From chaining blocks to breaking even: A study on the profitability of bitcoin mining from 2012 to 2016

Jona Derks, Jaap Gordijn, Arjen Siegmann*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review


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 e3value methodology. The value flows are quantified using publicly available data about the bitcoin network. However, two important value flows for the miners, namely hardware investments and expenses for electricity power, are not available from public sources. Therefore, we contribute an approach to estimate the installed base of bitcoin hardware equipment over time. Using this estimate, we can calculate the expenses miner should have. At the end of our analysis period, the marginal profit of mining a bitcoin becomes negative, i.e., to a loss for the miners. This loss is caused by the consensus mechanism of the bitcoin protocol, which requires a substantial investment in hardware and significant recurring daily expenses for energy. Therefore, a sustainable crypto currency needs higher payments for miners or more energy efficient algorithms to achieve consensus in a network about the truth of the distributed ledger.

Original languageEnglish
Pages (from-to)321–338
Number of pages18
JournalElectronic Markets
Issue number3
Early online date23 Aug 2018
Publication statusPublished - Aug 2018


  • Bitcoin
  • Business model
  • Financial sustainability
  • Mining
  • POW


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