Cryptocurrency mining - A comprehensive overview
Cryptocurrency mining has been a hot-topic for many crypto-enthousiasts around the globe, but why? and what is it all about? Read it here!
Cryptocurrency mining - Where it all began
As some may know, On 18 August 2008, the domain name bitcoin.org was registered and in the same year, on 31 October the Elusive Satoshi Nakamoto released the first Bitcoin whitepaper, titled A Peer-to-Peer Electronic Cash System.
The completely open source code, spurred many other Cryptocurrencies to emerge, each with their own unique ideas to change the world.
You're probably wondering how this all translates to the main topic of this blog; cryptocurrency mining.
All of the aforementioned world changing ideas have something very interesting in common. They all seem to require a medium of transferring funds, smart contracts and everything else you might thinks of when mentioning "cryptocurrencies". How is this achieved? you guessed it. By mining! (And yes, mining is not the only way to aquire crypto and to keep a blockchain based eco-system running)
Miners are paid out in a small portion of the block's proceeds for checking cryptocurrency payments from one person to another, checking fake transactions and for writing to the blockchain. Validating these transactions can be done based on two principles: Proof Of Stake (POS) and Proof Of Work (POW). POS will be discussed later in the article.
In the early days of cryptocurrency mining, validation (POW) could be done on a simple home-pc. The CPU would validate everything and mining was quite profitable. In this day and age, Mining cryptocurrency is done by large factories, filled to the brim with ASIC mining equipment According to bitinfocharts, the mining hashrate (calculations / second) has piqued on 01/09/2019 at 86 Exahash (86000000000000000000 hashes every second!). Small time miners are barely getting a "piece of the pie", now the big factories have taken over.
Cryptocurrency mining - Calculating the ROI of your mining rig
One of the biggest factors to keep in mind when joining in on the hype of cryptocurrency mining is calculating the ROI of your cryptocurrency mining rig. But how do you go about this? We've listed the following major factors down below:
The Initial Cost
This seems like a no-brainer, yet many people overlook this when they're too focused on the benefits of generating a passive income.
If a rig costs 10K to make and setup, chances are you won't ROI unless the mining proceeds are very very high. As hashrates increase, your returns lessen. So take this into account when buying a rig!
The cost of running your rig
Cryptocurrency mining is a very resource intensive process, not only on your hardware but on your electricity bill as well. An ASIC tends to run at around 2300 Watts Which translates to roughly 2.3 KWH/hour. Times 24 (as your rig is running 24/7) is 55.2 KWH / day. With an average electricity cost of around 20 cents / kwh (can differ in your region!) your rig needs to generate atleast 11,04 euro's per day to break even!
Degradation of your hardware
Most Mining hardware won't last nearly as long as you think it does. Say that you have every calculation in mind, the initial cost will be ROI'd in 2.5 years, and that is while taking electricity in mind. Will that rig last 2.5 years? and more important, will it still be powerfull enough?
The mining pool fee's
A minor cost, but not one to skip over. When you are mining in a mining pool the administrator takes a cut of your proceeds to keep the pool running. A minor cost? Maybe, but it will impact your ROI on the long term.
So, as we have established, calculating the ROI of your rig is fairly simple. But, the initial investment is huge! If you don't have these enormous amounts of funds laying around, is there truly nothing you can do?
That brings us to the next topic, cloud mining.
Cryptocurrency mining - in the cloud!?
Cloud mining is something fairly new, you outsource your mining hardware, by paying a cloud mining group. These cloud-miners have huge factories and you rent a part of that factory so to speak.
Normally, cloud-mining is done through a set of contracts that bind you for a pre-determined period of time, most often between 1 month to a couple of years.
Even though we cannot recommend any cloud-mining services, there are quite a few reputable ones out there. Watch out for scams though!
Cryptocurrency mining - the final verdict
The tone of this article might come off as a bit negative, but that is because Cryptocurrency mining is mainly done by large players, and unless you are willing to heavily invest in the tech and market, chances are you won't ROI from it.
As a hobby however, it is perfect! And if you manage to get a mining rig cheaply from an old mining-farm or another hobbyist, your chance to ROI will increase significantly.
As an honorable mention, I want to share a quick word about the alternative mining method, called Proof of Stake. For all the intricate details, a separate article will be written though.
in a Proof of stake environment coins compete against each-other for the new block, making it very worthwhile to keep a lot of coins for a long time.
The major advantage of a POS environment is that it takes away the enormous electricity consumption that the Proof of Work mining method requires. Many people claim that POS is the future of mining.
Interested in more trading knowhow?
check out our article about The Bitcoin Price Cycle 2019