Mining Investment Considerations

Blockchain technology and mining are rapidly growing industries that can serve entrepreneurs and investors as incredibly profitable business opportunities. Before considering a mining operation, however, you should review the risks and rewards of the business. Below are a few aspects of cryptocurrency mining that you should consider:

Investing in Mining Hardware

There are several key components of crypto-mining that are required before purchasing mining rigs. Aspects to consider include the type of mining rig to buy, the electricity costs of the location you have chosen to mine in, and the data center space itself.  In general, there are three types of mining hardware you can invest in: CPUs, GPUs, and ASICs. CPU mining is essentially open to everyone with a high powered PC, however, the effectiveness of using it for lucrative and competitive cryptocurrencies is next to nothing. CPUs are only really useful for mining very low value currency like Bytecent and Verium. Each processing unit/circuit has respective advantages and disadvantages, according to which cryptocurrency an investor plans to mine. For more information about each kind, check out our What Is A Mining Rig and How Have They Evolved blog post.

Choosing the Right Mineable Coin for You

Cryptocurrencies are not exclusively mineable. Mineable coins are cryptocurrencies that use “proof-of-work” either exclusively or as a hybrid with “proof-of-stake”. This means that anyone can mine coins (using a rig) and subsequently gather a reward for doing so. But some coins are not mineable. In fact, 1,039 of 1,586 total coins on coinmarketcap.com (at time of writing) aren’t. These are coins that exclusively use some form of “proof-of-stake” or a centralized system of distribution such as Ripple. With “proof-of-stake”, people are chosen because they fulfill certain requisites; and these people subsequently gather transaction fees, instead of traditional mining rewards.

Another important aspect of cryptocurrency is the supply. A coin may have a “circulating supply” or a “maximum supply” (not to be confused with “total supply”). For example, Bitcoin’s max supply is 21 million coins, but 21M BTC are not currently circulating. (Total supply is equal-to or greater-than the circulating supply.) One must consider how much of a coin is already mined and/or in circulation in order to gauge its potential/future value, and whether to invest time and capital in mining operations.

A final aspect to consider is that cryptocurrencies may be overvalued or undervalued, like equities. Overvalued coins will come with increased mining difficulty and decreased block reward. This might lead to a net loss during a mining operation.

Evaluating the Scalability of Your Investment

Scalability in mining has everything to do with the type of coin that will be the focal point of the operations. For lower value coins, it could be a simple decision of mining with two computers instead of one. In the case of Bitcoin, the Hashing algorithm has risen in complexity as a result of the many miners seeking to earn rewards and significantly ups the amount of ASIC Rigs required to gain any coin. The basic rule to all cryptocurrency mining decisions is balancing the electricity cost, hardware costs, and pool costs. For high-stake coins like Bitcoin, single individuals have no choice but to add their hardware into a pool for a cost and split the earnings each month. If an individual attempted to mine Bitcoin on their own with one ASIC rig, they’d only make roughly a single Bitcoin in one year, which doesn’t come close to offsetting the electricity and hardware costs at its current value. HashChain has our own dedicated mining pool with 3,495 Rigs in operation and another 6,000 awaiting installation in our data centers. Pooling those together in an area with a cool climate and low cost of electricity allows us to achieve the greatest ROI for each coin mined. In just ten days, we were able to mine 24 Bitcoin with our current rig count.

It’s important that those who wish to invest in mining understand their overhead vs. expected coin appreciation or depreciation. There is always the risk that an individual purchases mining hardware, calculates their overhead correctly and will achieve a good return on investment, only to have the coin drop significantly in value and thus make it a money losing business.