Crypto Mining – is it too late now?

Bitcoin, Ethereum, Dogecoin and other crypto currency related words are trending words in google search or Investopedia in recent times. People are considering crypto for two reasons – mining and as an investment. So, is it mining or investment which is profitable right now? Let’s dive in.

If you are new to Crypto Currencies, these are virtual tokens based on the blockchain technology.  Blockchain is a ledger, which stores and maintains all the transactions digitally in a secure manner which is impossible to break/hack. Blockchain saves the copies if these ledgers digitally across many decentralized computers. Simply put, a blockchain is a method to store, manage and replicate public ledger in a decentralized way. 

Blockchain tech is secure since there are many copies of ledger available, if a node is hacked/ modified/crashes, other nodes can still keep the blockchain going. It maintains a public ledger that everybody can see, and no one can modify/alter once the transaction is approved which makes it more secure.

My friend Krishna and I started exploring the options for mining about a month ago. The key components for mining are Graphics Processing Units (GPUs) and Application Specific Integrated Circuits (ASICs). We almost bought the required hardware which can mine ETH faster (RTX 3090). But with the recent boom in crypto prices, pandemic and chip shortage, the price of GPUs and ASICs went up 2 – 5 times. Not all GPUs are same, some are more powerful and some are less. The more powerful GPUs have better Hashrate (which is the measurement used to mine, more hashes per sec means high efficiency and can process a lot of data in a single second) and can yield more ETH, but they are the ones that are in high demand and are expensive. 

We made use of free online tools to analyze the profitability of the mining (For Ex: CryptoCompare). It takes the input of hashes, power consumption and price per KwH and current price of the crypto we are mining and gives the prediction on profit through which we determine what is  Return on Investment (ROI) and when we can see the profits in hand. Our analysis clearly showed that it’s late in the game to mine some of the popular cryptos like Bitcoin and Ethereum.

Multiple factors for this, one being number of miners, as many people started mining to make few bucks the hardware is on high demand which in turn raised the costs of GPUs. The recent chip shortage also had an impact on the availability of GPUs. Another important factor is the fluctuating Crypto prices, since May 2021 the prices started to tumble and came to lowest and then again started to rise towards the end of July 2021 and again tumbled yesterday went down to $2700. Proifitability Calculations keep changing due to volatile Crypto market, which makes it difficult to predict accurate profits. All these factors makes ROI to take long time than expected.

Let’s focus on Ethereum mining as an example, we were looking for RTX 3090 GPUs to start ETH mining, this is the best in market with about 110 MH/s. and it costs $2600+ and need to wait for days to get it. Then we researched a gaming PC with RTX 3090 GPU and decided to go with that which was around $3100. But when we run these numbers through the calculators, it showed that it will be 2 years to breakeven and start to get some profit. The 2 Yr. ROI was when ETH was around $3900. So we were still not sure if that is worth the investment and time. And suddenly ETH started to tumble back to $3300 which increased ROI time which made us to take a step back. As of today (Sept 22, 2021) ETH price around $3000. We are still exploring options and looking for cheaper GPUs.

One other main risk to consider before mining ETH is the release of ETH 2.0 which is predicted to be sometime in 2022, which will make ETH mining obsolete. So, mining just for 1+ yr with very less or no profit doesn’t make sense. We then dived in to ETH 2.0 staking and see if that is something that can be pursued. Currently to be a Validator for ETH 2.0, we need to stake 32 ETH which was around $125K when ETH was around $3900 but now that is around $100K as price came down. Investing $100K to become a validator and to earn less percentage of profits didn’t seem to be feasible for us considering the amount of investment. Also, there is a waiting list to be approved as validator. Below is the earning analysis if you stake 32 ETH as of Sept 22, 2021.

If you see the earnings are 4.53% annually which is as of today, and it is likely to reduce as more validators get approved. As of today (Sept 22, 2021, 9:30AM EST) we have around 241K validators, 8M ETH staked and 5.5% APR.  View live stats on Beacon Chain or Ethereum.

Based on these calculations investing $100K in stocks or real estate seems to be more profitable than Crypto. Right? I am sure we can make more profits than 5% in Stocks or Real Estates if invested correctly. So, why all these fuss of mining or staking? Because in long run it may be a profitable investment with many unknown factors. If we see five years progression of ETH it was around $12 in Sept, 2016 and now after 5yrs it is around $3100 in Sept , 2021 with high of around $4000 in between. Now there are many other factors which may not be same as before, the 5yr trend from now may not see the same growth. But again as everyone knows that is how investments work, there are always risks. From my perspective it will still be a good investment considering the blockchain technology usage itself and I believe the prices go higher.

We also did some analysis on mining Bitcoin(BTC) which is more widely used crypto than ETH and obviously more number of miners and costly hardware. So same here ROI is too late involving more time and effort. We did look at options to do cloud mining and still exploring options to mine BTC. Bitfufu is providing options to rent hardware and mine. You can rent different hardware based on your budget or needs and duration ranging between 90 to 360 days.

Apart from crypto currency, blockchain technology itself has high hopes of being used for many different business use cases for its secured and transparent way of managing transactions, which is near to impossible to hack/break. Some of the use-cases which are already in implementation are NFTs (Non-Fungible Tokens) where assets are managed and sold using NFTs like art, music, and collectibles and so on. It has been heavily used in games or as a hobby too for example CryptoKitties is a place where users breed virtual cats, yes kitties 🙂 and trade them for thousands of dollars as a collectible. The more unique characters more the price. Also we have music, art, collectibles and many more in Crypto NFT marketplace to buy and sell.

There is no doubt that blockchain technology will be used to manage more and more physical assets like real estate, antiques, automobiles, anything which will have ownership title. Also, Smart Contracts for different types of service oriented businesses to maintain more transparent and secured way of transactions across all involved parties will be another business case where blockchain is going to play a big part. But we are far away from it and I am hoping that day will come soon.

Considering all these I believe if you are passionate about learning trending technologies and can invest some cash, time and effort then you should look in to Crypto mining, staking, NFTs, dApps or deFI apps and so on. It will be worth an exploration and for sure you will make some profits.

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