( 16th September 2019 )
Mining cryptocurrency is like any other business. To be successful, you have to make more than you spend. That means, the money you make from selling mined coins has to be greater than the cost of running your operation and the amount that you spend on buying hardware. While it sounds simple, there's a lot of complexity involved. You have to factor in the cost of your mining power, the cost of electricity, your hashrate, the difficulty level of mining, and more. These variables are constantly changing, not static. If you buy mining hardware operating under the assumption that the difficulty level of mining remains constant, your profitable operation today could be in the red in a year if mining difficulty accelerates. For an example, if you're mining Ravencoin, and the price per coin drops in half, you'll similarly be in a tight spot.
If you're completely new to mining, calculators like WhatToMine and CoinWarz allow you to plug in your hashrate and electricity costs to estimate your profit over a period of time. The problem is that these calculators make approximations based on fixed assumptions around the difficulty level and price of a coin today, when, in reality, these factors will constantly change over time. The only way to run a profitable mining operation is to understand what's going on under the hood. Here's a rough equation for calculating your mining profitability, although the exact formula will vary from coin to coin:
In this section, we'll walk you through how to estimate your mining profitability following this formula. While the actual amount you earn will depend a lot on real-world factors, such as mining-pool efficiency, real hashrate, rent, property and tax costs, the goal here is to help you learn about the different factors that impact your mining operation.
How much do you earn? The first step to calculating your mining profitability is to figure out your mining efficiency according to your hardware, or how many coins you can earn over a given period of time. You can do so by following the first part of the equation above:
1. Hashrate: The number of hashes you can produce per second
2. Difficulty: The number of hashes required to find a block on the network
3. Block reward: The reward, in cryptocurrency, for finding a block
4. Time: The time frame that you're mining over
Note that there will be variations for different cryptocurrencies. For example, with Bitcoin, the minimum number of hashes necessary to find a block is hardcoded as 2^32, and the current difficulty of finding a block is expressed as a factor of the hardcoded minimum difficulty, as difficulty x 2^32. Let's walk through an example. Say that you're mining Ethereum Classic running a GPU mining rig with four GTX 1070 GPU cards. Plugging away at Ethereum Classic's Ethash algorithm, each card gives you 32 MH/s, or 128 MH/s total. To find the number of hashes you can calculate over the course of a day, multiply the hash rate of 128 MH/s by 86,400 seconds/day. 128 MH/s x 86,400 seconds = 11,059,200 MH per day. Each MH is a million hashes, which means that, over the course of a day, your rig can produce north of eleven trillion hashes. Difficulty represents the average number of hashes you'll need to solve a block. For Ethereum Classic, the current difficulty is 116.3578 TH or over 116 trillion hashes. To get the average number of blocks you'll mine a day, convert your hashes per day into terahashes and then divide by the difficulty:
11,059,200 MH per day / 10^6 = 11.059 TH per day
11.059 TH / 116 TH = 0.095 blocks per day
That means that our mining rig will mine .095 blocks of Ethereum Classic per day. Since the network currently pays out a block reward of 4 ETC, and you're solving an average of .095 blocks per day, you'll earn an average reward of .095 blocks* 4 ETC = .38 ETC per day. At an exchange rate of $4.75 per ETC, that comes out to $1.8 per day or $54 per month. Remember that the numbers we're using here are only a rough estimate of what you might make with specific mining hardware. Your actual hashrate will depend on your hardware configuration, and the amount you earn will depend on mining-pool efficiency. The only way to calculate your actual performance is to plug your rig in and measure it.
How much do you spend? Running all that hardware, however, isn't free. As a miner, your main operational expenditures will be the cost of powering up your mining rig. Drilling down on your electricity costs by operating your hardware efficiently and setting up shop somewhere with cheap electricity is crucial to getting an advantage in mining. To get the electricity cost, multiply the time you spend mining by electricity consumption in kilowatts and the cost per kilowatt hour.
Using the example from earlier, a mining rig with four GTX 1070s GPUs would consume roughly 480 watts to power the graphics cards, plus another 50 watts for the motherboard and CPU, or 530 watts total. Let's say that your cost of electricity is $.5 per kilowatt hour (kwh), and that you plan on running your rig 24 hours a day. To estimate the electricity, you have to pay a day, convert watts into kilowatt hours and multiply with the cost of electricity:
530 W = .53 KW
.53 KW x 24 hours = 12.72 KWH per day
$.05 x 15.12 kwh = $0.64 per day
Different hashing algorithms will require different amounts of electricity even with the same rig, which is something to take into consideration when you're selecting what to mine.
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