All You Need To Know: Cryptocurrency Mining
Deep dive into everything crypto mining: From mining Bitcoin to mining Ethereum & other altcoins
Dear Sunday Investors:
Welcome to this week’s edition of the Sunday Investor! To our new members, the format of this weekly newsletter will be a deep-dive into one investment-topic. This week, we will be going into cryptocurrency mining. We will start by sharing more on the different types of crypto mining, talk through crypto mining hosting vs at home mining, and then we will go into pricing and ROI calculations for mining.
Read, enjoy and share with any friends. Let’s build wealth together.
Weekly Market Recap
The Crypto World Is Coming to Blackrock - Forbes. In 2017, BlackRock CEO Larry Fink called bitcoin an “index of money laundering”. Five years later, BlackRock still headed by Fink, is leading a funding round for one of the most well-known cryptos.
NFT of Jack Dorsey's First Tweet Ends With a Top Bid of $280 - CoinDesk. The NFT of Twitter founder Jack Dorsey's first-ever tweet originally purchased it for $2.9 million in March 2021.. Last week, he listed the NFT for $48 million dollars but as the auction closed yesterday the top bid was… just under $280 dollars (or 0.09 ETH).
Ethereum Merge No Longer Expected in June - CoinDesk. Ethereum core developer Tim Beiko confirmed in a tweet that the highly-anticipated merge will likely happen "in the few months after" June.
Elon Musk Offers to Buy Rest of Twitter in $43 Billion Deal - WSJ. Elon has offered to buy Twitter for $54.20 a share in cash to take the company private.
What Is Crypto Mining?
To give background on crypto mining, we have to look back at Bitcoin in 2009 when Bitcoin’s creator Satoshi Nakamoto mined the first block of 50 BTC, also know as the “genesis block” with a CPU chip on his computer.
Bitcoin uses Proof-of-Work as its consensus mechanism and is not controlled or issued by any centralized institution.
What is Proof-of-Work?
PoW is a decentralized consensus mechanism that requires Bitcoin miners across the world to expend effort solving an arbitrary mathematical puzzle to verify transactions and to prevent anybody from gaming the system.
In other words, crypto mining is a race to solve math problems using computing power. If you are the quickest to complete the calculation and record a transaction then you are rewarded in crypto. The more computing power you have, the higher chance you have of completing calculations faster.
What is Hash Rate?
The difficulty of the Bitcoin mining “puzzle” known as “Hash Rate”. Automatically adjusts according to the amount of computing power on the network. The more computing power, the higher the “Hash Rate” which means a higher difficulty and more computational power needed for mining.
As we can see from the graphic above, BTC hash rate has had exponential growth from its creation back in 2009. We can also see the technology evolutions which caused the shift from CPU mining to GPU mining to ASIC mining throughout Bitcoin’s existence as well which we will now go into below.
CPU Mining
In the beginning stages of Bitcoin mining, most people mined Bitcoin with their CPU’s which are on every PC or laptop.
Many people were mining bitcoin by July 2010, according to forum discussions on bitcointalk.org. That year, Satoshi even cautioned about a “GPU arms race,” suggesting that the community should agree not to hurry this sort of mining which now has become mainstream.
With way less computing powering the network then there is now, there are reports of being able to mine hundreds of Bitcoin in just one week using a PC in 2010.
GPU Mining
As mining became more difficult, ordinary CPUs were replaced with more powerful GPUs, which were originally built for gaming applications. As you can see from the picture above, people assembled their own personal mining appliances with GPU mining rigs which were typically comprised of multiple GPUs.
GPU’s are now commonly used to mine altcoins like Ethereum, Monero, Ravencoin or Zcash.
The innovation of GPU mining, that is mining bitcoin on a GPU device, made producing bitcoin blocks and earning block rewards on average roughly six times more efficient according to analysis done by CEO of mining consultancy firm Navier, Josh Metnick. For these efficiency gains, an average GPU device costs only twice as much as the average CPU device.
ASIC Mining
The last major innovation to Bitcoin mining was the creation of ASIC miners which is hardware that is specifically and only made for the purpose of Bitcoin mining.
Unlike CPUs and GPUs, all ASIC miners are able to do is mine Bitcoin and they were pre-designed to mine in the most efficient way possible which allowed them to pass up any competition easily in the mining marketplace. An ASIC Bitcoin mining device today is 100 billion times the speed of the average CPU back in 2009.
Future of Mining
It is yet to be seen what the future of Bitcoin mining will look like and nobody yet knows if there will be some sort of new technology which could take over ASIC mining’s monopoly on the Bitcoin market.
If no new technology is released that substantially changes the way we mine, miners could start to look for competitive advantages in other areas of mining such as efficient energy sourcing and mining diversification.
Other Things to Know When It Comes to Cryptocurrency Mining:
Mining Hosting:
ASIC or GPU mining are both very loud systems, requires a very cool space, and require your time with upkeep and maintenance as well as substantial electricity costs depending on your location. Say you don’t want to have to deal with all of these things yourself… enter crypto mining hosting.
You can ship your hardware to a mining farm which is a cooled warehouse for hundreds or even thousands of ASIC or GPU mining rigs like yourself.
Mining Hosting Cost Models: (electricity or flat fee including electricity + maintenance)
ASIC Hosting: Paying .07 kwh for one S19 110/Th comes out to $280/month
GPU Mining Rig: $1,700/year for a mining rig with 12x NVDA FHR 3070 GPUs
Want to get into mining and want to know where I host my miners? Comment or text me and I’m happy to share!
Mining Pools:
Whether you are mining with an ASIC or with GPUs, you will want to join a mining pool.
What Is a Mining Pool?
A mining pool is a joint group of cryptocurrency miners who combine their computational resources over a network to strengthen the probability of finding a block or otherwise successfully mining for cryptocurrency.
Ethereum’s biggest mining pool: Ethermine
Bitcoin’s biggest mining pool: F2Pool
Crypto Mining Pricing & ROI
So is mining profitable? And how was 2021 for mining?
Ethereum and Bitcoin miners both had great years in 2021’s in terms of total revenue for miners as shown in this graph below:
Here is another way of showing the total numbers side by side:
So What Does This Mean For Me?
If you want to start mining, I will point you to a few websites where you will easily be able to gather a sense of both up front and recurring costs as well as a way to calculate your ROI.
Top 10 ASIC Miners Profitability/Day:
Source to check out: https://www.asicminervalue.com/
Top 10 GPUs Profitability/Day: (Keep in mind you can have 8-12 GPU’s in one Mining Rig)
Source to check out: https://2cryptocalc.com/most-profitable-gpu
Most 8-12x GPU Miners will run you $10,00-$20,000 in hardware + the recurring hosting fees which include electricity/maintenance costs. I have bought multiple GPU miners and host my miners through BitCap.co which sells and hosts miners in Washington with 100% renewable energy sources.
ASIC miner will run you anywhere from $5,000-$25,000. Some of the most expensive ASICs will cost upwards of $40,000 for one miner. ASIC miners also use extensive amounts of electricity so you will want to take that into account when calculating your ROI. Buying ASICs are tricky as the demand is very high and most are priced way over their list price from the manufacturer. I host my miners in Green Bay, Wisconsin at NetSonic who also recommends 4SpaceMining for buying ASIC miners.
As always, I’m more than happy to make an intro to my contacts or answer any questions for anyone reading this to get started with crypto mining!
Memes of the Week
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Will be keeping my eye out for new content to write about these next few weeks. Be sure to send in any questions directly to me or comment below on this post what you’d like me to write about or answer next!
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