Blockchain mining has been around for more than 11 years now, but its future is up for grabs. Neither home mining nor its derivatives (such as cloud mining or large-scale industrial mining) are profitable for the average miner, largely because of the volatility that provides uncertain returns. The future seemingly belongs to the large-scale mining companies that relocate to regions where energy is cheap, so they can save on expenses. Since these massive companies are inaccessibly expensive, they only benefit retail miners.
Recently, some decentralized options have sprung up that offer the average miner ways to make mining more accessible, cheaper, easier, less risky, and more profitable.
A Brief History of Mining
Mining started out as something almost anyone could do. In 2009, all you needed was a standard computer, and you could rake in about five dollars a day. As mining became more competitive, the simple central processing unit (CPU) gave way to graphic processing units (GPUs), followed by special microchips, called Field Programmable Gate Arrays (FPGAs) or Application Specific Integrated Circuits (ASICs). Competition and growing mining difficulty pulled up power requirements until it soon became too steep for your average miner to make money on. In fact, the research firm Fundstrat recently predicted that the price of Bitcoin is nearing a break-even of 1.0x, meaning the reward for mining a single Bitcoin equals the total cost.
To hike their chances of solving puzzles, miners congregated into mining pools where they shared resources, hardware, and income. Even there, profits are uncertain since cryptocurrency volatility makes returns unpredictable. Mining pools like AntPool, BTC.com, and Slush remain the biggest in the business to date.
Miners turn to cloud mining to slash hardware and energy costs. This is where you lease mining hardware or hashing power from a remote datacenter. Keep in mind that you can never be certain how these companies use your money, and ninety-nine percent of these types of companies are said to be scams. Even those companies, like Hashflare, that are credible are still unprofitable since you have to pay the company high commissions only to receive uncertain returns. For these reasons, cloud mining remains unpopular.
The industrial mining rigs that do provide certain returns are inaccessibly exorbitant. This is because these rigs run massive data centers and heavily invest in mining infrastructure that include rows upon rows of closely packed processors of 10 megawatt or more, heavy-duty fans, water blocks, and heatsinks to diffuse the heat, among other equipment. These need constant upgrades and purchases to keep up with the decreasing lifespan of mining hardware, growing competition, and a steep increase in network difficulty.
Sprawling mining companies like Genesis Mining spend every day, all day, just mining Bitcoins and are mostly situated in countries like China and Venezuela where energy costs are cheap or practically free. They make a killing for themselves (Genesis Mining reported that it spent $200 to mine one Bitcoin in 2016, which was worth $690 back then). On the other hand, the company charges $350 for a 2,500 GH/s Bitcoin mining contract, plus a small fee for electricity, making Bitcoin mining profitable only for retail miners. The GH/s is a miner’s hash rate; the higher the hashrate, the more you mine.
Many of these mining companies have diversified into alt currencies that include Ethereum, Dash, Litecoin, Monero, and Zcash. Depending on the country they work in, some of these companies are also vulnerable to government bans and regulation.
How to Calculate Mining Costs
If you’re still intent on mining, the easiest formula for calculating your profitability would be to calculate the prices for the following:
- Rig — You can go for the cheaper option of the DIY mining rig, which can be built from your own PC with as many GPUs that you can afford. The expensive but more powerful choice of ASICs are self-contained units with a USB and/or Ethernet port. They are usually produced in the USA, making it costly for those who live outside of the US to export them. As of 2018, top-quality FPGAs and ASICs cost between $489 and $3,000.
- Energy — ASICs can do far more calculations with far less power than DIYs because they are highly specialized devices, but regardless of which type of processor you use you’ll be using hundreds of thousands of megawatts. Most miners add extra energy costs for cooling, too. Check with your provider, or take a look at your last bill to assess your energy consumption needs.
- Misc. and hidden costs — Hidden costs include accessories like cables and adapters. Then there are the fees for transactions and for mining pool membership, where costs range from one to three percent of the income for the most popular pools.
Some websites provide profitability calculators to help you estimate your costs. You simply input parameters such as equipment cost, hashrate, power consumption, and the current price of the altcoin you’re mining in order to see how long it will take to pay back your investment.
Multi currency calculators:
Bitcoin specific calculators:
The Future of Mining
Frankly, few credible experts are optimistic about the future. Energy costs increase as cryptocurrency fluctuates and its value diminishes with time. You’re up against fiendish competition and the need to buy evermore sophisticated equipment if you hope to be a viable competitor.
Daily FinTech predicts that the future of mining belongs to countries where energy costs are cheap, like China, Bosnia, or Iceland. Bitcoin mining can also be subject to regulation and taxes. Chinese firms (not necessarily in China) will dominate the industry, and PoW will largely succumb to PoS. In 2017, Bitcoin proposed adopting a Lightning Network which works on a “second layer” payment protocol on top of a blockchain. As a result, this will cut miners’ work in half — though mining will still remain.
Meanwhile, the large-scale commercial crypto miners are the only ones raking in a good business since they can afford to live in remote regions that have low energy costs. These hashing centers focus on their lowest margins, while generating a power capacity that produces gigawatts rather than megawatts.
According to Jeremy Allaire, CEO of Circle, a venture-backed digital currency startup, “We’re at the institutional scale today. We’ll see investments grow to billions of dollars in coming years. We’ll see the mining pools move from being run by hobbyists to being run by large companies.”
These large companies tend to service franchisees or retail miners. Their costs push them out of the reach of the average miner.
Specialized mining alternatives
There’s the old adage that says people make more money in gold rushes by selling pickaxes than by mining gold. That holds true with blockchain mining as well. As we’ve seen, the main problem for miners is the very real possibility of little to no return. For mining to continue to attract average miners, it has to become more profitable.
In the end, blockchain technology leverages its qualities of transparency, decentralization, and scalability to provide solutions where none exist. Three companies in particular — OddoCash, Terraminer, and Miner One — try to make mining more profitable by reducing hardware and energy costs, making the system more transparent and accessible and giving the users a steady income. In this way, users have lower risks and can anticipate a profit from their investments.
OddoCash
Instead of paying for equipment and energy, OddoCash allows you to become a partner in its Ethereum mining platform and gives you a daily to weekly income in Ethereum. This income is predicated on the following conditions:
- The amount of user investments (at least, 0.01 ETH [$660])
- Number of invited users
- Activity of those invited users
- Exponential number of invited members
OddoCash has its own ERC20 ODC token (the smart contract has been verified by ABDK Consulting)
OddoCash is open source, so it’s transparent and users can trust the company. Users don’t need to invest time in learning the subtleties of mining or wait months until they see their first earnings. Ethereum’s value may dip, but users can anticipate a definite return since the OddoCash platform harvests thousands of ETH a day.
Terraminer
Commercial mining farms focus on their bottom margins and therefore manage to increase their profits. These commercial hashing centers are inaccessible to average miners. Terraminer makes low-cost mining accessible to the average miner by shipping mobile mining farms that are equipped with all the necessary means of communications, an alarm system, a fire safety system, and an advanced immersion cooling system.
All you need to invest is $100 with no upper limit, and users are told that the more they invest the more mining power they buy. The revenue from mining is shared between the token holders and the founders on an equal basis. Miners receive daily revenue, and Terraminer uses its own token, TRM2.
Miner One
Miner One uses blockchain technology to aggregate a pool of highly qualified miners and to obtain cutting-edge technology at the lowest costs in order to get the best possible returns.
At Miner One, professional miners work together and share their resources as well as their income, just like mining pools do. Users of Miner One, however, don’t have the hardware and energy expenses of centralized mining since MinerOne runs its equipment at heavily discounted prices and has access to cheap energy. Its members are more likely to witness better returns because of this.
Minor One uses an MIO token, which represents membership in the Miner One community and a share in the output.
Conclusion
Fiendish competition and uncertain returns makes mining practical only for massive mining rigs that feature high-density hardware and are situated in inexpensive-energy regions that help them focus on their bottom margins. These rigs tend to be service retail miners. For the average miner, mining has become an industry that provides notoriously poor returns. Blockchain platforms achieve profitability either by making miners partners in their companies and giving them certain returns, or by giving miners access to cheaper hardware, energy, and the experts to help them. Follow our crypto community here.
About the author:
Kirill Shilov — Founder of Geekforge.io and Howtotoken.com. Interviewing the top 10,000 worldwide experts who reveal the biggest issues on the way to technological singularity. Join my #10kqachallenge: GeekForge Formula.