People often get excited when they first plug the numbers onto a mining calculator. What they don’t realize is that mining calculators are estimate that do not take into account all the cost and risks of running a miner. The adage “If it sounds too good to be true, it probably is” applies here.
Here are four of the most important things to factor into your calculation before making a decision to invest in mining equipment.
The most important factor that mining calculators do not take into account is that network difficulty is a moving target. All mining calculators give you estimate of daily , monthly and yearly profitability with the assumption that network difficulty is constant. The problem is that difficulty is never constant, in fact difficulty tends to increase over time. In other words, your hardware will be mining coins at a decreasing rate over time.
Consider the following example:
Bitcoin’s network difficulty the last year increased from 196,061,423,939 to 711,697,798,174 (Jun 2016 – Jun 2017).
Expected daily reward at 10 tera-hash.
Difficulty (196,061,423,939) @ 10 TH = 0.0123 BTC per day
Difficulty (711,697,798,174) @ 10 (TH) = 0.0034 BTC per day
This means that a mining operation would have mined at 3.5 times the rate last year than it does today. This illustrates how you should never take yearly and even monthly profit estimates from mining calculators at face value because network difficulty is not constant.
Some mining calculators also do not take into account pool fees. Unless you are setting up a mining farm with racks of miners, you will likely want to join a mining pool. A pool allows miners to pool their hash power together and share in the reward. Joining a pool makes your payout significantly more predictable, however there is often a small pool fee (typically 1-3%) charged by mining pools.
While it is generally not difficult to run and maintain a miner, issues can arise. And with issues comes lost of valuable mining time. Having downtime especially during the the early months of receiving your miner can be devastating. Since network difficulty tends to increase over time, the reward received for your first 3 months of mining can be equivalent to the reward earned the following 6 months thereafter. This is why some people choose to not send their miner for repair and would rather continue to mining with a faulty miner even if it is under warranty.
Sound and Heat
Practically all top tier SHA-256 (Bitcoin) or Scrypt (Litecoin, Dogecoin) ASIC miners are incredibility loud and give off considerable amount of heat. This makes miners impractical to keep around the house. I recommend running the miners in a garage or possibly the attic if possible. For example, the Antminer (S9)’s noise level measures between 78-80 decibels (db); this is twice as loud as a typical vacuum cleaner.
Do not rely solely on mining calculators to estimate the profitability of mining. It’s important to recognized that network difficulty tends to be positively correlated with coin price when it’s going up and less so when price is going down. Additionally, be sure to factor in pool fees, mining downtime and potential cost of repairs into your profit estimates.
Most people would say that buying the coin is more profitable than mining unless you have access to free or near free electricity and for the most part, I agree. With that said, there are scenarios where mining can financially outperform buying the coin. For those that are interested in an in-depth comparison, stay tune as I will be doing a deep dive into the number in a future article.
Lastly if primary motivation for mining is to support the network or learn more about crypto currencies; then by all means get a miner. (you can even get consider investing in a second hand older miner if financial gains is not your motivation)