I have been fascinated with cryptocurrencies, the blockchain and its social implications for a long time.
One key aspect of cryptocurrencies is in fact the mining – infact its an integral part.
When I dug in, I realized that the time cost of actually investing, setting up and managing a rig was neither possible nor off interest to me.
I did however still want to pursue this matter and decided to dip my toes a little bit.
#1. What is Cloud Mining?
Cloud mining is essentially a turn key solution for people who want to invest in mining but dont want to do it themselves.
Someone will buy and set up the rig, and ‘rent’ you ‘hashpower’ which in turn will ‘mine’ (aka generate) you currency and pay you out.
Online, there was a lot of noise.
Some people were posting videos of how they are making huge profits and loving life and others complaining and call it all a scam.
It was all noise so I decided to dig in deeper.
Based on my research, the 2 most popular cloud mining operators were genesis mining and hashflare.
I decided to start with genesis mining because of the enormous user base, it was unlikely that if it was an outright scam it would grow to such numbers.
#2. How to measure profitability?
Shortly after I have started my contracts I started asking myself the question: how will you actually measure profitability?
It’s actually a VERY complex and it took me a while to figure this out.
The first step to measure anything is you need a common denominator.
Common Denominator = FIAT
The intuitive first thought is to convert all debits and credits to fiat and then see how long it took to make back the FIAT.
This is WRONG.
Firstly, your FIAT credit is dependent on the exchange rate of BTC and any gains must be measured against the option of simply buying bitcoin and holding.
I’ll give you an example, lets say I invested $1000 into mining when bitcoin was worth $1000 each and lets say I got back my $1000 (in bitcoin equivalent) in 6 months.
Lets assume that the price of BTC has double in those 6 months.
Option 1: Buy Mining Contract
- $1000 = 1 btc. In 6 months I have 0.5 BTC worth $1000
- I have broken even, hurrraaaaay. But wait.
Option 2: Buy Bitcoin & Hold
- $1000 = 1 btc. In 6 months its worth $2000 USD.
- So basically option 2 is twice as profitable as option 1 in such a scenario.
- FIAT is NOT a good common denominator.
Common Denominator = BTC
This is the correct way to go IMO to measure profitability.
When you invest into any mining contract, you are first PURCHASING BTC with FIAT, and then you measure ROI based on how long it takes to make your BTC back.
So in the example above my ROI isn’t 6 months (time it takes to make back FIAT) but rather its 1 year (the time it takes to make back the BTC).
The exchange rate between FIAT and BTC is sort of a seperate matter.
To sum up:
- Buy BTC
- Invest BTC
- Make returns in BTC
More over, the same applies to mining other cryptocurrencies.
For example, if I’m mining ETHEREUM:
- Buy BTC
- Invest BTC
- Make gains in ETH
- Convert ETH daily to BTC to measure ROI
You dont actually convert physically, but for measurement sake you log it.
#3: Actually Measuring Profitability
Enough talk, here are my rules for measuring:
- EVERYTHING gets converted to BTC
- My investment is in BTC
- My alt coin payouts are converted to BTC based on daily exchange average
- I only measure what left my account and what actually landed on my account
- I did not receive ANY referal hashpower and have not purchased any hashpower via a referal link (except a measly 0.005 TH/s which really can’t skew my data)
I started in march of 2017 and for 3 months I was working with a very small contract.
Here you can see my purchases:
In june and july I stepped up my investment to something serious and saw a proportionally larger increase.
Here is a summary of ALL debit/credits of my genesis interaction so far:
Here is the same data visualized:
Assuming that I dont make any further investment, I will extrapolate a little bit.
Based on the increase in mining I have done some very primitive calculations and this leads me to the following figures
For simplicity I have plugged in a little table
Thus the average month to month increase is 12.7%. I have rounded up to 13% for further calculations.
Based on this:
My break even point should be approximately in May of 2017 OR around 12-14 months from the start.
Based on a 24 months projection the PROFIT would be:
Everything comes down to how much the payouts dimish by from this point going forward.
Regardless, based on my experience so far and my forecasts, I can conclude:
- Genesis mining is NOT a scam, they do payout daily
- ROI is between 12-14 months
- Profitability based on 2 years mining should be between 15-25%, not more.
I will do another post in 3 months to compare my forecasts to reality.
I have developed a format for measuring and logging my mining to be able to measure it later and it can be found here.