If you are really serious about cryptocurrency mining and want to make a profit, you’ll have to learn about all the ways you can maximize your equipment and your invested resources. Not knowing which equipment to buy and how to optimize its use can make you lose money in the long run. Also, not knowing your mining profitability might make you spend more money erroneously or overestimate your earnings. This guide will cover how you can calculate how profitable your mining is, and which tools you will need to increase your profits.
Factors that affect mining profits
There are many factors which can influence the outcome of your mining profitability. The most significant elements are the cryptocurrency’s price, the mining algorithm, the hardware used for mining, and the total hash rate of the network.
Mining cryptocurrencies is a process which involves solving complex mathematical algorithms. This procedure provides a ‘proof of work’ which rewards the miner with the digital currency. There are currently two proof-of-work hashing algorithms which are broadly used in cryptos: SHA-256 and Scrypt. There are also other coins which use other protocols, but in this article we will be focusing on these two major ones.
The SHA-256 is an algorithm which uses brute power to process the cryptographic puzzles. At first, bitcoin could have been easily mined with the CPUs and GPU (graphics processor) cards that are used in regular PCs. But over the years, mining hardware has evolved to keep up with the increasing mining difficulty of bitcoin, resulting in the creation of specialized processors known as ‘Application Specific Integrated Chips’ (ASICs). Nowadays, bitcoin is mined only by using this type of device.
As bitcoin’s difficulty exponentially increases in level, ASIC models which are more powerful and faster are being made, thus generating a technological race, which means that even the recently manufactured chips can quickly be rendered useless.
The scrypt algorithm uses a considerable amount of RAM and parallel processing to generate cryptocurrencies, which means that you can use GPUs to mine them. Momentarily, scrypt-based ASICs are not all that popular, so the mining difficulty level of those currencies has not reached such high-time levels like in bitcoin’s case.
There are two ways in which one can arrange their mining system.
DIY Mining Rig
These require the use of your PC along with many graphics cards (GPUs) that can be fitted into the rig. The advantage of homemade systems is that both CPU and GPU mining tasks can be done at the same time without affecting the performance of either activity.
ASICs are independent units which come with a USB and/or Ethernet port, and are manufactured to be ready to use once you plug them in. ASIC hardware is usually more expensive than self-made mining rigs and are mostly made in America, meaning that interested miners from other places have to fork up extra cash to have them imported.
ASICs are much faster at calculating algorithms and require far less power because they are devices that have been designed to be specialized at doing just that task.
The mining efficacy of different systems can be calculated by taking the ratio of the number of hashes it can perform in a second and dividing it by the power it consumes: Hashing speed / power consumption = mining efficiency.
There are many sites that calculate the mining profitability for specific coins taking into account what mining equipment you use, your power consumption, cost, and other details. There are simpler calculators with fewer factors, and there are others, much more advanced, which feature factors such as: hash rate, power consumption, power cost, pool fees, difficulty, block reward, and price in USD. The profitability can be calculated for various periods: hourly, daily, monthly, and yearly.
When you first start getting involved in mining, you can instantly get overwhelmed by the amount of details as there are so many things which affect mining profitability. Some are easier to use because they have a simple user interface.
CryptoCompare is a calculator that features default values for many things, but allows you to tailor the hash power, power consumption, cost per kWh, and mining pool fee. With these values, you can estimate your daily, weekly, monthly, and yearly profits. However, it doesn’t calculate future difficulty changes, leading to potential overestimations.
CoinWarz is a calculator similar to CryptoCompare, but also features difficulty customization, block reward, bitcoin’s price in USD, and it adds hardware expenses.
99Bitcoins offers a similar customizable calculator, except it doesn’t give defaults to many of its values. This feature comes in handy if you forget to reset a default value on CoinWarz which could offset the results.
There are also calculators that take into account price and difficulty changes that can generate future results.
My Crypto Buddy offers customization like the above-mentioned sites, but it also features the option to put in monthly price as well as difficulty variations. Based on these inputs, a chart of your potential future income will be generated, allowing you to observe what changes can occur in your future profitability.
NiceHash allows the user to check profitability according to specific mining hardware, letting you check the monthly profitability while using that hardware with NiceHash. This type of result is more focused on backtesting profitability rather than predicting it.
It should be noted that when it comes to bitcoin, most sites feature different hash rate growth.
The BuybitcoinWorldwide site states that the bitcoin network hash rate has a rate growth of 0.4527678% per day. This means that if you purchase 50 TH/s of mining hardware, your total share of the network will decrease daily in comparison to the overall network hash rate.
Without taking this growth rate into account, it is no wonder that most bitcoin mining calculators show profits that are actually much more inflated than the actual results.
CryptoGround is another site that features mining calculators for a wide list of coins.
Mining can be a great way to earn some money passively. However, taking into consideration the various factors that can affect mining profitability, it’s quite difficult to have an accurate prediction – especially when there are some factors that are completely not under your control.