Mined during 2011 were blocks 100410 through 160036 with each being awarded 50 BTC. As a result, about 2.98 million BTC were issued. With the average daily price (exchange rate) of $5.60, that means Bitcoin mining is roughly a $16.7 million industry when considering just the value of the coins as they were mined.
Transaction fees add to that total, but are irrelevant yet and represented only a small fraction of one percent of the total value of the currency issued for the year.
That $16.7m amount coincidentally, is about the same cost level estimated in order to procure all the hardware necessary to mine at the higher levels that existed back when Bitcoin was breaking hashing records earlier in the year.
Total investment in mining hardware over the year likely was a multiple of that $16.7m number as early rigs were mining using substantially less powerful equipment including rigs that were only mining with CPUs.
Also contributing to the total hardware estimate was that some rigs were operational for only part of the year and then either repurposed or sold while other miners would upgrade to more efficient hardware. All the while there was also a continuous stream of new miners that would continue arriving into the mining business.
Most miners were, at the end of the year, enjoying healthy margins as the miner’s operating margin estimate is once again back up near 50%. That estimate is based on the cost of electricity at $0.15 USD per kWh and hardware costs of $1K per gigahash every two years and a small allowance for bandwidth use as well, according to BlockChain.info – the service that calculates that estimate.
If history repeats itself, idled capacity will return or new hardware will be brought online and difficulty will rise once again. Margins will likely revert back towards a mean level that lags the prevailing Bitcoin exchange rate.
Even when mining was believed to be yielding lucrative profits, mining may not have been an activity truly as fruitful as was first imagined – particularly when tax consequences are considered. This topic was raised again with varying opinions as to how mining proceeds should be treated when preparing tax returns.
When miners convert their bitcoins at a centralized currency exchange, a bank transfer is often the result. So for all the discussion over Bitcoin and anonymity, mining proceeds are still likely on the radar of government through monitoring that occurs within the banking systems.
Now that Bitcoin mining is an industry of its own, miners are learning that issues like tax compliance are making this little hobby of theirs to become much less fun.