Cryptocurrency mining is a fascinating topic, but you should know that your interest in mining is not enough to make a profit. You will have to learn a lot to maximize the performance of your hardware and the resources invested. You have to know what equipment to buy, how to optimize it, but above all you must have a very clear idea of how to calculate the profitability of cryptocurrency mining, otherwise you will end up getting carried away by high profit ads, spending a lot of money and overestimating your profits. And this is my purpose with this post: to give you the information on how to calculate mining profitability and what tools you will need to optimize your profits.
Main factors determining the profitability of cryptocurrency mining
There are countless factors that can influence the profitability of mining, but these are the three most important:
The mining algorithm.
The equipment used for mining.
The total hash rate.
Let's see in detail.
The Mining Algorithm
Cryptocurrency mining is a complex process that involves solving mathematical algorithms. It is a proof-of-work consensus algorithm that rewards the miner with digital currency. There are currently two proof-of-work hashing algorithms that are widely used in cryptocurrencies: SHA-256 and Scrypt. Obviously, the most popular currency among the mining community is Bitcoin. There are also other currencies that use different protocols, but we will focus on the main two.
SHA-256 is an algorithm that uses enormous power to solve mathematical calculations. When it all started, Bitcoin could be mined using CPUs and graphics cards (GPUs) that were used in normal PCs, let's say home ones. But over the years, mining hardware was forced to evolve to keep up with the increasing difficulty of Bitcoin mining, which has led to the development of specialized processors known as Application Specific Integrated Circuit (ASIC). Currently, Bitcoin is only mined with this type of device.
As the difficulty of mining Bitcoin grows, new ASIC models are created that are more efficient and faster, and this in turn creates a technology race. This means that even newly manufactured chips can quickly become unusable.
The most popular cryptocurrencies based on the SHA-256 algorithm are:
Bitcoin
Bitcoin Cash
Bitcoin SV
Bitcoin Diamond
The other algorithm used is the Scrypt, which uses a very large amount of RAM and parallel processing to mine cryptocurrencies, which means that it can use GPUs to mine. Currently, devices based on the Scrypt algorithm are not as popular, so the level of difficulty in mining cryptocurrencies using this algorithm has not yet reached as high a level as in the case of Bitcoin. The best known cryptocurrencies that use the Scrypt algorithm are Litecoin and Dogecoin.
There are two ways to create a mining system:
Do-it-yourself (DIY) excavator: Requires the use of your PC along with several graphics cards (GPU) that can be mounted in a rack. The advantage of home systems is that both the CPU and the GPU can be used at the same time without affecting performance.
ASIC: They are independent devices equipped with a USB and/or Ethernet port and are manufactured to be ready for use immediately after connection. ASIC equipment is much more expensive than in-house assembled excavators, and is mostly American or Chinese-made, that means interested miners from other countries must import it first. ASICs are much faster in calculating algorithms and require much less power, as they are devices designed to specialize in cryptocurrency mining.
The Total Hash Rate
The performance of an excavator can be calculated by taking the ratio of the number of hashes it can make in one second and dividing it by the energy it consumes: Hash speed / energy consumption = mining efficiency.
E.g. The profitability of the Antminer S9 excavator, whose hash speed is 13.5 TH / s, and the energy consumption of 1372 W is: 0.0098396501.
There are also ways to be more precise, and that is by using the Profitability Calculators. There are many websites that calculate mining profitability for specific cryptocurrencies based on equipment used, energy consumption, costs, and other details. There are other simpler calculators with fewer factors, and some much more advanced ones that also take into account, in addition to the factors mentioned above, the pool fees, the mining difficulty, the reward per block and the price of the cryptocurrency in USD. In all cases, profitability can be calculated by hour, day, month and year.
Here are some sites for research:
CryptoCompare. A calculator with default values for many factors, allowing you to adjust the hash rate, power consumption, cost per kWh, and mining pool fee. With these values you can calculate your daily, weekly, monthly and annual earnings. The downside is that you have the option of calculating future difficulty changes, which leads to an overestimation.
CoinWarz. Similar to the previous one, but with more options: the ability to adjust the difficulty, the block reward, the price of BTC in USD and the cost of purchasing an excavator. Huge list of cryptocurrencies calculators. Check it.
There are also calculators that consider price fluctuations and difficulties.
My Crypto Buddy is one of them. It has the ability to make monthly price changes and difficulties. Based on this data, a table of your possible future income is generated.
You should know that when it comes to Bitcoin, most calculators are based on a different hash rate increase, and they also show earnings that are actually much more inflated than the actual ones, because when they do their calculations they don't consider the growth rates.
As you will see, cryptocurrency mining can be an excellent way to make money, but it has several factors that can influence profitability, it is very difficult to accurately forecast your profits, especially since there are certain factors that are beyond our control, such as the life itself.
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