Cryptocurrency mining is painstaking, costly, and only sporadically rewarding. Nonetheless, mining has a magnetic appeal for many investors interested in cryptocurrency because miners are rewarded for their work with crypto tokens. This may be because entrepreneurial types see mining as pennies from heaven, like California gold prospectors in 1849. And if you are technologically inclined, why not do it?
However, before you invest the time and equipment, read this explainer to see whether mining is really for you. We will focus primarily on Bitcoin (throughout, we’ll use “Bitcoin” when referring to the network or the cryptocurrency as a concept, and “bitcoin” when we’re referring to several individual tokens).
Cloud mining involves purchasing time on someone else’s rig.9 Companies like Genesis Mining and HashFlare charge you based on what’s called a hash rate — basically, your processing power. If you purchase a higher hash rate, you are expected to receive more coins for what you pay for, but it will cost more.
Depending on the company you choose, you might pay a monthly fee, or you might pay according to the hash rate.10 Some companies also charge a maintenance fee. In general, cloud miners that allow you access to bitcoin come at higher rates.
In some cases, you might be required to sign a year-long contract, locking you in. If the value of the cryptocurrency drops, you could be stuck in an unprofitable contract.
However, at least with cloud mining, you don’t have to worry about power consumption costs and other direct costs related to doing all of the mining with your own rig.
Is cloud mining profitable?
Mining cryptocurrency seems like a no-brainer. Set up a computer to help solve complex math puzzles, and you are rewarded with a coin or a fraction of a coin. The first bitcoin miners were able to earn coins relatively quickly just using what computing power they had in their homes.3
By 2019, cryptocurrency mining has become a little more complicated and involved. With bitcoin, the reward is halved every four years.4 On top of that, serious miners have built huge arrays to mine, making it harder for smaller miners to compete. You can join a bitcoin mining pool to be more effective, but that comes with a fee, reducing your profits.5
Some crypto miners instead opt for other currencies. Some other cryptocurrencies are worth very little in U.S. dollars, but it’s possible to use what you mine and convert it into fractional bitcoins on an exchange, then hope that bitcoin gains in value.
No matter what you decide to mine, you have to account for your setup costs, including, in some cases, graphics cards that can cost upward of $700 apiece.6 7 It’s possible to put together a basic rig for some of the less popular cryptocurrencies for around $3,000. However, some miners spend more than $10,000 on their rigs.
On top of building your rig, you also need to realize that you are going to be using quite a lot of power. If you have high power rates, you could end up spending quite a lot to mine coins — especially bitcoin. The electricity cost involved in mining a single bitcoin is more than $3,000 in the cheapest states.8 For states with higher electric rates, you could spend more than $6,000 in electricity to mine a single bitcoin. With the cost of one coin hovering at $7,000 as of December 2019, the energy costs alone don’t make it worth it.1
A less powerful rig mining alternative currencies could save you money. Even so, it can take several weeks, or even months, to recoup your original investment and become profitable.
- Higher profits
As the mining providers optimize everything and make bitcoin mining cheaper for you, it yields out higher returns.
- A tranquil and cool home
No more heat and sound.
- Less electricity
Less consumption of electricity will result in lesser electricity bills.
- No equipment maintenance
You need not worry about the configuration of the hardware and selling them when they stop being profitable.
- Simple and ready for use
You can sign up and start mining with these providers within minutes.
- Scam risk
It involves the risk of being scammed. If any bitcoin auto mining site offers you exceptional returns on your investment, try to stay away from it and do proper research.
- Cost of mining operations
You will have to pay for the hardware management cost.
- Unpredictable profit
Returns depend upon various factors. It may become non-profitable if the value of the coin goes down.
How long does it take to mine 1 Bitcoin?
Regardless of the number of miners, it still takes 10 minutes to mine one Bitcoin. At 600 seconds (10 minutes), all else being equal it will take 72,000 GW (or 72 Terawatts) of power to mine a Bitcoin using the average power usage provided by ASIC miners.
Can you still mine Bitcoin in 2020?
There was a time where one could profitably mine Bitcoin with GPUs, but again… today, you really must have an ASIC and a deal with a power company to make any money mining Bitcoin in 2020
Is Bitcoin mining hard?
Upon its launch, Bitcoin’s (BTC) mining difficulty was 1. However, as of 3 November 2020, the difficulty level is around 16.7 trillion. Meaning the chances of your computer mining new BTC units is 1 in 16 trillion. Also, mining difficulty is adjusted roughly every two weeks, i.e. after 2,106, new blocks are added.
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Important Things You Need To Know About Free Cloud Mining was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.