Bitcoin mining profitability 2012

France 24 is not responsible for the content of external websites. Bitcoin miners, whose computer processors enable the running of the world's most popular virtual currency, will soon face an event that takes place every four years and alters the profitability of the hi-tech industry. So-called halving is when cryptocurrency-mining companies and individuals find out the reduced payment that they will receive in return for their contribution to the system's smooth operation. Bitcoin was created in by a person or group writing under the pseudonym Satoshi Nakamoto as a peer-to-peer decentralised electronic cash system.

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Content:

• After China’s Crypto Ban, Who Leads in Bitcoin Mining?
• All About Bitcoin Mining: Road To Riches Or Fool's Gold?
• A teenager and his sister say they make $35,000 a month by mining Bitcoin
• Bitcoin mining powers the system that oversees transactions and creates new bitcoins
• Bitcoin (BTC) mining profitability up until November 8, 2021
• Bitcoin price and hashrate, 2010-2018
• The Cost of Bitcoin Mining Has Never Really Increased
• What Is Bitcoin? Should You Invest?

WATCH RELATED VIDEO: Top 5 Largest BITCOIN MINES on Earth

After China’s Crypto Ban, Who Leads in Bitcoin Mining?

This site uses cookies to store information on your computer. Some are essential to make our site work; others help us improve the user experience. By using the site, you consent to the placement of these cookies. Read our privacy policy to learn more. As cryptoassets, such as bitcoin, have gained status as virtual assets, commentators have suggested that they serve as the new virtual gold. The IRS has issued brief guidance on the income tax treatment applicable to the creation of cryptoassets.

The income tax treatment of the mining of gold and its use fall under specific Code provisions and general tax principles. Building on this analogy, this article explores the background and similarities in the taxation of the mining of each of these assets. This comparison offers insights into the tax status of bitcoin and other cryptoassets. Looking first at the mining of physical materials, such as gold, the Code's applicable provisions regarding natural resource mining are organized around the life cycle of a mining operation.

In the context of mining for physical minerals, the Code allows for immediate deduction of expenses through the exploration and development stages. The approach is similar to that afforded research - and - development expenses Sec. D evelopment encompasses activities after the existence of ores or minerals in commercially marketable quantities has been disclosed, and can include expenses incurred during the development and production stage.

Once in the production stage, the taxation of physical mining operations follows the format of a manufacturing company. Inventories are required to be established. The IRS notes in its audit guide relating to the "placer mining industry" e. It is the Government's position that, under IRC section a , in order to achieve the matching of income to expenses, the taxpayer is required to maintain in inventory the gold extracted from the mining operation.

This is necessary in order to determine the income of the taxpayer. The matching of expense to income follows the generally accepted accounting principal [sic]. A matching principal [sic] issue generally arises when the taxpayer is in the production stage deducting expenses related to the production phase of mining with little or no income.

It is not uncommon to examine a return where the taxpayer claims to be in production yet keeps no inventory. Since the gold recovered must eventually be recognized as income, inventories must be maintained. Major operators produce the bulk of gold recovered and refined, but small - scale , independent miners make up the majority of the returns filed. Mining has historically been a cash - based activity. Often the miner will have little, if any, documentation to support the activity.

If there are records, they are often disorganized. In short, the IRS does not require immediate taxation when gold is produced.

This is true even though there is a well - established commodities exchange for gold, which is easily converted to revenue at a set price. The tax treatment of production follows the general rule of capitalization of costs associated with the production of the gold and current deduction of period expenses.

As will be discussed later, a different rule applies to cryptoasset mining. Focusing next on the types of entities involved in gold mining, major operators produce the bulk of gold recovered and refined. Thus, a significant portion of U.

The larger mining operations are looking to further reduce risk through the syndication of operations. The joint venture splits ownership At the other end of the size and scope spectrum, individuals engaged in gold mining are subject to many Code provisions that limit their use of losses to reduce taxable income. IRC section has strengthened the position of the Service in holding that a miner must be in a trade or business or engaged in an activity for the production of income with the objective of making a profit in order to claim mining related expenses such as those for exploration and development.

The case of gold mining highlights that the application of Sec. A smaller - scale operation is less likely to result in a profitable operation and more likely to fall within Sec.

The evolution of cryptoasset mining has followed a similar track, but at a much faster pace. The innovation of using blockchain technology to create a cryptoasset is less than 20 years old. However, the process has already moved from profitability through using a desktop computer to the need for application - specific integrated circuit ASIC devices. It also requires the creative use of pooling of resources across miners to spread risk. Taxation of virtual currency mining. The IRS has not provided a large amount of guidance regarding the taxation of cryptoasset mining.

Q - 8 : Does a taxpayer who "mines" virtual currency for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger realize gross income upon receipt of the virtual currency resulting from those activities? A - 8 : Yes, when a taxpayer successfully "mines" virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income.

See Publication , Taxable and Nontaxable Income , for more information on taxable income. This required timing of the recognition of income for virtual mining differs from physical mining. As discussed above, the IRS holds that physical mining results in inventoried costs and that recognition of income does not occur until the disposition of the commodity in an exchange.

In the instance of virtual mining, however, the IRS requires immediate recognition of income, even though the miner may not have yet converted it to traditional currency. What is the justification for this difference in tax treatment? Most of the remaining discussion focuses on this question. The IRS does not explain in Notice - 21 how it concludes that the reward for successfully verifying a block is immediately taxable.

The foundational income measurement principle under Sec. The key question in this instance is the timing of the taxation. The incentive structure of cryptoasset mining, with multiple participants providing transaction recording and reinforcing security, raises an issue regarding implicit services.

Arguably, the virtual miners are providing services whether they intend to or not. Given this difference, the IRS's position on taxing virtual currency mining can conceivably be supported with an analysis of Sec. Under Sec. The property transferred in exchange for services is immediately taxable at the time the property is transferable or there is not a substantial risk of forfeiture.

In the virtual currency mining context, this would occur when the cryptoasset reward is credited and available for transfer to the miner. The club debited or credited members' accounts for goods or services received from or rendered to other members. The ruling held the following:. In this case A , B , and C received income in the form of a valuable right represented by credit units that can be used immediately to purchase goods or services offered by other members of the barter club.

There are no restrictions on their use of the credit units because A , B , and C are free to use the credit units to purchase goods or services when the credit units are credited to their accounts. Therefore, members receiving credit to their barter club accounts were required to recognize income pursuant to Sec. The issue still exists whether the above type of analysis should apply to cryptoassets. It is debatable whether virtual mining should be viewed as performing services for another party.

After all, the key outcome in virtual mining is the generation of the block to be added to the blockchain. The potential income from this activity is the cryptoasset reward and potential transaction fees. Revenue recognition principles for financial accounting.

Another way to analyze how cryptoasset mining should be taxed is to consider financial accounting principles. As described below, the financial accounting treatment is arguably consistent with either the IRS - mandated approach or with the gold mining analogy approach.

There is not a specific contract between a customer and a miner for the block reward. An argument can be made that all the participants in the blockchain have an implied contract regarding the block award, making all the participants in the blockchain the customer. Therefore, the new cryptoasset can be considered revenue.

Another view is that the receipt of the block award is an accession to wealth because the miner has an increase in assets. Thus, the receipt of the award should be reported as other income. Characterizing the award as revenue or other income is consistent with the IRS's assessment of blockchain mining as immediate income. A contrary view is that cryptoasset mining produces an internally generated intangible asset.

IAS 38, Intangible Assets , provides the guidance regarding the creation of intangible assets. The miner is inputting computing power, electricity, and staff costs to build, or mine, an internally generated intangible asset, that being the cryptoasset. No revenue or gain is recognized until the resulting intangible asset, the cryptoasset, is subsequently sold.

Below is Grant Thornton's commentary on this approach to the analysis:. IAS The nature of competing against other miners to create the next block will result in it being difficult to specifically identify the cost incurred to create the block reward separately from the cost incurred on all previous unsuccessful attempts to create the next block, meaning that this criterion is not met.

Therefore, all costs associated with mining must be expensed as incurred and no revenue or gain is recognised until the resulting cryptocurrency is subsequently sold. This approach is closer in application to that of gold mining. The block reward is categorized as a self - created intangible asset, and revenue is not recognized until the bitcoin is sold to a third party.

Similar to the exploration and development stage of mining, success regarding efforts to create a block are not assured far from it , so costs would be immediately expensed. One publicly traded bitcoin mining corporation states the following in the notes to its SEC Form 10 - K regarding the financial accounting treatment of block rewards:.

There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment.

In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company's consolidated financial position and results from operations.

The tax treatment from a corporate view may be open to more interpretation than that for individuals. Entity choice and structure in cryptoasset mining. One other notable feature of cryptoasset mining that is relevant to taxation involves mining pools.

Individuals or companies that want to make a profit through cryptoasset mining have the choice to either go solo with their own dedicated devices or to join a mining pool where multiple miners and their devices combine to enhance the "hashing" output. Many miners are attracted to the prospect of small, steady earnings as part of a major pool, as opposed to the high - reward - but - low - odds lottery that is solo or small - pool mining.

The reward amount that miners participating in a pool receive is usually based on the proportion of hashing power they are contributing to the aggregate of the pool.

All About Bitcoin Mining: Road To Riches Or Fool's Gold?

Bitcoin is a widely-spread payment instrument, but it is doubtful whether the proof-of-work PoW nature of the system is financially sustainable on the long term. To assess sustainability, we focus on the bitcoin miners as they play an important role in the proof-of-work consensus mechanism of bitcoin to create trust in the currency. Miners offer their services against a reward while recurring expenses. Our results show that bitcoin mining has become less profitable over time to the extent that profits seem to converge to zero. This is what economic theory predicts for a competitive market that has a single homogenous good. We analyze the actors involved in the bitcoin system as well as the value flows between these actors using the e 3 value methodology.

A teenager and his sister say they make $35,000 a month by mining Bitcoin

In this post I am going to cover my experience with Bitcoin mining over the past 20 months or so. During this time I have purchased specific hardware for the task of mining Bitcoins in order to come out with a profit at the end. My journey started in June when I purchased 4 ATI s and has more or less come to an end now in March when I sold my mined Bitcoins for a profit. The aim of this project was to be able to purchase some cool hardware that could perform a high level of computation, that would eventually pay for itself. Hash cracking is a hobby of mine and I saw Bitcoin as a good opportunity to generate profit while I was not cracking hashes. There is a lot of other Bitcoin specific terminology throughout this post so I will try to provide various links to describe these aspects as necessary. Bitcoin is a peer-to-peer P2P digital currency that allows for instant payments between anyone, anywhere, in an anonymous manner. As Bitcoin is P2P there is no central authority giving it many advantages over many traditional currencies.

Bitcoin mining powers the system that oversees transactions and creates new bitcoins

Bitcoin mining is a process that verifies transactions on the blockchain ledger, while also bringing new bitcoins into circulation. To be successful at this, cryptominers require vast amounts of computing power, meaning electricity becomes one of their most significant costs. This pushes them to locate wherever electricity is cheapest. For years, China was the optimal location—the country has an abundance of cheap, coal-powered electricity.

Bitcoin (BTC) mining profitability up until November 8, 2021

To make the list of top 10 miners, we looked at blocks found over the past 6 months using data from BlockTrail. Trusted by over , blockchain investors. Here we will explore Crypto Mining Software and compare some of the best or even free Bitcoin Mining Software available in the market: Well, you have your Bitcoin mining hardware and other Bitcoin essentials in place. Best ASIC devices for mining cryptocurrency in Find out more about the best Bitcoin mining software available in

Bitcoin price and hashrate, 2010-2018

The Bitcoin network is a globally distributed public ledger consisting of a giant list of timestamped transactions. Add to cart. The issuance rate is set in the code, so miners cannot cheat the system or create bitcoins out of thin air. Best Bitcoin mining software CGminer. COP These must include the header of the preceding block, be less than or equal to the target number, and a number called NONCE.

The Cost of Bitcoin Mining Has Never Really Increased

Enthusiasts will tell you it's the future of money - but investing in the notoriously volatile virtual currency can be a rollercoaster, and it's not without risk. The hunt for new coins, using powerful computers, is also causing a surge in energy demand - which is not so good for the environment. James Saye, tech consultant.

What Is Bitcoin? Should You Invest?

RELATED VIDEO: Mine Bitcoin on a Cheap USB Stick

Marco Streng is a miner, though he does not carry a pick around his base in south-western Iceland. Instead, he keeps tens of thousands of computers running 24 hours a day in fierce competition with others across the globe to earn bitcoins. In the world of the web-based digital currency, it is not central banks that add new money to the system, but rather computers like Streng's which are awarded fresh bitcoins in return for processing blocks of the latest bitcoin transactions. Bitcoin can be used to send money instantly around the world, using individual bitcoin addresses, free of charge with no need for third party checks, and is accepted by several major online retailers. The process has come to be known as "mining" because it is slow and intensive, reaping a gradual reward in the same way that minerals such as gold are mined from the ground. But on Saturday, the reward for miners was slashed in half.

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We use cookies and other tracking technologies to improve your browsing experience on our site, show personalized content and targeted ads, analyze site traffic, and understand where our audiences come from. To learn more or opt-out, read our Cookie Policy. Will speedy new chips and smaller margins spell doom for the currency's core users?