The (Brief) Economics of BTC Mining
Amount of BTC Mined and Fees Collected by Miners in 2021
Bitcoin miners must consider various cost factors in relation to the profitability of the activity, including: electricity cost, mining equipment and hardware required and the number of miners mining on the Bitcoin network (the hash rate) at any given time. BTC’s high price volatility creates incentives to miners as they are rewarded when adding one block to the blockchain. The reward for mining of Bitcoin is halved every 4 years – by increasing mining difficulty 2x – ensuring that BTC’s inflation rate is cut in half.
In 2021, 329,281.25 BTC was mined, with 21,461.93414253 BTC collected by miners.
Average Transaction Fees
Bitcoin’s network can become congested when high volumes of transactions are being processed in the mempool. Miners have the option to accept higher fees and pull their transactions to the frontline, making for faster confirmation, while transactions with much lower fees paid will remain unconfirmed in the mempool until the congestion period is cleared. This also explains where there is minimal congestion – the transaction fees are correspondingly cheaper as the transaction volume is low. As more computing power is deployed – the chance of reaching the first in the transaction queue is reduced.
The average transaction fee on the Bitcoin network decreased by -82.8% when comparing the average of 2021 ($10.50) and the average of the period January – April ’22 ($1.80).
2021’s Most Expensive Transaction by Fees
On the 7th of September a transaction of 3.50259089 BTC ($171,149), but received only 1.67 BTC as they paid 1.83242853 BTC ($89,539) in fees (due to the large number of inputs (250) as well as the significant fees the sender paid to miners).
tx hash: 0ecd097dcc90cc332069a124484bed869278ca50aef36bf0f6b6f5035edce226
2021’s Biggest Transaction by Value with $0 Fees Paid
On the 7th of December, a Bitcoin network user managed to move ~9,000 BTC worth $456,884,629 for literally $0.00000 on a particularly quiet day on the network.
tx hash: a78c4bddcf5234cc63e6854141bd69e01081af7288170a58dc054ad48bb6e202
Tracing Money Laundering Miners
Coinfirm’s AML Platform utilises more than 350 risk flag algorithms to track illicit sourced funds and those misappropriated in hacks and scams, drawing paths to risk across hundreds of hops with machine learning. The firm’s proprietary algorithms include a number related miners and transactions.
Because users pay fees to miners for ordering transactions on newly minted blocks, higher than usual fees paid to miners can move the transaction forward in the queue and expedite the acceptance of illicit transactions.
Mining pools or cloud mining pools (cloud miners can participate in a pool by purchasing an amount of ‘hash power’ with each participant reaping a share of the profits in proportion to the amount of power rented) can also be utilised by criminals to launder illicit funds and/or evade sanctions. For instance, the Iranian government in 2021 expressed their desire to raise capital for the sanctions-hit jurisdiction through newly minted coins, which have no illicit source and can be exchanged at international exchanges.
Coinfirm analysed the number of transactions of all time with higher than average fees, finding that:
34,330 transactions with over 0.1 BTC in fees, totalling: $122,586,221.9 (12663.2 BTC)
562 transactions had over 1 BTC in fees, totalling: $1,606,958.29 (5352.61 BTC)
127 transactions had over 10 BTC in fees, totalling: $637,965.83 (3557.38 BTC)
4 transactions had over 100 BTC in fees, totalling: $161,500.82 (774.04 BTC)