Is cryptocurrency mining a profitable business?

Is cryptocurrency mining a profitable business?

Table of Contents


Cryptocurrency mining can become a profitable business; although, to achieve this it’s necessary to keep a series of elements, which we’ll explain in this article, in mind. A first idea is that profitability must reach medium or long term, since the initial investments in the equipment tend to be high. The expense of intensive energy hardware must also be added in. Nevertheless, the cryptocurrency market continues to grow and diversify; in addition, there are different tools for the investor, which help to determine the profitability of each project, on which we’ll also touch during our analysis.

 

What is cryptocurrency mining?

Before explaining the technical concept, we’ll make an analogy with traditional gold mining. In this process, miners use heavy equipment to remove the soil, then work the extracted soil to obtain gold with which they pay the exploitation expenses and then they keep the profit. The same thing happens in cryptocurrency mining, except that the machinery used here is powerful computer equipment, capable of making very complicated computational calculations. With the income obtained, the miners pay for the expensive equipment and have a margin of earnings.

Cryptocurrency mining is the process through which the transactions between users take place and, then, are added to the blockchain; in addition, new cryptocurrencies are also added to the amount in circulation. Mining is the key process, because that’s what makes it possible for cryptocurrencies to remain as a decentralized network, without the need to resort to a centralized regulating authority. All operations carried out are confirmed by the users themselves, thus avoiding someone’s use of the same amount in cryptocurrencies on more than one occasion or dealing with the introduction of false cryptocurrencies onto the market.

Those who carry out this process are called “miners” and they need to use powerful hardware to find the solution to very complex mathematical problems. The first one to solves this problem, then the transaction is verified, it is added to the blockchain and this miner receives an economic compensation. This reward can be for two elements: for each block of the mined chain or a commission for each transaction carried out, since the cryptocurrency issuer must pay the miner a compensation for the use of his equipment.

How does cryptocurrency mining work?

The mining process can be divided into eight steps. Each user that intervenes in the blockchain depend on a public address, known as wallet. These addresses have a private key associated to them and only the holder of said key can carry out transactions.

Then, the miners make a summary of the valid requests by users for transactions and, continuing, they begin to verify the data of these requests. Initially, the verification process considers that, in the wallet, the user ca count on a sufficient amount of cryptocurrency. To know this, the miner audits the copy of the blockchain kept in his computer, where all of its movements are recorded. If we put them in the common financial life, then the miner will be the cashier of the sufficient funds and that the signatures are correct will they be allowed to carry out the operation.

If all the data of the transaction are correct, the miner adds this operation to his transaction block. Here, a very strong competition begins, where the miners, with their powerful hardware, deal with solving the mathematical problem that validates the transaction. The objective of the competing miners is to find the “nonce” value. This is a number that solves the problem.

The “nonce” value is part of what is known as the digital signature. This contains three elements: the digital signature of the previous block, the list of the transactions that have been validated from the previous block and, last, the “nonce” value.

The digital signatures work through “hash” functions, which are very complex mathematical equations. All of the miners that take part in the competition know the first two parts of the digital signature, however only the one that can count on the best hardware will be able to reach the “nonce” value. The one who discovers this value will complete the exact digital signature of the new block. If the majority of the miners feels that the solution is correct, the block will be added to the blockchain and the miner winning the competition will receive an economic award.

After each validated transaction, the system will autofit in order to avoid the blocks from being completed much too quickly or too slowly, for making it easier or more complex for the miners to solve the “nonce” value. For example, if the winning miner of the previous transaction arrives at the “nonce” value in 20 seconds, which is less  time than normal, the difficulty in the following block will increase for that miner. On the other hand, if the triumphant miner takes longer, the protocol in the following transaction will be less complicated.

How many ways of mining are there?

There are different types of mining. For example, there is mining with the graphics processing unit (GPU), the one with the ASIC chips and the one carried out on the cloud.

GPU mining continues to be the most used. It consists in using the power of video cards to create cryptocurrency mines. When choosing the most convenient video card it’s necessary to keep at least three elements in mind: the cryptocurrency you’re going to mine, the price combined with the card’s capacity and the consumption of electric energy. In addition, considering that there are brands that work better with certain cryptocurrencies is necessary. For example, the Radeon cards are faster for solving the ethash algorithm which cryptocurrencies like Ethereum have; meanwhile, the Nvidia cards are more efficient in mining Bitcoins.

ASIC mining is based on circuit chips integrated for specific applications. These chips were designed exclusively for cryptocurrency mines. They are more expensive (the price fluctuates between 3,000 and 20,000 Euros), consume a great deal of energy, need very strong ventilation to dissipate the heat, and are noisy; however, at the same time, they are more powerful and the only ones that, these days, can work out hash algorithms, including SHA-256 and Scrypt. These algorithms demand hash rates that are impossible for a GPU to reach.

No miner would think of setting up an ASIC at home, because the noise and the heat would make the experience unfeasible. Today, large companies control significant amounts of ASIC miners, located in data centers — generally located in very cold countries (like Iceland, for example) although these businesses also look for jurisdictions where the price of electricity is very cheap, like Venezuela.

One of the most up-to-date services is mining on the cloud and this is very much linked to ASIC mining. This is where the user who wants to mine cryptocurrencies signs up for hash power with specialized mining businesses, during a certain period of time. This way, the user saves the money of buying, setting up and configuring equipment; in addition, he doesn’t have to pay huge bills for electricity usage. Three of the most prestigious providers of cloud mining are HashFlare, Nice Hash and Genesis Mining.

Two other ways of mining are focused, not on the type of hardware, but on the manner in which the miners are grouped.

Mining alone, both with GPU or ASIC, is when the miner puts his equipment to work and wastes a lot of time finding a block because, regardless of how powerful his hardware is, there will always be a miner with better technical prowess. Meanwhile, mining in pools is when a group of miners joins together and each one brings a mining block. Logically, the economic rewards have to divided i to the mining power brought by each user.

These days, there are mining pools for each of the principal cryptocurrencies. For example, Bitcoin is the one that counts on the greatest number of pools, among which AntPool, BTC, TOP, BTC.com, Bixin and BTCC Pool stand out. Meanwhile, the most used for Ethereum are F2pool and Dwarfpool.

What equipment is necessary for cryptocurrency mining?

In the same measure in which the ecosystem has developed, difficulty for mining the majority of cryptocurrencies has increased significantly, as happened with Bitcoin. Therefore, the procedures and equipment for mining have also transformed and now there are more powerful machines, as well as other alternatives to complete the process, like mining services on the cloud.

The choice of special hardware is key in the mining process. There are three types: the ASIC chips (by far the best, but also the most expensive), the GPU (graphic processing unit, or rather, the graphic cards that have an elevated mining power and, therefore, are able to quickly solve mathematical problems) and the CPU (the computers’ central processing units, which are less powerful which is why, at present, they are almost never used in mining).

When choosing your hardware, keep in mind what type of cryptocurrency will be mined. For example, miners usually use GPU for the majority of cryptocurrencies; however, only a few will mine Bitcoins with graphic cards, since the algorithm SHA-256 can’t be done with them, so that turning to the ASIC chips is essential.

In the case of the GPU, the most complete for mining cryptocurrencies are the ones produced by the two great companies that control the graphic cards market: Nvidia and Radeon. GeForce GTX 1070, which has a hash rate of 30 Mega hashes per second (MH/S), stands out among Nvidia cards. It’s important to know here that the hash rate is a means of calculating power used for solving a block, where the higher it is, the better. Another striking GPU is the GTX 1080 Ti with 35 MH/S. Meanwhile, the RX 580, with 26.7MH/S, the HD 7990, with 14 MH/S and the RX 480, with 29 MH/S stand out for Radeon.

The ASIC chips are much, much more powerful, consume more energy and also have a much higher price than the GPU. At present, the most powerful among the ASIC is the FusionSilicon X1 which has a hash rate of 12.96 Gh/s, consumes 1100W and is capable of generating $29.65 in Monacoin per day. Another very powerful chip is the Obelisk SC1 Immersion, which has a higher hash rate at 2.20 Th/s, its supply is 1600W and can produce, daily, $22.65 of the cryptocurrency Sia; meanwhile, the Innosilicon A9++ ZMaster depends on a 140.00 kh/s, a supply source of 1550W and generates $14.64 of the cryptocurrency Pirate per day. 

A new generation of much more powerful ASIC chips will arrive on the market in the coming months, priced at around 20,000 Euros. For example, the Obelisk GRN1 Immersion will go on sale in October, with an astonishing hash rate of 840.00 h/s, a source supply of 4400W and will be able to generate a daily income of $832.12 of the cryptocurrency Grin-CT31. For those who prefer to mine Bitcoins, the MicroBT Whatsminer M20S will go on sale in September, with a hash rate of 70.00 Th/s, 3360W power, capable of decoding the SHA-256 algorithm and generating $11.80 of Bitcoin per day.

ASIC chips can be purchased in shops like Miners.nl, Sesterce, MiningWholesale and Coin Mining Central.

Which are the most profitable cryptocurrencies for mining? 

When choosing which cryptocurrency is the most profitable for mining, analyzing at least two aspects is essential: the valuation of this cryptocurrency on the market and the difficulty in mining it.

These days, the Bitcoin continues to be the highest valued (its exchange rate in American dollars is around 7,600); however, mining it short-term isn’t profitable, since using mining ASIC with the most modern chips – which are extremely expensive – is essential.

Another of the currently most used cryptocurrencies, Ethereum (its exchange rate in American dollars is around 240) requires a lower investment, for which reason it attracts more and more miners.

Zcash is a very attractive cryptocurrency because it can be mined without the need for making a very high investment. This cryptocurrency uses the equihash algorithm and its unnecessary to turn to ASIC chips, since it’s possible to extract it with GPU; for this, it can be profitable at medium term for miners with fewer resources. Its quote on the market is around 75 American dollars.

Monero is a cryptocurrency with a lot of potential and is exchanged at slightly more than 80 American dollars n the market. It’s profitable because it uses an algorithm, CryptoNote, that can be mined with GPU and even with a CPU.

How can I calculate the profitability of mining with my own hardware?

For those looking for profitability by mining cryptocurrencies with GPU, keeping in mind several elements is essential. The first step is to choose which cryptocurrency you want to mine, keeping your budget in mind. Forgetting about Bitcoin is highly recommended since, these days, a miner couldn’t mine a block of this cryptocurrency, not even with the most innovative GP U.as we explained earlier, it’s only possible to work with Bitcoins through ASIC teams.

The subject of energy should be analyzed in the case of GPU, beginning with the power source that it needs to work. The miner will have to evaluate what the cost of the electrical power consumed during the mining process will be. If the expenses of the GPU, the maintenance of the equipment and the electricity exceed the rewards obtained by mining, the investment evidently didn’t work.

In the case of mining on the cloud, the person will have to be very careful to ascertain whether it’s worth making the investment. Generally, the businesses that offer this service demand a contract where the initial expense for a certain amount of rented power appears and a daily maintenance fee. There will be no need to worry about the cost of electricity here, since this is taken on by the mining company.

For example, in regard to the business Hashing24, it takes an initial deposit of 1,245 USD in exchange for the offer of  5000 GH/s; in addition, its daily maintenance fee is 0.33 USD per GH/s. The person will have to resort to a mining calculator (the advantages they offer are described further ahead in the article) in order to know, through updated information, the difficulty, the reward for a block and the value of the cryptocurrency on the market in that moment.

The calculator will report the approximate moment when you can recover your investment and begin to generate earnings.

What are the calculators of mining profitability?

The calculators of cryptocurrency mining profitability are a very useful tool for identifying the cryptocurrencies that are offering the best economic yield at the moment, as well as the hardware necessary for mining. These calculators request,  for example, the hash rate of the equipment with which we’ll work (it can be GPU or ASIC), the hardware’s consumption of electricity, the cost of electricity in the country where the miner lives and the mining pool commission. With these data, the calculator estimates how much the miner can earn in a day, week and up to a year.

Some calculators even allow the user to put in the cost of your hardware in order to identify the moment of recovering your investment.

The best calculators for the profitability of cryptocurrency mining

The amount of profitability of cryptocurrency mining calculators is more than ample, although the following five stand out from the rest and are currently the most used:

1.WhatToMine

This is the most-used calculator in the world. The site offers very up-to-date information on which is the most profitable cryptocurrency on the market and the equipment necessary for mining it. On the site, the user can put in the type of hardware (GPU or ASIC), a preestablished hash rate, the cost of electricity in his country and the foreign exchange offices, to obtain a list of the most profitable cryptocurrencies according to the information that has been entered.

2. CryptoCompare

The CryptoCompare calculator allows you to enter the hash power, electrical consumption, electrical costs and the mining pool commission. With these data, it is able to generate an estimate of daily, weekly, monthly and annual earnings.

This calculator allows you to calculate earnings from Bitcoin, Ethereum, Ethereum Classic, Monero, Zcash, Pascal Dash and Decred.

3. Coin Calculators

This other website, specialized in calculating the profitability of cryptocurrency mining, offers a list of the most powerful hardware on the market. This information can be very useful when making your purchase of ASIC or GPU.

4. CoinWarz

CoinWarz shows graphs of the profitability of the cryptocurrencies and allows ordering cryptocurrencies according to various categories, among them daily earnings.

5. ASIC Miner Value

This website calculates the daily income of each hardware and this is what differentiates it from the other calculators. With this information, the user has the possibility of estimating how much time it will take to pay for his equipment.

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The views and opinions expressed are the views of Crypto Currency 10 and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
Changes in rates of exchange may have an adverse effect on the value, price or income of an investment.
Past performance is no guarantee of future results and the value of such investments and their strategies may fall as well as rise.

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