Calculating Profitability

Before embarking on any sort of crypto mining enterprise, it’s essential to plan carefully and calculate profitability. There are, after all, numerous factors that need to be taken into account. Read on to discover what these are and how they can influence the decision-making process.

Block Difficulty

Is mining cryptocurrencies worth it?’ That’s a question being asked a lot these days. To address this question let’s look first at the concept of block difficulty.

Block difficulty is one of the most important considerations of all because it can have a direct effect on hardware costs, electrical usage and power consumption. The term relates to the complexity of the algorithmic puzzle which needs to be solved in order to create a new block of transactions.

For example, Crytpocurrency networks are designed to output a certain number of ‘coins’ within a set time frame. For a digital asset such as Bitcoin, it’s every 10 minutes. However, an increase in mining popularity, as well as the proliferation of powerful mining hardware such as ASICs, means that the hash rate on its network has risen sharply.

To counter this, the Bitcoin network automatically adjusts the difficulty level in order to ensure that the discovery of a new block occurs within its designated time-frame.

Unfortunately, the Bitcoin protocol has been adjusted to such a degree, that the tiny rewards generated from verification don’t even pay for a computer’s energy consumption. So as far as this particular digital asset is concerned, unless you’ve got very powerful mining equipment, there’s very little profit to be made.

Nevertheless, the difficulty levels for emerging crypto-currencies (altcoin) tend to be lower, which means that mining with less expensive hardware such as CPUs  remains entirely feasible. The challenge is finding a digital asset that has or will have value in the future.

Hash Rate

A hash is the mathematic puzzle that a miner’s computer needs to solve and the hash rate is the speed at which these computations take place.

Consequently, the hash rate is a key selling point for a piece of mining hardware and an important indicator of how successful it will be during the crypto mining process. Hash rates are measured according to the following specs:

  • kH/s (Kilo hashes per second)
  • MH/s (Mega hashes per second)
  • GH/s (Giga hashes per second)
  • TH/s (Terra hashes per second)
  • PH/s (Peta hashes per second)
  • EH/s (Exa hashes per second)

So…

  • 1 kH/s = 1,000 (one thousand) hashes per second
  • 1 MH/s = 1,000,000 (one million) hashes per second
  • 1 GH/s = 1,000,000,000 (one billion) hashes per second
  • 1 TH/s = 1,000,000,000,000 (one trillion) hashes per second
  • 1 PH/s =1,000,000,000,000,000 (one quadrillion) hashes per second
  • 1 EH/s = 1,000,000,000,000,000,000 (one quintillion) hashes per second

To add some context to the above figures, an acceptable hash rate for a low budget crypto miner in 2018, would be something approaching 30 MH/s.

Block Reward

As the term indicates, block reward is the amount of cryptocurrency awarded to miners who solve a block. It is an essential element of any mining profitability calculation.

Its purpose is to encourage miners to add their hash power to a network – the more miners who join a network, the better the chance of successfully verifying a block. In return, the network benefits from the added security that comes with more hash power.

Block rewards follow a pre-defined schedule which cannot be manually adjusted. The schedule determines how many coins can be created with each block as well as the rules by which valid blocks can be created.

For Bitcoin, the reward amount is halved for every 210,000 blocks, which is approximately every 4 years. When it was originally created, the reward was 50 Bitcoins whereas now it stands at 12.5 BTC.

This decrease means that fewer Bitcoins are created which, coupled with greater demand, is designed to push the price of Bitcoin up. When the block reward has halved 64 times, it reaches zero.

Electricity Usage

Solving a hash’s cryptographic puzzle requires a great deal of computing power, even for the most specialised mining rigs. This is exacerbated by block difficulty and constant adjustments made to the complexity of each crypto algorithm. So knowing your electricity rate is very, very important.

Hardware Costs

Hardware costs are a major factor when it comes to calculating crypto mining profitability. Most CPUs and GPUs can be acquired for a few hundred pounds while ASICS usually cost thousands of pounds – so although they’re more economical in terms of power usage they’re certainly not cheap.

While the emergence of altcoins has opened the door once again to CPU and GPU miners, factoring in hardware costs is crucial.

Putting it all together

Before embarking on any crypto mining enterprise, the following elements therefore need to be factored into any profitability calculation:

  • Block Difficulty
  • Hash Rate
  • Block Reward
  • Electricity Rate/Power Consumption
  • Hardware Costs

Conclusion

While there’s no doubt that crypto mining can be profitable, starting a large operation requires considerable investment. The lofty prices associated with ASIC miners means it can take years before the money is recouped.

But they remain the the tool of choice for miners with medium to large budgets because of the potent levels of hash power they offer. And despite the emergence of ASIC-resistant cryptocurrencies, this is unlikely to change any time soon.

However, GPUs and even CPUs for remain relevant, even if the potential profits aren’t as good. Indeed, with prudent planning and investment, it’s still entirely possible to build a sound second income. Moreover, the emergence of altcoins offers fresh opportunities for solo and hobby miners, given the less prohibitive difficulty levels.

So the long of short of it is this: If you’ve got the financial clout, invest in ASIC hardware. But if you’re a hobbyist/solo miner with less spending flexibility, then GPUs or even CPUs, may be a better option.

 

Related Pages

What is Crytpomining? | Calculating Profitability