How to calculate mining’s profitability?

2 min reading

If you’re thinking about crypto-mining, you need to know how to make the best use of your money and equipment. In this guide, we'll show you how to mine digital currencies in the most cost-effective way.

How to start?

Choose the currency you want to mine

The process of mining digital currencies involves solving complex cryptographic puzzles. In doing so, miners provide "Proof of Work", awarded with a certain amount of coins. Generally speaking, there are two hash algorithms: SHA-256 and script.

SHA-256

The SHA-256 algorithm favours raw processing power. In very early times, Bitcoin could be successfully used CPUs and GPUs (graphics processors) that can be found on a normal home computer to mine. However, Bitcoin's mining is so difficult, that specialized processors known as Application Specific Integrated Chips (ASICs) are needed to mine it.

script

The encryption algorithm favours greater amounts of RAM and parallels processing capabilities.

The mining hardware

Depending on the budget and type of currency you intend to mine, there are two ways to set up the mining system:

Construction of equipment on your own

You can build it from your own computer, with as many graphics cards (e.g. GPU) as you can fit, or how much you can afford. While some people can use a standard computer case, many use non-standard cases, such as beer boxes, which allow for greater airflow around the components. The advantage of home-made systems is that you can simultaneously perform CPU and GPU mining.

Increase power

Mining requires electricity - a lot of electricity. If you're building home equipment, you'll still need an ATX (PSU) power supply, so invest in the most efficient power source you can get. You should also consider the problem of electricity bills. After the initial expense per device, the most important thing you need to know to calculate your current profitability is the cost of electricity. Check with your operator or check your last bill. If the energy costs add up to more than you earn, then, of course, this is not a good business model.

Combine your efforts

Instead of going alone, it is usually better to join the Mining Pool, where you combine resources with other miners. The members earn part of the rewards if the level of difficulty of the blocks they have solved is higher than the level set by the operator of the group.

Other problems to consider

Unstable currency exchange rate also affects long-term profitability. If the price drops suddenly, you will have the choice either to sell at a low price or to keep the coins until their value increases. In the first case, you would have to continue mining to recover your expenses for equipment and electricity.

Hidden costs

The costs associated with mining, such as the platform and current costs of electricity are probably the most important ones for the mining beginners.

Cooling costs

This is not only the cost of energy consumption by the mine. And what about the electricity that drives an additional cooling system, such as fans or air conditioning?

Profitability calculators

To get help with some of the calculations that miners have to make, there are several websites that provide profitability calculators. You can enter parameters such as hardware cost, hashing rate, energy consumption and the current bitcoin price to see how much time it will take to pay off your investment.

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