Since we already know what the hashrate of a given device is and what the mining process is all about, it is time to go to the network parameters and the market itself, which depends on whether and when the mining of bitcoins will be profitable.
The most important parameters that you should pay attention to during digging are
- the difficulty of mining and the length of time it takes to adjust it
- the total hashrate of the network and its average monthly growth rate
- reward for the transaction block
- total average pool of transaction fees
- the total energy consumption of the equipment that we own or are about to buy
- the cost of the energy we have at our disposal
- and the most important thing that everyone forgets about: the ratio of profitability of mining to the price of equipment valued in a given cryptocurrency.
Every person who wants to invest in mining, e.g. Bitcoin, must start with a market analysis. Regardless of whether such a person agrees with Bitcoin’s ideology or does not need to see in it an internal value, because the process of equipment depreciation usually lasts for many months, and if the Bitcoin’s rate falls to 0 during this time, it is not enough that the invested amount will not pay back, we will still be left without the possibility of reselling such dedicated equipment, along with a large bill for electricity.
Why couldn’t such equipment be sold off afterwards?
As I mentioned above, the Asic excavator is specialized in exactly one equation (something like a calculator, on which we can count only and exclusively how much is 1+1 and nothing else), therefore, at the moment when the equipment is not able to earn on its own with us, then certainly someone else would also have no reason to want to buy such equipment from us. (we are talking about an extreme situation in which Bitcoin would be worth less than the cost of its extraction)
The ratio of the profitability of cryptocurrency mining to the price of equipment is very important if not the most important indicator telling us whether it is worth digging a given cryptocurrency or just to buy it. Many times I have encountered a situation in which a person X boasts that for the last year or two he dug 10-15 Bitcoins, but when he asks such a person about the cost he has incurred, he gives us the price in euro or dollars. This is a very wrong approach, because the exchange rate of the currency itself can be terribly unstable and often comes to a situation in which someone investing e.g. 10,000 USD in mining Bitcoin (which at the then price is equivalent to e.g. 2 BTC) for the entire life of the equipment will dig only 1 BTC. When the Bitcoin exchange rate increases by 200% at that time, the investor will feel like a good investment because 1 dug Bitcoin will be worth USD 15,000, while simply keeping these 2 BTCs instead of spending them on equipment will result in a profit of not USD 5,000 but USD 10,000 at the same or even lower level of exchange rate risk, and without the costs associated with servicing the equipment itself.
This indicator is determined as follows:
The price of the equipment (nominated in the cryptocurrency we want to dig) to the daily net output (after deducting energy costs) taking into account the average increase in digging difficulties over the lifetime of the excavator.
Current price of Bitcoin 6500 USD
the difficulty of digging: 7,152,633,351,906
Calculator of difficulty in translating into computing power ~ 1: 7,000,000,000,000 hashes per second
total network hashrate ~ 54.24 EH/s = 54 240 000 000 000 000 000 000 000 hashes per second
For example, we want to invest USD 10,000 in BTC digging.
Current excavator price at the manufacturer, e.g. Bitmaine = ~700 USD + shipping costs + VAT + customs duty
This means that for $10,000 we will buy 13 excavators with a capacity of 14 TH per second, which will give us a total of 182 TH.
Such equipment is capable of excavating 2.39 BTC per year without taking into account the increase in difficulty.
After considering it, it is necessary to assume that a maximum of 1 BTC will be excavated.
1 BTC x 6500 USD = 6500 USD – without deduction of energy costs
For a year this equipment will use electricity for about 16 000 USD if you have a fairly cheap electricity of 0.1 USD per 1 kWh which is not so easy to negotiate. Otherwise, with the current electricity price and the value of one coin you will simply lose even more.
But let’s assume that the BTC exchange rate in the process will rebound to 20 thousand USD and you can pay for the electricity with a long delay. What then?
Well, nothing, even if the mining is going to be positive, you will still get only 1 BTC annually, while at the very beginning you can concentrate on the market of 1.53 BTC. Moreover, the 20-30-50% of the fees will still have to be deducted from the excavated 1 BTC. So? Buying a BTC in this case pays off much more than digging it, the exchange rate risk is identical in both cases, with the difference that the coins are much easier to sell, they do not generate electricity bills for us, and once a year in Russia we can get some airdrops as it was with Bitcoin Cash in the ratio of 1:1.
The above analogy can be applied to all fossil cryptocurrencies, but in the case of other coin coins you have to be aware of a very important thing. Only a few coins are mined on specialized Asic chips. This means that when you dig a coin on a graphic card, you have to take into account the fact that day by day there may be a competition with better equipment, increasing the difficulty of digging hundreds of times, as was the case at the beginning of bitcoin extraction. In such a situation, unfortunately, your equipment may lose as much as 99.9% of its mining capacity and you will never be able to recover the invested funds again. All the more so if you bought excavators made especially from dedicated graphics cards without displaying the monitor, as a result of which such cards will not be able to be resold on the market for e.g. computer players.
However, there are circumstances in which mining pays off regardless of the price of a coin or its marginal importance.
One of them is immediate investment of huge amounts of at least 3-4 million USD. Then you can build your own wind farm and a large assortment of excavators, which will cause that in case of large drops you still do not have to worry about bills and do not stop the mining. In addition, with really big drops you can always turn off the equipment and sell the produced energy to the power grid to exchange the profit for more BTC than you would dig up at the same time, which, as it turns out, is already practiced by some companies.
I hope that I have dispelled at least some of the doubts about digging Bitcoin, if you have any questions, please ask them in the commentary under this article. When more of them come together, I will certainly write another article that will focus more on the issues you would like to discuss.