November 18, 2017
In our previous article we discussed the following key reasons why Empty Bucket does not recommend cryptocurrency mining as a sustainable business for private investors:
- Decreasing rate of token generation
- Miner downtime is a real issue
- Mining altcoins to receive higher ROI is not always a viable option
Here are the rest of the reasons why:
- High upfront costs and expensive maintenance
The higher the complexity of your installation, the more important it is to invest in a specialized facility to situate your rigs:
- Excessive Heat – Rigs release a lot of heat and need to be cooled down properly. Large mining operations such as BitFury spent millions of dollars positioning their operations in naturally colder geographic regions (e.g. Finland, Iceland, Canada, etc.).
- Electricity Cost – Your primary cost driver is electricity. Similar to the point above, you want your mining farm to be located in an area where electricity is offered at the lowest possible peak and off-peak rates.
- Noise Pollution – In addition to heat, the cooling systems of your miners generate noise. A lot of it! It’s not ideal if you want to have it installed in your place of residence.
- Security Concerns – There are a number of cases where entire installations have been reported stolen. You’ll need to consider ways to make sure your investment is protected from theft 24/7.
- Technical know-how required
Unless you decide to purchase an expensive pre-made and pre-set platform or pay someone top buck to do it for you, you will need to spend a considerable amount of time familiarizing yourself with complex concepts such as part assembly and replacement, overclocking, etc.
In addition to these, you are also facing technological advancements that result in opportunities to upgrade your hardware to stay competitive. You will need to be up-to-speed with the newest in the space and be prepared to face the extra costs.
- The opportunity cost of direct investment in tokens and a simple ‘buy and hold’ strategy is high
Even if mining conditions are favourable, the past few years have proven that investing simply in the top 3 cryptocurrencies would have generated considerably higher ROI than any mining rig. In principle, it is always better to invest in an asset rather than a liability.
True, such high returns are unlikely to persist at the same rates, but this also diminishes the value proposition of investing in a mining facility. If you recall point 1 from our previous article, reward generation volumes will steadily decrease over time. This will inevitably reach a point where costs outweigh revenues in line with increasing mining difficulty and basic economic principles derived from a loss of competitive advantage.
- ‘Life-changing’ profits, require a long-term ‘mine and hold’ strategy
You may find that you are better off paying for any on-going running costs of the rigs with alternative income paid to you in ‘fiat’ money.
Selling your token rewards on a monthly basis to cover the costs of the installation at market prices may cover your initial investment but the high profitability scenarios are no longer in your favour.
Remember, some of the big players in the business such as P2Pool are public pools that own no hardware themselves but hash power coming from their users.
In our later articles, we will share our peers’ mining journey and the practical reasons why they have exited mining. We will also share how they managed to sell their mining equipment at a profit.
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