Mining Profitability in Bitcoin: Calculations of User-Miner Equilibria and Cost of Mining

Abstract

This paper examines the equilibrium between user transaction fees and miner profitability within proof-of-work-based blockchains, specifically focusing on Bitcoin. We analyze the dependency of mining profit on factors such as transaction fee adjustments and operational costs, particularly electricity. By applying a multidimensional profitability model and performing a sensitivity analysis, we evaluate the potential for profit maximization through operational cost reduction versus fee increases. Our model integrates variable electricity costs, market-driven Bitcoin prices, mining hardware efficiency, network hash rate, and transaction fee elasticity. We show that mining strategies aimed at reducing electricity expenses are far more profitable than pursuing transactions with higher fees.