Is cryptocurrency mining a good investment?


Updated: June 1, 2018, 2:14 p.m.




In this article you will be able to learn a little more on what cryptocurrency mining is, why it is profitable and how it compares to other investments that you may have available to you. There is a subtle art answering questions on Bitcoin as simply and succinctly as possible. To this day I do not know anyone who has mastered the 'What is Bitcoin' question (without a projector, slide shows, a computer science book and hours, if not days, of your time). I will try to provide the most high level answers to these questions to give you a better understanding of the 'how' but more importantly the 'why'. Note: I reference Bitcoin here but it applies to all other mineable coins available.

 

What is mining?

 

Mining essentially provides 3 main uses:

1. It is typical computer processor's that verify transactions occuring on the Bitcoin network. A transaction happens when one user sends Bitcoin to another Bitcoin address. A verification is when a transaction is deemed valid and added to the blockchain a.k.a Bitcoin's distributed ledger.

2. Miners bring new coins into circulation. In 2008 Bitcoin was invented by pseudonymous person/group Satoshi Nakamoto. The question was asked "How can this new currency be released to the world in a fair and decentralised manner while at the same time solving the inflation problem that every other currency in the world suffers from?". The answer was to place a limit on the total amount of coins that will ever be available in the code and to require miners to release new coins at a desired rate into circulation. The coin automatically becomes more difficult to mine if too many are being released (adjustment happens every two weeks).

3. Because miners verify transactions they play a very important role in the ecosystem. The more miners (hash rate) a coin has the more secure it is. To manipulate transactions you would require more than 50% of the network's hash rate, so the more parties contributing to the network the more difficult it becomes to execute a "51% attack". Because of the capital required to mine (infrastructure, machines, electricity) it is therefore considered a better incentive for miners to contribute to the network and be rewarded with new coins than to attempt to manipulate it.

It might be concerning to you that Bitcoin's code is available for anyone to see and why don't people change it? That is the beauty of it, being 'open source' Bitcoin's code can be trusted. There are no hidden parts of the code that a centralized party such as a company or bank has control of. And yes the code actually has been change and updated may times over the past 8 years of it's existence. It is up to miners to vote on whether they approve the change. If some approve a change while others don't it results in a 'fork' of the code and two coins result henceforth forming their own communities and development. 

 

I get rewarded for mining?

 

Yes, by contributing to the network you get rewarded with new coins coming in to circultaion. The two biggest cost factors to mining are the cost of your machine and the cost of the electricity to run it. Machine's processing speeds are measured in 'Hash rate'. Ideally what you're looking for is the best efficiency miners i.e. highest hash rate and lowest watts. Fortunately mining with Newmint gives you both. We only stock the latest miners and on average we are half the cost of residential electricity. 

Mining has become a very lucrative industry. The more popular Bitcoin and crypo becomes the higher the value of the new coins coming into circulation. To add to that, when miners can't keep up with transactions, transaction fees increase in order to gain preference in being verified in a shorter period. The transaction fees are also included in the reward to the miner for his service provided.

 

A miner's revenue in numbers

 

In any investment the bottom line number you want to know is what will my return on investment (ROI) be, measured in time. In other words if I give you X amount now, how long until I get X back and make a profit from that point onward. On average, cryptocurrency mining has an ROI of:

10 months

 

This is also an industry that does not distinguish between who invests. If you want to buy a single miner, your ROI will be the same as an organisation that might be setting up a R10 million mining farm. The farm will of course come with capex costs. If you decide to cloud mine or mine with Newmint it is the equivalent of the hosting fee. 

 

Property

 

Currenlty in Cape Town, property valued at R1.5 million will average between R8 000 and R12 000 rent.  At R10 000/month it would take roughly:

 

150 months

 

Of course many additional costs have been left aside as they could be considered the equivalent of the hosting fee when mining. Cape Town has fairly good rental market and the ROI could be expected to be longer in other parts of the country.

 

Gold

 

If you bought gold when Bitcoin was invented (2008) it would have cost you around $900per ounce. Today the price is $1300. It could be argued that gold has seen a good run prior to 2008 peaked at $1900 in 2012 but does seem to be losing steam. Is it coincidence that it is as it's digital cousin is gaining steam?

 

Best case scenario 48 months

 

Bonds and stocks

 

According to investment researcher Morningstar, stocks perform better over bonds in the long term. Each earning roughly 10% and 6% a year on average.

 

Bonds = 200 months. Stocks = 120 months

 

Your bottom line:

 

Crrently mining cryptocurrency works out to be a:

15x better ROI than property;

4.8x better ROI than gold;

20x and 12x better return than bonds and stocks

 

Sounds too good, what are the risks?

 

Yes there are risks with mining. Bitcoin is programmed to release the same amount of coins into circulation every 10 minutes regardless of how many people mine. Therefore the more people that mine the less Bitcoin there is to be shared. Bitcoin goes through cycles of high value and low hashrate (very profitable) vs low value and high hash rate (low profitability). The miners are almost always priced according to a 4-10 month ROI from their corresponding manufacturers. If you're smart the trick to mining is analagous to trading. Buy low and sell high (or buy low and mine high). In other words investing in a mining rig when the market is at a low and rigs are relatively cheap will most likely be the best on your ROI. As an example, we currently sell an S9 rig at R15-R25k based on the market. The exact same antminer was selling for R90 000 on the market in January 2018 and making a monthly profit of R12 000 at it's peak (yes more than what most people pay for rent). Cryptocurrency is a new market and mining is still accessible to a fortunate few. This is a solution Newmint aims to solve.

 

Besides difficulty? Antminers require relative technical expertise and a cool environment to mine efficiently. They also have high powered fans to keep the +-1000 watts running 24/7 cool and which is the equivalent of listening to a vaccum cleaner all day. Another consideration is resale value. Miners are similar to computers, if kept in good condition they can last for years and miners are no different. If a miner is replaced by better versions then it will be competing with against these miners for the same resource. In the past new entrant miners such as the S3 have now become redundant due to better more efficient miners. As with Moore's law in computing it becomes more and more difficult to improve on previous versions and the same is happening in mining where next version miners are only a small increment better than the last and often are more expensive too. On the whole the resale value of gpu rigs are the best because of their diverse utility function in other industries.

 

Why Newmint?

 

We are coming close to a year as a vat registered company with the goal of opening up cryptocurrency and mining to the public. Our aim is to bring the quality and trust that comes with other investment industries to the new and semi unregulated industry of cryptocurrency. We differ from cloud mining companies primarily because miners purchased through us become yours for life. We simply offer the service of hosting after purchase which offer many benefits. Other cloud mining operations sell hash rate and keep the resale value of any equipment they may have.



Find out which miners we available right now here.

Want to find out more? Get in touch.