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Should you buy and hold, day trade, mine at home, start a bitcoin exchange, I can practically go on forever about ideas for making money from Bitcoin. But one idea seems to catch the eye of most of my blog readers more than any other – cloud mining. For those of you who are unfamiliar with cloud mining, it’s basically “renting out” computing power from a company with a mining farm so you can participate in the latest gold rush of Bitcoin mining. Ever since Bitcoin became popular back in 2013, the difficulty to mine increased drastically. This meant you needed to buy expensive hardware, find a place to store it and of course cool it (since Bitcoin miners tend to heat up quickly), only to exchange it with an even more expensive piece of hardware after 6 months, since the difficulty went up yet again. The Promise of Cloud Mining Enter cloud mining. A magical solution to solve your Bitcoin mining problems. No need to buy expensive hardware, find storage space, pay electricity bills or take care of cooling. All you need to do is “chip in” with a larger company on their mining expenses and in return you will get a portion of the earnings. When you deal with cloud mining you rent out GH/s or TH/s, which measure how much computing power you will be able to mine with. But is this really worth the money you spend on it? I have to admit I was never a big fan on mining myself, it always seemed too technical and I preferred to just go ahead and buy my Bitcoins. But since I got so many emails lately asking me to look into cloud mining I decided to put it to the test. In order to see if a mining contract is worth your money, you basically need to calculate how much money you will make from the money you invest. Just like any other investment, you want to check your ROI. To accomplish this I’m going to use a, which is a small piece of software that does all of these calculations for me. So armed with my mining calculator off I go to test the profitability of cloud mining: Our first stop is probably the most reputable cloud mining company today, “Genesis Mining”. Founded at the end of 2013, Genesis Mining is a company of 10 employees registered in Bermuda. The company used to offer Bitcoin mining contracts and Altcoin mining contracts but it seems that today they only offer the former. I’m not sure why this is, but one assumption could be that it’s related to the decline of most altcoins in the past year. Prices start from $22.49 per 0.05 TH/s and all the way up to $19,500 for 50 TH/s. The interesting part about this pricing model is that unlike other cloud mining companies, there’s only a one-time fee and not a monthly fee. Having said that, if you take a closer look at their pricing page, you’ll see that it states, “ For lifetime contracts as long as the contract is profitable, a small maintenance fee is deducted”. It took me a while to, but it appears that Genesis Mining deducts 0.0015 USD per 1 GH/s on a daily basis for mining Bitcoins. We will keep that in mind in our calculations. Now let’s see how profitable we can become using Genesis Mining. We’ll start out using the lowest price possible and just get 0.05TH/s. At the current difficulty and exchange rate we would be making about $3.59/month, or $0.1196 a day. Let’s not forget to deduct the fees that would be $0.0015 * 50GH/s = $0.075 daily (this is 62.6% of the total profit!). So this brings us to exactly $0.046 daily, or $1.338 monthly. This means we will break even after 16 months. Not sure I’m willing to wait that long to get my 20 bucks back. If I take a look at purchasing 1 TH/s for $419, I get a monthly profit of $26.44 which basically gives me the same outcome since the fees are calculated linearly. Moreover, there is one thing that is missing from this equation. Wellactually two things. We have no idea what the Bitcoin exchange rate will be in five months or a year from now, nor what the mining difficulty will be. This is what makes cloud mining a bit risky. I mean if Bitcoin booms again, we can cover our whole investment in just one month, but if it goes the other way around.you get the point. Same thing goes for the mining difficulty. Source: Blockchain.info It seems that the difficulty is evening out lately, but it’s mainly due to the fact that so is Bitcoin’s exchange rate. These two parameters tend to be in a positive correlation to one another. Meaning if one goes up so does the other. But they have a negative effect – a higher exchange rate makes you richer, while a higher difficulty rate makes you poorer. But Is It Legit? But here comes the really interesting part: Some people consider cloud-mining companies to just be elaborate Ponzi schemes. Meaning there are no huge mining farms located in some remote location and no major mining operations. Some people believe this is just a way of luring in customers and using their money to pay out the customers who came before them. In on BitcoinTalk and Reddit I found some interesting perspectives on this. I won’t name specific companies but I will review several of the claims made: • Companies bait you in as a customer using attractive prices when they start out and then change their pricing or fees after they’ve hooked you in. “ They are still trying to attract new customers to buy at roughly the same price we paid initially at the rate it is going we are on track to reach negative returns. At which point our contracts would be cancelled after 10 days of negative returns. Meanwhile we are locked into these contracts with no option to sell. Please stay clear of this service!” ~ BitcoinTalk user • Other than the initial payment for the mining power there are hidden fees which consume most of your profit. “Last November I invested just over 1 btc since then I earn daily 1/3 of what I should be making, from my investment, the other 2/3 are fees. And for as for roi, its going be a very, very long time seeing I am earning less then 5 cent a day @ 60 gh/s.” ~ BitcoinTalk user • Almost a year ago a question was asking, “Do mining contracts ever make sense?” This question was answered by Gavin Andresen, the chief scientist of the Bitcoin foundation, who stated: “ No, they make no sense. I suspect many of them will turn out to be Ponzi schemes.” ~ Gavin Andresen, Chief Scientist of the Bitcoin Foundation I have yet to find any positive comment, post or thread about cloud mining that seems unbiased. A lot of these cloud mining programs supply referral programs which give people an incentive to sign other people up (another characteristic of many Ponzi schemes). In conclusion, I guess cloud mining still hasn’t proved itself to be a legit and profitable answer to generating a profit through Bitcoin. In my opinion, most of these companies are just Ponzi schemes in disguise and the few who may be legit will take you a long time to profit from. However, in the event of another boom in Bitcoin’s price I may just as well be eating my hat. In the meantime, I’d bet on buying the currency and not mining it. At Genesis-Mining you will never get your ROI. Allow me to expand your calculations with my very own ROI calculator, which takes into account difficulty increase every 14 days, and MOST importantly it takes into account block halving, wich ABSOLUTELY nobody else takes into account. Let’s assume a 1 TH/s at their current price of 419 USD and maintenance fees of 0.0012USD per GH/s, which is 1.2 USD daily (36USD/month, fixed, forrrreverrrr). Let us also assume that the recent spike on the exchange rate will hold forrrreverrrr too (we cannot predict exchange rates, but let us be optimistic here). At Genesis-Mining you will never get your ROI. Allow me to expand your calculations with my very own ROI calculator, which takes into account difficulty increase every 14 days, and MOST importantly it takes into account block halving, wich ABSOLUTELY nobody else takes into account. Let’s assume a 1 TH/s at their current price of 419 USD and maintenance fees of 0.0012USD per GH/s, which is 1.2 USD daily (36USD/month, fixed, forrrreverrrr). Let us also assume that the recent spike on the exchange rate will hold forrrreverrrr too (we cannot predict exchange rates, but let us be optimistic here). Assumptions and “fixed forever” ? Well I think a lot of people get into their own mining and cloud mining with some knowledge that with the current situation they may be lucky to get a ROI however many would be prepared to watch ongoing “theoretical” losses in the hope that the value of BTC will be $3000 or $1000000 each one day. As long as you haven’t put your life savings into it, better to put your beer and smoke money into this and then if it turns into a future bonanza, what was all that crap about “never get Read more ». Is the only way to profit from this actually buying low BTC and selling high? It seems then that once again this innovative product has lent itself to scumbag cloud mining ‘providers’ looking to profit off unsuspecting users of their wares! On the other extreme, trading BTC/USD on a currency trading platform is probably about the riskiest thing one can ever do! Problem is, BTC is not a trading currency to buy and sell at a profit, it is ultimately an asset one must accumulate as the new way of transacting seamlessly without banks involved. Just about every review of cloud mining is filled with techno jargon and multi decimal fractional numbers, but I have yet to find a single miner giving a real and honest ROI percentage straight up and devoid of all the geek speak and bullshit. There certainly appears and will always remain to appear to be an awful lot everybody is desperately trying to hide in amongst all the smoke and mirrors and until some one starts speaking plain financial English no one can be blamed for doubting the integrity and real viability of cloud mining! Avalon6 • 3.5 Th/s • 0.29 W/Gh • 9.5 pounds • No • $499.95 • • 0.1232 “It depends on how much you’re willing to spend”, the answer would be as simple as that. Seeing that Bitcoin Mining profitability relies on many different factors, each person asking himself this will get a slightly different answer. “Mining profitability calculators” were innovated so as to find out Bitcoin mining profitability for different factors. Different parameters that take into account are electricity cost, the hardware cost and other variables and it will generate an approximate of your projected profit. Let’s make sure you are familiar with the different variables first, before I show you a short example of how this is calculated: Hash Rate – A Hash is the mathematical problem the miner’s computer needs to solve. The Hash Rate is the rate at which these problems are being solved. The more miners that join the Bitcoin network, the higher the network Hash Rate is. The Hash Rate can also refer to your miner’s performance. Today Bitcoin miners (those super powerful computers talked about in the video) come with different Hash Rates. Miners’ performance is measured in MH/s (Mega hash per second), GH/s (Giga hash per second), TH/s (Terra hash per second) and even PH/s (Peta hash per second). Bitcoins per Block – Each time a mathematical problem is solved, a constant amount of Bitcoins are created. The number of Bitcoins generated per block starts at 50 and is halved every 210,000 blocks (about four years). The current number of Bitcoins awarded per block is 25. However soon enough the block halving will occur and the reward will be downgraded to only 12.5 Bitcoins. Bitcoin Difficulty – Since the Bitcoin network is designed to produce a constant amount of Bitcoins every 10 minutes, the difficulty of solving the mathematical problems has to increase in order to adjust to the network’s Hash Rate increase. Basically this means that the more miners that join, the harder it gets to actually mine Bitcoins. Electricity Rate – Operating a consumes a lot of electricity. You’ll need to find out your electricity rate in order to calculate profitability. This can usually be found on your monthly electricity bill. Power consumption – Each miner consumes a different amount of energy. Make sure to find out the exact power consumption of your miner before calculating profitability. This can be found easily with a quick search on the Internet or through this list. Power consumption is measured is Watts. Pool fees – In order to mine you’ll need to join a mining pool. A mining pool is a group of miners that join together in order to mine more effectively. The platform that brings them together is called a mining pool and it deducts some sort of a fee in order to maintain its operations. Once the pool manages to mine are divided between the pool members depending on how much work each miner has done (i.e. Their miner’s hash rate). Time Frame – When calculating if Bitcoin mining is profitable you’ll have to define a time frame to relate to. Since the more time you mine, the more Bitcoins you’ll earn. Profitability decline per year – This is probably the most important and illusive variable of them all. The idea is that since no one can actually predict the rate of miners joining the network no one can also predict how difficult it will be to mine in 6 weeks, 6 months or 6 years from now. This is one of the two reasons no one will ever be able to answer you once and for all “is Bitcoin mining profitable?” The second reason is the conversion rate. In the case below, you can inset an annual profitability decline factor that will help you estimate the growing difficulty. Conversion rate – Since no one knows what the BTC/USD exchange rate will be in the future it’s hard to predict if Bitcoin mining will be profitable. If you’re into mining in order to accumulate Bitcoins only then this doesn’t need to bother you. But if you are planning to convert these Bitcoins in the future to any other currency this factor will have a major impact of course. Get a mining calculator We will use a mining profitability calculator, to compute all of these parameters and get an answer to our question. Here’s a simple mining calculator from 99Bitcoins: CALCULATOR Moreover, let’s now take a look at a more complex example where we cover more components: The Antminer S9 is one of the most advanced miners out there today. It is what is known as an ASIC mining rig which has a mining rate of 14 TH/s. You will see that at today’s difficulty you will earn around 1 Bitcoin a month, if we use the simple Bitcoin mining calculator (shown above). However, the hardware cost, electricity cost, pool fees, etc. Were not yet included. Now let’s try to compute all of these together. This data was taken from an advanced Bitcoin mining calculator using the following stats: 2% mining pool fees, 25 Bitcoins as a block reward, 14 TH/s hash rate, 1375W power consumption. So in a year, we should be making approximately $6,000. But, the hardware cost was not deducted yet, so it’s more or less $3,400. Also, sooner or later the block reward goes down to 12.5 so we’ll actually only be breaking even. But just like we’ve mentioned, this result can change depending on your own electricity cost, the change in mining difficulty and most specially the price change of Bitcoin. Mining Bitcoins at home will most probably not make you rich unless you have very low electricity costs and you can afford to buy some heavy duty equipment. Here’s a list of the most efficient Bitcoin mining hardware out there today. Since home mining is a dying art, there’s just a short list of variety to choose from. Other alternatives are present that may be applicable for you to get into the mining game at a cheap price, even though home mining is considered an expensive business. How to mine Bitcoins with cloud mining A case where there’s no need to purchase a but rather rent only a computing power from a different company and get paid according to how much power you own is a new concept called “cloud mining“. This concept at first sounds like a really good idea, for reasons that you will not have the trouble of buying expensive equipment, storing it, cooling it, etc. But eventually, when you do the math, it seems that none of these cloud mining sites are profitable. Scams that don’t even own any mining equipment are those that appear profitable but really they are just complex Ponzi schemes. I recommend using Genesis Mining – the only cloud mining company that has been around long enough to prove it’s not a scam, if you do not like to look at the idea of cloud mining. On the other hand you have to make sure to try a month first before investing into any of these plans. Mining Altcoins as an alternative to Bitcoin Altcoins is an alternate option you can consider instead of mining Bitcoins. There are hundreds of Altcoins obtainable on the market today and a couple of them are still unchallenging to mine. However, one drawback is there are so many Altcoins so it’s difficult to tell which ones are worth spending your time in. Litecoin, Dogecoin and Peercoin are some good examples for Altcoins. You can note website indexes such as CoinChoose that will yield you a complete Altcoin breakdown, in order for you to understand which Altcoins are profitable. You can see the difficulty for each Altcoin on CoinChoose, where you can exchange them and see your chances to profit Bitcoins by mining each specific Altcoin. So is Bitcoin Mining Profitable? My guess is that in the long run you could make a profit from Bitcoin mining but only if you invest a considerable amount of money in a good mining rig (e.g. Antminer s9) or take your time to “hack” through making a profit with CEX.IO. I’d currently stay away from Altcoins but that’s my own personal opinion. If you don’t have the time or the money – stay away from mining and just invest in buying Bitcoins for the long run.
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