,025 views across 21 channels, with a maximum of 2,755,315. “Ethereum” returns 17 at a median of 13,212, “wallet” returns 34 at a median of 22,808, and “crypto futures” returns 5 at a median of 190,092. The counts are in research/corpus-coverage.json, produced by site/measure_corpus.py.

A labelled diagram showing monthly revenue less electricity and hardware depreciation, shown again as a summary. The headline reads: The economics are electricity against reward, and nothing else. — The whole business in four lines. Illustrative figures - not a real company.

Twenty-nine videos at a median of 29,025 views describes steady interest in an activity almost nobody should undertake at domestic scale. The maximum of 2.7 million suggests the appetite is for the idea rather than the arithmetic. Multiply your machine’s wattage by 720 hours and by your electricity rate before buying anything — that single figure, set against a current profitability estimate, answers the question completely and costs nothing to run.

Crypto is the wider asset this process secures. Bitcoin is the network where the economics are largest. And crypto tax covers how mined coins are taxed.

What I actually do

The calculation nobody does before buying hardware is the electricity one. It takes five minutes with a power rate and a hash rate, and it answers the whole question before any money is spent. Every home mining setup I have seen go wrong went wrong on that number.

— Michael Whitman

This page is educational, not financial advice. Test every idea on your own charts before risking money.