How to Make $20,000 a Year Mining Bitcoin

You could earn your own Bitcoin by mining it, but it’s not as easy as it sounds. The process requires powerful mining hardware, a steady supply of electricity and a solid understanding of solving cryptographic puzzles.

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However, with the right approach, you can still make thousands of dollars a year mining Bitcoin.

What You Need to Mine Bitcoin

To start mining Bitcoin, you need mining hardware, software, a mining pool and a crypto wallet:

Mining Hardware

Application-Specific Integrated Circuits (ASICs) miners, such as Antminer and Whatsminer, are the gold standard for Bitcoin mining. They’re the backbone of the whole mining process, so ensure that you choose your hardware wisely. The faster and more efficient your hardware, the more likely you’ll successfully mine Bitcoin and earn rewards.

Mining Software

This is a program that connects your hardware to the Bitcoin network and lets you participate in mining. Most mining software is free to download and can run on Mac and Windows. The most popular software options include CGMiner, BFGMiner and NiceHash.

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Mining Pool

While you can mine Bitcoin alone, joining a mining pool can significantly boost your odds of earning rewards. Mining pools combine the computational power of several miners to increase their likelihood of solving blocks and, thereafter, sharing rewards proportionally. There are several mining pools out there, but check things like pool size, fees, and payout thresholds before joining one. 

Wallet

You’ll need a secure place to store your mining rewards, and that place is a wallet. A crypto wallet is an encrypted online account that lets you securely store, transfer and receive tokens. You can choose between a hot and cold wallet. However, a cold wallet is way more secure than a hot wallet.

Is Bitcoin Mining Profitable?

Bitcoin mining is still profitable. However, several factors impact its profitability, including:

• Hardware efficiency: The type of hardware you choose significantly impacts the amount of Bitcoin you mine and the energy it consumes.
• Electricity costs: The profitability of your mining operations depends on the energy consumption. High electricity costs can eat into your revenue, especially if your hardware isn’t energy-efficient.
• Bitcoin price: The price of Bitcoin itself also affects profitability. When Bitcoin’s price goes up, your mining rewards are worth more in fiat currency and vice versa. Since Bitcoin is highly volatile, it’s hard to predict when it’s going to skyrocket or plummet.
• Mining difficulty: The more miners join the network, the more mining difficulty there is, making it even more challenging to earn rewards. You may need to upgrade your equipment as the difficulty increases, which is an extra expense.
• Cooling and maintenance costs: Mining rigs emit a lot of heat, which can reduce the lifespan of your hardware and increase cooling costs. Regular maintenance is necessary for efficient operation. 
• Fees: Mining pools often charge fees, which can reduce your overall earnings.

Keep in mind that your actual mining profitability is decided on the day you sell your mined coins, not on the day you mined them.

How to Tell When You Should Sell Mined Bitcoins

Since Bitcoin is a highly volatile digital asset, it may be hard to know exactly when to sell your mined rewards. However, these two mining strategies can help you make an informed decision.

Mining as a Form of Passive Income

You can mine Bitcoin and sell your rewards regularly, like every month, and use your earnings to cover electricity costs, and what remains is your income. However, selling your rewards regularly will eat into your revenue due to things like transaction fees and exchange costs. Be sure to find the right balance for selling often enough not to go into losses.

Long-Term Strategy for Building Wealth

This strategy focuses on mining Bitcoin and holding it for the long term as you wait for the perfect time to sell to maximize profit. But when exactly is the right time to sell? While no one can tell the future, the crypto market has been highly predictable if you look historically. 

So far, the crypto market has worked on a four-year cycle. We have a three-year bear market, followed by a one-year bull market in which prices just go to the moon. After that, prices go down again for another three-year bear market as the cycle repeats.

Bitcoin halving cuts the supply of new Bitcoin in the market by half overnight, which increases demand, and higher demand usually means higher prices. If you are mining Bitcoin to build wealth, halving could give you a better idea of a rough timeframe for when to hold and when to sell your coins.

Risks of Bitcoin Mining

While mining Bitcoin can be profitable, it has its fair share of risks that are worth knowing.

• Regulation: Some countries have banned or heavily regulated Bitcoin mining due to its environmental impact or concerns about illegal activities. If regulations tighten in your region, you may face restrictions or even be forced to shut down operations.
• High energy costs: Energy consumption is one of the largest expenses for crypto miners. 
• Hardware costs and depreciation: The initial cost of purchasing hardware can be high. Not to mention, the hardware you buy can become less efficient as technology evolves.

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This article originally appeared on GOBankingRates.com: How to Make $20,000 a Year Mining Bitcoin

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