Cryptocurrency is all the rave today. From investors to celebrities, Cryptocurrency is a hot topic. For better or worst, crypto mining has been a force that has changed the way we look at investments and currency. But is mining for Cryptocurrency a good payoff? Depending on the investment strategy, it might be. However, for the average person mining for Cryptocurrency, is the effort worth the gain? To make an evaluation, we’ll look at the annual cost for mining versus the annual gain. For our benchmark, we’ll look at Ethereum.
As of May 2021, the price of Ether is $1,922.11. When comparing this price to Bitcoin, it pales in comparison but is still popular to mine. For our example, we’ll look at the following attributes when determining the cost to mine for Ethereum:
- Cost of the hardware to mine Ethereum
- Energy cost to mine Ethereum
- Cost to exchange Ethereum for USD
First, let's choose the right card for our example. Not all graphics cards are created equal. So to select the best card for mining Ether, we'll gather and analyze graphics card data utilizing R programming language by executing the following steps:
- Use excel to scrape/import graphics card data from the web.
· Use R in Jupyter notebooks to create a linear regression model utilizing the following libraries:
· openxlsx
· pacman
· nortest
· leaps
· Import the data set for the linear regression model with Daily Profit being my dependent variable and Average Price, Mining Performance, Mining Power, and Days to Break Even my explanatory variables.
- Use the “cor” function to see any correlations between the explanatory variables and the dependent variable.
- Analyze the results
The correlation table shows that average price and mining performance have strong correlations with daily profit. However, I’m looking for the explanatory variable that makes the most significant difference in potential daily gains, and that’s where the model comes into play. The linear regression model could be used to make predictions, but R gives me details about which explanatory variables are the most significant: mining performance and power. Mining performance has a high correlation and is very substantial in determining daily profits.
Now it’s time to choose my card. I will take the top 3 cards in mining performance and conduct a profit/cost analysis. This is pretty straightforward. I first calculate the total annual revenue the card generates minus the cost of the card. The card that yields the most profit is the card I will select for this example.
I created a chart that shows the cost, mining performance, daily revenue, annual revenue, and annual profit. As you can see, the GeForce RTX 3090 has the highest average price, mining performance, and annual profit. The Radeon VII has the least mining power of the three but comes in second in annual profit. Based on this analysis, I chose the GeForce RTX 3090.
Next, I want to build a theoretical mining rig that includes all the necessary components for mining Ether. I’ve been building desktop performance PCs for over 20 years, so I have quite a bit of experience building custom PCs. Some would say, “I could build a cheaper PC.” But I always say you get what you pay for. The components listed in the chart below will help future proof this mining rig and provide stable, consistent performance.
Our final hardware cost for our mining rig is $4,525. Now let’s look at energy costs associated with this mining rig. It wasn’t easy to get a solid answer on how much it costs per day to mine Ethereum. I spent hours researching and comparing numbers and found, on average, it cost $2.40 a day to mine Ethereum, which comes to an annual cost of $876. Keep in mind, mining rigs run hot and can heat a room really quick. Thus, there are associated costs to keep the room cool.
The final cost to analyze for this example is the cost to exchange crypto for USD. Now, smart investors would hold onto their coins to watch the price grow and trade at the right time. But for this example, we want to look at annual returns. At the beginning of the crypto mining craze, many shady exchanges had high costs or questionable practices that would flat out steal people’s coins. Because Cryptocurrency is not regulated and identities were confidential, it’s challenging to bring the perpetrators to justice. Now, several exchanges provide excellent services. After analyzing several exchanges, the average cost to exchange Cryptocurrency is 1% ranging from no cost to 2.3%. For this example, we expect to earn $5,898.40, and 1% of this cost is $58.98.
Conclusion
Based on the information collected, if you were to cash out each year, the first year would yield a profit of $468, with even more significant gains in the following years calculated at $4,963.42 if the rate remained the same. Additionally, News reports claim that Ethereum is only going to increase in price.
I have to admit, I initially thought this whole crypto craze was just a fad, but numbers don’t lie…I think it’s time for me to build my own rig and start mining!
