Dealing with Cryptocurrency has its interesting dynamics. There are, however, many hidden facets making it still a mystery to the masses. We are all by now aware of the mania caused by the soaring prices and subsequent decline that followed early this year of the much-talked-about Bitcoin along with other Cryptocurrencies such as Ethereum, Ripple, and Monero.
What one does not pay attention to, however, is finding out exactly just how complex it is to physically “acquire” and store these Cryptocurrencies – or altcoins as they are commonly referred to as – let alone, “mine” them.
Mining coins can be described very basically as the process where users “or miners” become part of a Cryptocurrency network. By making their hardware (computer processors and graphics cards) available to support that specific network’s operations. What you do as a miner is contribute towards the working of the Blockchain – which requires millions of calculations to validate transactions into what are known as public ledgers.
There are three main ways to mine these coins but we will not be highlighting them in this post. The matter to be covered here, however, is the business aspect and how the Blockchain has created a new line of commercial entities and profit takers. These modern tech “enterprises” offer a specific or cluster of altcoins and tokens as a reward for helping them maintain activities relating to the Blockchain.
By charging monthly or once-off “mining pool” fees, potential miners to get the opportunity to benefit from owning coins and cashing in when the coin appreciates in value. Sounds like a win-win situation right? Or is it?
If you have looked at the main methods in which mining is conducted you will discover that only miners with high-end hardware are able to produce enough power to contribute to the Blockchain or called “hash power” or “hash rate”, and thus able to make a profit from the spoils.
There are sites that illustrate how to calculate potential profits such as this one conveniently called ‘what to mine’.
The opportunity cost of operating the customized computer systems (commonly known as Mining Rigs), will have to be offset with the cost of acquiring the hardware such as the Antminer S9i. Then there are the energy costs (including cooling) associated with running the rigs for long periods of time. Your profit would, therefore, be the balance of the costs versus the revenue involved in mining coins – which is usually observed over a year to make a clear profit or loss assessment.
Mining profit = Revenue (Quantity x Price of the coin in local fiat currency) minus Cost of the Mining Devices + Annual Electricity Costs (measured in local currency per KWh).
The problem with going at it yourself is that it is very hard to break even – the more powerful your hardware, the more electricity it consumes. It also takes a lot longer to acquire the coins which awarded to the miner by the respective blockchain network after successful hashing is completed. This means that you would require enough energy to get a full (or a portion of the) coin and then ensure that its market value (trading price) or “worth” exceeds the costs of the monthly/annual electricity bill.
What we now faced with is a growth of such Crypto or “Tech” companies spurting up by the day offering to relieve you of the burden of the high electricity and hardware costs in exchange a monthly or once-off fee. In return, they promise to mine coins and provide you with daily or monthly profits (payable in Crypto or in cash). This would be possible for them as they would presumably have bigger (and more powerful) mining setups and thus benefit from economies of scale.
Some of these establishments use big rooms, whole buildings and warehouses to run thousands of rigs throughout the year. The payments you make presumably help them with maintenance costs and for them to pay for the electricity bills. They are also usually stationed in countries where the cost of electricity is very low.
You are likely to, however, run the risk of dealing with the occasional Ponzi-scheme – setup – which would dive on the opportunity to swindle especially those not familiar with Blockchain and Cryptocurrencies. By dazzling them with the price increases and potential astronomical returns – which is public knowledge anyway, they take the money and make a run for it.
One can also ponder, as it is incredibly difficult and expensive to mine Bitcoin and other “Cryptos” these days, if these setups are actually just individuals or part of syndicate of Cryptocurrency owners who have already made their millions from acquiring their coins when they were dirt cheap, and are now offering the residue to make more profit off those wanting to cash in on the Crypto bonanza.
How it would work is: take a scenario in which I owned 1000 Bitcoins which I mined in 2010 for the opportunity cost of $50 each (amount of electricity charges spent to get them), and I sold half at the height of the Crypto ‘bull run’ in January 2018 when they were worth $19 000 each, I would have been $9 475 000 richer than I was before making the investment.
So, with over nine million bucks in the kitty and another 500 units of coins (which would be now worth a lot less), and after having purchased my dream house and settled all debts, enriched my family members and indulged in other expenditures, one would then look at ways to keep oneself busy work-wise.
And what better way than to be one’s own boss and head a Crypto company that sells off the residue of Crypto coins (mainly Bitcoin) in bits for profits in cash. This is likely what some of these companies offering coins for an opportunity to acquire some Bitcoins under the pretense of partaking in a mining pool are doing – meanwhile, the actual mining probably took place almost a decade ago!
Stay alert and do your research before parting with your money to join a mining pool or Crypto investment scheme!