First post of a series of 2. Fin the second part here!
Miners are an fundamental part of bitcoin technology because they participate in the competition to update the blockchain with the new block and then they are responsible for the validity of the blockchain itself. The mining 'game' is a very interesting game theory experiment that lead to an astonishing result: no main problems in the blockchain from the beginning of bitcoin.
Mining bitcoin has been, and for certain still is, a very lucrative business, so it is normal that many people are now interested in mining. Let's explain how to compute the mining profitability.
The profitability of mining
To be clear from the beginning of this post, mining today is not a profitable experience unless you have an access to really cheap electricity or the possibility to do a huge scale investment. Here I show you why.
The basics of mining economy
So mining is a classical project where you invest upfront a capital and you expect to have some income during the life of the asset. So it is a cash-flow investment:
+(IncomePeriod2-OpexPeriod2)+...)
A real case example
So lets try to simulate the buy of the Antminer S9-B17 of BITMAIN, one of the miner producer leaders.
The Capex (capital expenditures), or the investment made upfront is the cost of the equipment, usually in the case of mining we have to count the Miner itself and the Inverter to supply the power. In our case (the bitcoin price refers to 14 of October):
For a total of 2.526 Btc.
The Opex (operating expense) will be the electricity cost and, in case of dedicated business of course rent, labor and other minor costs. Fortunately for bitcoin miners the electricity is a very easy cost to compute, since our miner will most likely run 24 hours a day at the maximum power. Assuming the rent, the labor and all the other costs as zero (careful!) all the expense will be the electricity.
In the case of the Antminer the electrical consumption is 1600W. So the cost of electricity per day is:
Assuming that the electricity cost in your currency is of 0.15€ (for example) you will end up with an electrical cost of 5.76€/day
We calculate the cost per day because the income will be statistically almost fixed until the next difficulty computation, so to have a good simulation we should count the days until the next difficulty.
Let's calculate the income!
For doing this we check really fast on Alloscomp, this website, as many others, will give you the first income of your miner, a good approximation until the first difficulty adjustment.
For our 13TH/s miner: 0.01264451 Btc/day. While I write the bitcoin price in euro is 582.42€. This allow us to convert our income to 7.354€/day.
Yes, you are not going to become rich with a miner.
Adjust the difficulty to next level
It could seem difficult to adjust the difficulty calculation, but the only thing you have to remember is that the bitcoin mining reward is proportional to the difficulty. So let's imagine the difficulty evolution in the next months.
I usually go Bitcoin Wisdom in order to have an idea of the difficulty evolution in the future. Watching at the difficulty history table we can see the percentage variation of the difficulty roughly every two weeks.
For this example let's assume that the difficulty will increase at a rate of 5% every 14 days. This is the best approach, but it is fast enough to understand of what we are talking about. Consider that in the last year there have been spike of also 20%.
This rough approach means that every 14 days (8 for the first period) you will have to lower your earning of 5%.
Let's create the following table (you can extend the table more):
| end of Period | 22/10 | 05/11 | 19/11 |
|---|---|---|---|
| Income (btc) | 0.1011 | 0.169 | 0.161 |
| Expenses (€) | -46.8€ | -80.64€ | -80.64€ |
| Capex (btc) | -2.526 | ||
| Cashflow btc | -2.425 | 0.169 | 0.161 |
| Cashflow € | -46.8€ | -80.64€ | -80.64€ |
You can use any spreadsheet to make your own bitcoin mining calculator.
In our case to only repay the hardware we would need 49 weeks, and in that time we would have a cumulative electrical cost of around 1982.16€... That you will never be able to repay with your miner.
Yes you already know, in order to mine today you need to have lower hardware prices, lower electricity prices (or sell your heating)...
But today no, no normal guy can make easy money with mining bitcoin...
Try to do these calculations on every miner you would like to invest in, and let me know if you find a secret miner that have completely different figures...
In an other post I will give some advice to mine today, with some edge case that still make it possible!
Update: The other post is available here!
True, I've tried to make this sum profitable many times but if you don't actually get electricity for almost free it just doesn't seem worth it. Not to mention the time waiting for your equipment to land and time is definitely money in this equation.
What miner tool can you recommend and how long is its ROI?
@juvyjabian, I do not suggest you to try mining. As I show you in the article it is not profitable at all. You will not do any money doing mining.
For Antminer S9 at current prices of bitcoin you will never a positive income.
If you can invest 1-2 million dollars you could find a way!
Oh too bad. Im planning to buy 5 S3 at the end of the year which according to the seller, its ROI is 1 yr. You mean its not true?
You are going to buy 5 S3 from BITMAIN or second hand?
The profitability depends mainly on the sell price, if you provide me the price I can quickly check for you...
Its a second hand actually, less than a thousand dollar.