Earlier this week, the 50BTC reward given to miners that successfully find blocks of Bitcoin transactions was halved to 25BTC. This means that the gross income of miners is now half of what it has been since the cryptocurrency’s inception. As a result, many miners – especially those using graphics cards – will have to re-evaluate their net earnings to determine if they are still making any profits from mining coins after hardware and electricity costs are taken into consideration.

As an example, when mining bitcoins using a single shader-unlocked AMD Radeon HD 6950 graphics card, I was able to obtain approximately 0.12 BTC per day. Now, because the reward is cut in half, I am able to make about 0.06 BTC per day. Unfortunately, that is approximately the same amount of BTC (when converted to USD) that it costs in electricity to run, negating profits. Technically, according to Allchains.info, I am (just barely) still profitable with a net profit of $0.076 USD per day after electricity costs. As the exchange rate has gone up slightly, it is a bit more than that in actuality but it is still a good estimation of profitability. There are also non-monetary costs associated with mining bitcoins in the form of the extra heat and noise generated by the graphics card being run under load 24/7. And at $0.076 cents a day, it really does not seem worth it anymore. Then again, it does act as a room heater in the winter and it at least subsidizes part of the cost of heating the room (heh) even if it does not pay out much more than it costs to run.

It will be interesting to see how miners react, especially once the colder months are behind us. Some Bitcoin miners have moved on to alternative cryptocurrencies such as Litecoin and Terracoin, however that has caused the difficulty of mining LTC to double without an equal increase in exchange rate which has actually made mining LTC less profitable than mining BTC (d'oh!).

The reward halving is not an unexpected event, and, in fact, it has been intentionally executed by the bitcoin developers to prevent inflation. Just as the mining difficulty adjusts every 2016 blocks, every four years the reward is cut in half until mining blocks no longer provides rewards (with the intention that transaction fees will provide all of the incentive to mine from then one). As such, many miners knew about it before hand, and planned accordingly. Some miners sold off their rigs, others (mostly those with free electricity) are continuing to mine, and yet other miners moved to alternative cryptocurrencies. (That's not to mention those that mine for the purpose of securing the network which is not always a profitable (albeit necessary) pursuit.)

Interestingly, the difficulty of Bitcoin is estimated to increase rather than decrease with the upcoming adjustment despite the reward split and a certain number of users moving away from mining. This may be the result of miners speculating that the price (exchange rate of USD/BTC) will increase and/or that other miners will drop off and the difficulty will begin to decrease at some point. Miners with lage farms of gaphics cards may also be able to hold out despite the block reward halving as they have enough hashing power to keep profits at a worthwile level. While my single card is only making about $18 a month now (versus ~35+), users with more cards can still be seeing sizable returns. So long as profits are there, mining will continue, though newcomers looking to invest in mining rigs are less likely to join in the current climate (seemingly vaporware ASICs notwithstanding). There may also be users that are mining solely for BTC that they will hoard or spend with merchants (like WordPress) that accept bitcoins without concern for exchanging to USD or other national currencies.

In all, there are an astounding number of factors surrounding the block reward halving along with many theories about what will happen as a result of it. At this point, it is still to early to tell, but It will be interesting to see which theories hold true.

Read more about the bitcoin cryptocurrency and how mining works at PC Perspective.

What do you think about the bitcoin reward being cut in half? How will it effect you, and will you continue to mine at the current exchange rate and difficulty? Let us know in the comments below (no registration required).