How to Calculate Mining Profitability
If you are serious about mining cryptocurrencies, there are certain things you need to know. In the guide below, you can learn how to make the best of mining in the most efficient way. If you are familiar with bitcoin mining, you probably already know the process and its high production cost. For those on the budget, GPU miner for scrypt currencies or ASIC machine for bitcoin or other SHA-256 currencies can be the option worth looking into.
How to get started?
Choose your currency
Mining digital currencies is the process that can involve cryptographic puzzle solving. As of today, there are two algorithms being used by miners: SHA-256 and scrypt. There are other alternative hashing algorithms, such as Primecoin, that are not used as widely.
SHA-256
This algorithm is based on raw processing. Back in the days, bitcoins were mined with CPUs and GPUs processing units. However, these days, specialized processors (ASICs) are needed for bitcoin mining. The use of powerful processors created a technological race, making even the most recent chips quickly become outdated.
Scrypt
GPU-based rigs are still in favor since the scrypt algorithm uses larger amounts of RAM and parallel processing ability. However, ASICs for scrypt is still to reach the same difficulty level as bitcoin.
The right rig
When setting up a mining system, there are two scenarios to follow, depending on choice of intended currency for mining and one’s budget.
DIY rig
This type of rig can be built from one’s PC using as many graphic cards as it can fit. Many people prefer to use special case for their PC to provide an increased air flow around all of the components. This type of DIY system allows both, CPU and GPU mining, to be performed at the same time.
ASICs
Ready for use by manufacturers, these units come with USB and/or Ethernet port. ASICs self-contained units are usually more pricey that DIY rigs and are produced mainly in the USA, which makes importing to other countries a little more complicated.
Power up
Since mining requires a large amount of electricity, it is wise to invest in an efficient power supply. Power requirements for all used components need to be taken into account. In addition, excess capacity can be used in case of unexpected events. Alternatively, being a highly specialized device, ASICs can perform a larger amount of calculations with less power usage.
Mining efficiency can be calculated as a ratio of the number of hashes it performs in one second to the power it consumes.
Mining efficiency=hashing speed/power consumption.
Check your bills
After the initial rig investment, your electricity cost needs to be determined for calculating an overall profitability. If electricity charges from your provider exceed your earnings, you might need to reconsider an existing business plan.
Team up
Joining the pool of other miners and combining resources can be a great idea. Since miners earn a share of the rewards based on the difficulty level of blocks they solve, joining a pool of miners can make block solving more efficient. Not only it will allow you to earn a share of all the coins mined by others, but it will also present a better chance of solving a block.
Issues that may arise
Spend to earn
Due to increasing difficulty level of currency mining, it is important to invest in quality equipment that will run over extended period of time. Additionally, a long-term profitability is affected by your ability to think critically in the moment when prices drop. In a situation like this, one is faced with two choices: they can either sell their coins at the low price or wait for prices to come back up. Waiting for coin value to increase means you will have to operate longer to cover equipment and electricity costs.
Keeping it cool
As mentioned earlier, some of the DYI mining rigs require special case for PC to ensure adequate air flow between all of the components. Since mining creates a lot of excess heat, its efficiency can decrease with higher temperature. Proper ventilation and cooling is the key to a more productive operation. Some of the rig builders use beer crates as a case for their PC or a fan to keep the parts cool.
Power issues
If you are planning on building a mining rig it is crucial to invest in a high-quality power supply. A cheap PSU can negatively affect performance or cause a system crash. That’s why it is critical to use a high-performance PSU to avoid downtime.
Avoid downtime
To minimize downtime and avoid losing money one should:
- Get the best power supply that is available
- To avoid electricity supply shortage, invest into a UPS (uninterrupted power supply) if possible
- Configure an automatic start for mining on start-up to avoid downtime if the system crashes
Hidden costs
Besides rig building and electricity costs there are other less obvious costs involved with mining.
Delivery and customs
International shipping and customs charges can be significant. That’s why it is a good idea to inquire about any additional fees beforehand.
Accessories
Includes costs for any additional items that you might need, such as cables and adapters.
Cooling costs
Any additional costs for fans, air conditioning, etc.
Summing it up
Profitability calculators
Profitability calculators can be used for one’s assistance. There are several websites created for calculating profitability based on the input of parameters, such as hash rate, equipment cost, power consumption, current bitcoin price, etc.