How to Make a Profit Mining Cryptocurrency
There are many factors you need to consider to make crypto mining profitable. You need to figure out your costs before you can make an investment. As a result you should figure out whether crypto mining makes sense for you. Especially because some of the costs are fixed and others are variable.
Is Crypto Mining Worth It?
Every so often you see a fantastically presented story about some people that have invested into crypto mining. Their endeavour turned a huge profit. Like for example these 14 and 9-year-old siblings earning over $30,000 a month mining cryptocurrency.
The two siblings in the article had their dad’s blessing and most importantly he backed them financially. However he did not tell the journalist how much he had taken out as a loan. The dad helped his kids significantly in that respect.
If you had to get into crypto mining yourself; at what point would crypto mining be profitable? Crypto mining is definitely still worthwhile. However there are different factors you would need to consider to make it feasible.
This article breaks down all the factors you need to consider beforehand. Additionally it will help you understand how much you would need to invest. That is to say regardless of the country you live in.
How Does Crypto Mining Work
Crypto mining is not rocket science, but there are some technicalities. As a result it is better to make mistakes on a smaller scale. After that you can tweak things to enhance them and scale up as you go.
You can even make a start using a cheap and cheerful Raspberry Pi. Here is a Udemy course if you would like to start small and understand the basics.
Crypto Mining at Home
To make a profit from anything you have to of course make sure you are getting more money than you put in. You may not necessarily make much in the here and now. However in the long run you definitely want your endeavour to pay off.
The nice thing about crypto mining is that you can start small. Like that you can figure things out and gain experience while at the same time managing costs. In fact you can even start crypto mining at home. However you will not make money crypto mining in this way.
Crypto Mining Rig: Processing Units
Crypto mining is not like back in the day when people used to do crypto mining at home. They used to use their computer which has a standard CPU (Central Processing Unit). They would easily mine and turn a profit. However as time went by, crypto mining transitioned to becoming more professionalised.
As a result using your computer is not going to make a profit anymore. This is because as demand on blockchain networks goes up the difficulty to mine increases. This is something that happens automatically and is inbuilt into the blockchain. So it takes more and more power to mine cryptocurrency.
In fact people started mining with GPUs (Graphic Processing Units) instead. These are the computers that support graphics cards and are the ones used for playing video games. However at some point GPUs were not sufficient any more either.
So people needed to create and upgrade to dedicated crypto mining machines. At this point people created ASIC (Application-Specific Integrated Circuit) miners.
ASIC crypto mining rigs are power hungry. However as time goes by they become more efficient. As a result they become more powerful and more energy efficient. Here is a chart showing crypto mining rig efficiency:
Efficiency of Bitcoin Mining Hardware Chart
Sourced from IEA.org
Crypto Mining Costs
Before we start I wanted to mention that I consulted Sebastian Mizzi, an industrial electrician. I asked him to help me understand how to make crypto mining profitable. That is to say from an electrical point of view.
He shared some tips and calculations with me. I will share them with you every time there is anything electrical involved. He lives on the Island of Malta so he provided Maltese related information. However you would need to find the relevant information for your own country of residence. You can then apply those numbers to your endeavour.
There are various factors you need to consider to make crypto mining profitable. They are:
- Rental cost for a premises (optional)
- Mining equipment
- Feeder cable (if required)
- Electricity costs
- Amount of block rewards
- Mining pool fee
- The price of the cryptocurrency
I will go through these factors one by one so you can carefully consider them.
1. Renting A Premises For Crypto Mining
You might not want to consider this to start crypto mining. Firstly because it is expensive to rent a premises. Especially so if you decided to get just one ASIC to start.
However there are a couple of reasons why you might want to consider renting. Firstly you might not want an ASIC miner at home.
ASICs Mining at Home
ASIC miners are incredibly noisy. They usually are as load as 70 – 80 decibels which is as load as a vacuum cleaner. Additionally if you are exposed to noise of 70dB over a long time it can damage your hearing.
You could of course make a soundproof room specifically dedicated for your mining equipment. However you have to know what result you are going to get once you have the finished room. If it dumbs down the noise a lot where you can tolerate it then you might consider it.
Alternatively there are Mine Master boxes from AliExpress which have soundproofing inside the box. The ASIC miner fit snugly in the box and reduces the noise by 10dB. That is to say the box reduces the noise quite a bit. However you still might find it annoying.
With a commercial premises you might benefit from better electricity tariffs. Crypto mining consumes a lot of energy. So anything you can save always goes back in your pocket. Additionally you will not have any power limitations that will negatively impact your production.
Sebastian mentioned electricity tariffs are clearly disclosed in Malta. As you can see the regulated electricity tariffs are different according to the consumer scheme. In this case you could have a residential, domestic or two non-residential rates.
The better rates are for non-residential. The KVAh is the best one because the more you consume the lower the rate gets. However you would need quite a bit of money to sort that out. Additionally you will also need a feeder cable which I cover in detail further down.
Another thing to consider is power limits. In Malta a single phase electrical supply is capped at 10k watts for instant maximum power. As a result 10k watts is how much you can use at any given time. So if you use the ASIC plus some other appliances at the same time it will trip the electrical supply. Even if you have one ASIC miner it could give you problems.
Hence this is another limitation of mining at home. You would need to upgrade to a three phase electrical supply.
2. Cost of Mining Equipment
ASIC Miner Cost
ASIC miners can cost a pretty penny. To clarify it would depend on the brand and models that you look into.
You should bear in mind that ASIC miners usually mine specific cryptocurrencies. So you have to figure out which crypto you want to mine before you buy the crypto mining rig.
Additionally they range in price from around €1,000 to over €20,000 for new ASIC miners. Naturally the more costly ASIC miners are more power hungry. However they would mine more cryptocurrency and make crypto mining more profitable.
When you buy an ASIC miner you also need to factor shipping, import tax and duty costs.
Return on investment (ROI)
You have to get your return of investment from any business equipment. With crypto miners you need to have brought in your return on investment over 3 years. By that time you should replace the equipment. However in practice they do last longer.
I want to dispel any misinformation. Nic Carter who is a cofounder of Coin Metrics mentioned miner service life. It is not 16 months as the de vries paper mentions. However the expected time frame a miner depreciates is within 3 years.
Sourced from Nic Carter’s Twitter
The 3 year period for your return of investment has nothing to do with the warranty period. This is just standard practice when you calculate business costs.
Typically businesses calculate expenses on a monthly basis. As a result we need to calculate the depreciation cost of an ASIC miner. Like this we can start to figure out the threshold to make crypto mining profitable. However you should note that depreciation maybe a tax deductible expense.
Now, let us base the calculation on for example an ASIC miner that costs €8,000.
€8,000 (ASIC miner cost) ÷ 3 (years) = €2,666.67 per year
€2,666.67 ÷ 12 (months) = €222.22 per month
In short you need to factor in €222.22 as a monthly expense for the ASIC miner.
3. Feeder Cable
If you have many ASIC miners it could overload the electrical cables. As a result this will limit how many ASICs you are able to have working at any given time.
You may need to figure out if you need a feeder cable. So you need to calculate how many ASICs you can have.
Do You Need a Feeder Cable?
For example let us use the Bitmain Antminer S19j Pro:
Screenshot from Compass Mining
Based on the ASIC example which consumes 3150 watts:
3150 ÷ 230 volts (standard voltage in Malta) = 13.70
40 Amps (standard single phase electrical supply) ÷ 13.70 = 2.92
Therefore 2 miners work on single phase. On the other hand based on a 3 phase electrical supply:
63 Amps (for 3 phase) x 3 (for 3 phase) = 189 Amps ÷ 13.70 = 13.8
Therefore 13 miners ÷ 3 (because you have to allocate miners to each phase) = 4.33
4 miners can works on each phase. So a total of 12 miners work on three phase. However you have to factor in other electrical power usage.
With 12 or more miners your mining endeavour is more at an industrial level. You could upgrade your power limit.
Feeder Cable Cost
In Malta, feeder cables can cost quite a lot of money. In fact Sebastian suggests that the premises you rent should be located close to a substation. Like that the feeder cable would not cost tens of thousands more to buy and install. Especially since it is already expensive enough as it is.
Sebastian has seen the cost of a feeder cable purchase and installation range from €50,000-€80,000. However it could get more expensive if the substation is far. Additionally you have to factor in a distribution board to handle the electrical load. This could cost around €20,000.
4. Electricity Costs
Electricity costs are a big factor that will make crypto mining profitable. It is going to greatly impact your overall profit margin. In fact it is why miners tend to locate to places around the world where energy is cheap.
You have several electrical costs:
- ASIC miners
- Electricity to run the office
- Cooling system
ASIC Miner Power Consumption
A major aspect to figure out your crypto mining profitability is the ASIC miner power consumption. You can easily calculate this. I am going to show you what Sebastian shared with me.
We will use the same ASIC as before. The power consumption in watts is 3150. This value is per hour.
However we need to calculate how much the miner will consume on a monthly basis.
3150 x 24 (hours in a day) = 75600 watts per day.
We need this value in kilowatt hours. A kilowatt is 1000 watts. Therefore that would change the value to 75.6KWH per day.
75.6KWH x 30 (average days in a month) = 2,268 KWh per month
Now that we have the monthly consumption value you need to get hold of the energy tariffs. Sebastian as mentioned used the Maltese electricity tariffs here as an example. Here is the screenshot of the residential tariffs just in case the values get updated.
So we will use those values here in this next bit.
The middle column values are for a whole year. So we need to take the values and divide them by 12 to get the monthly value. You should also note that these electrical tariffs are tiered. So the more power you use, the more expensive the rate. Remember the monthly power consumption for 1 ASIC miner is 2,268 kWh.
Band 1 = 2,000 kWh ÷ 12 (months) = 166.66 kWh / month
166.66 kWh x 0.1047c (consumption tariff) = €17.44
Band 2 = 6,000 kWh – 2,001 kWh = 3,999 kWh ÷ 12 (months) = 333.25 kWh / month
333.25 kWh x 0.1298c (consumption tariff) = €43.25
Band 3 = 10,000 kWh – 6,001 kWh = 3,999 kWh ÷ 12 (months) = 333.25 kWh / month
333.25 kWh x 0.1607c (consumption tariff) = €53.55
Band 4 = 20,000 kWh – 10,001 kWh = 9,999 kWh ÷ 12 (months) = 833.25 kWh / month
833.25 kWh x 0.3420c (consumption tariff) = €284.97
Band 5 = 2,268 kWh (ASIC) – (166.66 + 333.25 + 333.25 + 833.25) = 601.59 units left
601.59 kWh x 0.6076c (consumption tariff) = €365.52
Total = €17.44 + €43.25 + €53.55 + €284.97 + €365.52 = €764.73
+ €195.00 service charge = €959.73 per month
Electricity Tariff Comparison
To show you how electricity tariffs can make crypto mining profitable here is a tariff comparison chart. It is based on the tariffs we were working with; residential, domestic, commercial and commercial kVA. I used the same calculation above and applied it to the other rates.
Now here is how the same electricity tariff would work out using 12 miners.
As a result the more miners you have the more cost effective it is to have commercial rates.
Note: I did calculated the residential rate for 12 miners. However it is impossible to do anything much else other than mine. The power limit will hinder you from using electricity for anything else. At this level you definitely need a commercial premises.
Electricity to Run the Office
Your electricity to run the office area is a small cost next to other costs you have. However you still need to factor this in. In other words you need to factor in the general lighting; computer, good Wi-Fi, down lights, lamps etc.
As you know by now even one ASIC miner uses a lot of power to mine crypto. Plus as a result of that it emits a lot of heat.
In fact apart from locating to places where there is cheap electricity miners prefer cooler climates. Like this they do not have to spend additional money cooling their ASICs.
However you may not want to travel to set up your mining operation. The best thing you can do is try pick an area that will snuggly fit all your miners. That is to say so as you do not waste additional energy cooling a larger room.
5. Amount of Block Rewards
In our case the ASIC I am using as an example showed the amount of Bitcoin revenue.
Historical Daily Mining Revenue
However not all websites selling ASIC miners will do the same. As a result you will need to find a reliable mining calculator for the crypto you intend to mine. You have to choose wisely because not all of them are reliable.
In this case this ASIC mines Bitcoin. So we need to calculate the amount of Bitcoin mined over a one month period:
0.000497 BTC per day x 30 (days in a month) = 0.01491 BTC per month
6. Mining Pool Fee
Unfortunately the chances of mining a full block is highly unlikely. Even though you spent loads of money on your ASIC miner. As a result there are mining pools which will help you make crypto mining profitable.
With mining pools you can pool in your resources and share the block rewards with other miners. So at least you are guaranteed to accumulate a set amount of crypto. However mining pools have a percentage fee charge for collaborating.
These fees are different from one mining pool to another. Additionally the fees can go up or down so usually they quote an average percentage fee. They usually range from 1% – 2.5%.
7. The Price of the Cryptocurrency
The price of crypto is another big factor to make crypto mining profitable. In fact sometimes miners do not necessarily sell it as soon as they get their share of the block rewards. They hold onto their crypto funds for a while.
Miners end up selling it later on when the price is more favourable. This is because sometimes they might not necessarily make a profit or not much.
Let me show you why with a calculation based on the figures we calculated beforehand.
Note this calculation does not include other factors. Like for example the monthly lease for a premises, electrical costs, feeder cable cost and installation etc.
Electricity using the more favourable Commercial KVAh rate – €662.67
Miner depreciation cost over 3 years – €222.22
€662.67 + €222.22 = €884.89
As calculated previously 1 ASIC miner mines 0.01491 BTC per month. So let us calculate how much the price of Bitcoin should be to break even:
0.01491 BTC – €884.89
1 BTC – ?
€884.89 ÷ 0.01491 BTC = €59,349 per Bitcoin
Bitcoin needs to be at a minimum of €59,349 to break even.
However how would scaling up to 12 ASIC miners look like. We already know from the bar graphs that more miners on the commercial electrical rates are much better. Let us calculate what difference it would make to what the Bitcoin price.
0.01491 BTC with 1 ASIC x 12 ASIC miners = 0.17892 BTC
12 ASIC miners on the commercial electrical KVAh rate – €4,367.45
1 Miner depreciation cost over 3 years – €222.22 x 12 = €2,666.64
€4,367.45+ €2,666.64 = €7034.09
1 ASIC miner mines 0.01491 BTC x 12 ASIC miners = 0.17892 BTC
So let us calculate how much the price of Bitcoin should be to break even:
0.17892 BTC – €7034.09
1 BTC – ?
€7034.09 ÷ 00.17892 BTC = €39,314 per Bitcoin
With 12 ASIC miners Bitcoin needs to be at a minimum of €39,314 to break even.
How to Make Crypto Mining Profitable Conclusion
In short there are many factors that determine crypto mining feasibility. Some are fixed costs, but there are some variables. Most importantly is that you try and get the best rates and deals possible for everything.
In most countries, the more ASIC miners you have the more percentage profit you will make. Especially if you rent a commercial premises so that you can benefit from commercial electrical rates. It makes a huge difference to offset your costs to make crypto mining profitable.
This is probably the case for most countries around the world. Like that the price of a cryptocurrency can go down quite a bit and you could still make a profit.
However setting up a crypto mining enterprise is costly to start off. In fact this goes back to the kids mentioned at the beginning of this article. They started off small by starting in their house and moved to the garage. After that, once they outgrew the garage, they moved to a commercial premises.
I hope I was able to help you understand the feasibility of crypto mining. If you chose to go ahead with it I wish you the best of luck!
Frequently Asked Questions
How profitable is crypto mining?
1. Rental cost for a premises (optional)
2. Mining equipment
3. Feeder cable (if required)
4. Electricity costs
5. Amount of block rewards
6. Mining pool fee
7. The price of the cryptocurrency