There is a lot of confusion about how to be profitable in bitcoin mining. While tools are available, bitcoin mining success relies on two factors: the difficulty level and how much electricity the mining equipment uses.

What is meant by the difficulty level? Think of it this way: To earn a bitcoin, your mining equipment must solve a puzzle (also known as “solving a block”) before anyone else does. The more miners that are mining, the harder the puzzles get.

The amount of power consumed is measured in watts. Most people are or should be interested in how many GH (gigahash) per watt, or (W/GH), a device provides. For example, a device that provides 1 GH per watt consumed is better than a device that provides 1 GH per 2 watts consumed. A device that provides 1 GH per 0.5W consumed is better than one that provides 1 GH per watt consumed.  The usual measure of this is indicated by 1W/GH or .5W/GH or 2W/GH.

In the early days of bitcoin mining, such as with CPU and GPUs, power efficiency was nowhere near the current level. Specialized processors called FPGAs and ASICs have changed the economics of bitcoin mining, making CPU and GPU mining less than cost effective. It now costs more to operate those devices than they generate in bitcoins.  The network pays 25 bitcoins to miners every 10 minutes, on average. At the current exchange rate, about $1 billion will be generated from bitcoin mining this year. As a miner, your share of that $1 billion USD is proportional to the amount of hashrate you can contribute to the network. The only way to compete in this space, currently, is with the specialized hardware known as an ASIC. ASICs are currently the most power efficient method of processing the mathematical puzzles required by the bitcoin network and are generally the only way to generate more bitcoins than you pay in electricity to operate the hardware.

For this reason, one of the most important factors in choosing bitcoin mining hardware is the power consumption per unit of work performed, or your W/GH ratio.

Miners are faced with a plethora of mining hardware to choose from and which one to choose can be somewhat confusing. Every time a new mining product is announced, many people rush to purchase or pre-order the device without considering the power costs and the longevity of the device in the face of rising difficulty. It is a mistake to forget about this facet of mining.

The future of mining is going to be about your power performance, or W/GH, and should be a central focus on your buying and mining equipment investment decision. You will never succeed in the long term if the cost of electricity to operate your equipment exceeds the value of the bitcoins you generate. Failing to use the most efficient hardware available to you will put you behind from the start.

An example of this is if you spend $1000 on electricity per month, but another miner is using more efficient hardware that cuts the power consumption in half, they are paying only $500 per month for electricity – that is an additional profit of $500 per month, just by using the most efficient hardware. As the difficulty rises and your net profit per month drops, you will be forced to turn off your equipment much sooner than your competitor who can continue to operate his equipment and thus earn more profit than you could for a longer period of time.

It is inevitable that power hungry mining devices will be pushed out, and pushed out sooner than the power efficient ones and the wrong choice in hardware will impact your mining experience. Don’t get left behind!

By Josh Zerlan, VP, Product Development – Butterfly Labs

As Butterfly Lab’s VP of Product Development, Mr. Zerlan is responsible for operations within Butterfly Labs Innovation team, as well as long term product evolution and development.  Mr. Zerlan has an excellent track record of identifying industry trends,capitalizing on upcoming product and service vacuums that will present an excellent opportunity for fast, nimble start ups to fill.