Friday, 21 April 2017

Cloud Mining - How Much Passive Income Can You Make?

About Cryptocurrency Mining

Cloud mining is profitable, I have tried it. The question is, what is the return on investment and when will you get your money back? Considering mining fees, contract duration and many other factors, it's hard to guess which site offers the best cloud mining contracts. And what about reinvestment opportunities?

Well, rather than guessing, I've spent a bit of my money to find out the real return of such contracts. I have used Hashflare.io and Genesis Mining, which I trust most. Their helpdesk was responsive when I had questions. Recently, I have started working with MyCoinCloud too.

This post is about sharing my observations.

Warning: Cryptocurrencies have been very volatile since late 2016. The figures I am about to share should be interpreted with caution. I have seen a lot of fluctuations. These numbers may not be valid anymore in a couple of days, weeks or months. I will update them from time to time (last update: July 9th, 2017).

Cloud Mining Comparison

Contract prices are not included below, since they often change according to market conditions. The profitability indicates the observed amount of coins produced per day for a given processing power and after fees deduction (i.e., what comes back in your pocket).

Break-even is the estimated amount of time required to get your investment back. In other words, if you put 1$ in mining contracts, how much time does it take to get your 1$ back? This figure is probably the most volatile one, as plenty of factors influence it. I'll describe them later in this post.

Break-even is computed according to current contract price, excluding any promotions, coupons or discount for bulk buying. Max is the maximum observed break-even since I have started investing in online mining contracts.

When I initially wrote this post (which I update here and there), I provided data for fixed-term mining contracts. I have stopped monitoring these and decided to focus on lifetime contracts only. Therefore, the data provided below is only for lifetime contracts.  

Lifetime Mining Contract Profitability

Currency Company Profitability Power Break-Even (Max)
Bitcoin Hashflare 0.00019200 BTC  1 TH/s 8.2 months 19 months
Litecoin Hashflare 0.00003284 BTC 1 MH/s 5.4 months 17 months
Bitcoin Gen-Mining 0.00029004 BTC 1 TH/s 6.8 months 16 months
Ethereum MyCoinCl. 0.00045266 ETH 1 MH/s 5.9 months 7 months
ZCash MyCoinCl. 0.00334300 ZEC  100 H/s 6.6 month 7 months

Genesis Mining pays on a daily basis. MyCoinCloud pays on a weekly basis. For Hashflare, payment transfers are manual.

Which Factors Influence Mining Profits?

  • Mining Difficulty - This is a parameter influencing the productivity of mining servers. The more people are mining a cryptocurrency, the higher its difficulty. The higher its difficulty, the more effort is required to produce a coin, and vice-versa. This parameters helps regulating the production of coins. It tends to follow the price fluctuations of cryptocurrencies, with some delay.
  • Contract Price - The general trend is an inverse correlation with a coin's mining difficulty and a positive correlation with a coin's value against a traditional currency (say USD). Since more and more people are mining coins, the mining difficulty rises. In order to keep their offer valuable, companies lower their contract price. There is a notorious exception. Litecoin contracts at Hashflare.io have gone from 9.9$ to 6.5$, then up to 13.5$ due to the Litecoin breakthrough in the first half of 2017.
  • Mining Fees - Fixed term contracts tend to have no mining fees, as they are already priced into the contract. However, lifetime contracts have a daily fee per computing power to cover for the electricity (amongst others). Old mining material tends to consume more electricity than recent one. Typically, lifetime contracts produce coins as long as they are profitable. Then, the material is decommissioned.
  • Pool Fees - Some companies offer the possibility to select mining pools. Having performed some tests, I did not notice significant differences between them, except for the smaller ones whose profitability is more unpredictable and sometimes lower. I recommend avoiding pools not clearly publishing their fees.
  • Cryptocurrency Value - Bitcoin has seen its value rise from less than 700$ to more than 1200$ in about 4 months (Nov. 2016 to Feb. 2017). Since mining contracts produce cryptocoins, this factor is the most influential regarding profitability measured again traditional currencies. It can also heavily influence the mining difficulty.
  • ASIC Electronic Cards - These are electronic components designed for the sole purpose of mining cryptocurrencies. Each cryptocurrency is uses a given algorithm. Some of these can be implemented into ASIC cards in order to boost processing power and to reduce electricity consumption (Bitcoin, Litecoin, Dash). However, this is not (or hardly) possible for other currencies (Monero, ZCash, Ethereum). For the former, this means mining material becomes obsolete faster, while difficulty often rise faster to regulate production. For the latter, the corresponding difficulty does not fluctuate much.
  • Halving - Some cryptocurrencies see their mining reward halve from time to time (Bitcoin likely in June 2020, Litecoin in August 2019, Zcash in October 2020). These dates can only be estimated. Halvings put a sudden stress on older material profitability. For other currencies, Dash sees a mining reward decrease of 7% per year, while Monero sees a small decrease after each block. 

Warnings & Recommendations

  • Online mining is not the only way to invest in cryptocurrencies - If one believes the value of a currency will rise, one may as well buy some and wait, rather than invest in mining contracts. Trading coins has been more profitable than mining contracts between November 2016 and June 2017, thanks to a spectacular rise. However, this rise has reached a plateau and future rises are unlikely to be as sharp.   
  • Coupons and promotions mitigate risks - A 10% or 15% coupon has a dramatic impact on break-even. Use them to mitigate the risk of a constant rise in difficulty and/or decrease of currency value (in USD for example). However, be careful. If you Google for some coupons for, say, Genesis Mining, some advertising mentions between 3% and 10%, while in reality, it is only 3% and they know it.
  • Short-term vs Long-term - The global trend is up for the most important cryptocurrencies. Trading their value makes sense, especially because of the high volatility. Mining contracts are not the best option for short-term objectives, but IMHO, they excel at mid to long term objectives. They provide profitability with peace of mind. You don't need to spend all your time in front of your laptop, chasing for trading opportunities.

Reinvesting In Mining Contracts

Hashflare.io offers the possibility to automatically (or manually) reinvest produced coins into extra mining contracts. I did the maths for fixed term contracts but I don't see any value here, especially since it extends the break-even period. I am not saying there is no possibility for profits, but the extra risk is not worth it IMHO. Greed has already wiped out so many investors, I don't want to be the next one the list...  

For lifetime contracts, it's a different game. After an investment period (say 1 year), you still hold some processing power and that has a value. I did some maths and computed the cash flow value of production with a 60% yearly discount (i.e., if it is worth 100$ now, it will be worth 100 * 40% = 40$ the next year, and 40 * 40% = 16$ the following year, etc...). 60% might seem high for some, but remember about halving and the constant rising of difficulty for some cryptocurrencies. I would rather be conservative and safe, than sorry.

Well, the outcome is that even with a high discount, reinvestment in lifetime contracts offers pretty good value. I see two strategies for beginners here: the very safe approach by which one does not reinvest anything before reaching break-even, and the cautious approach which is to not reinvest more than what you have already recovered. Say you have invested 100$ and regained 35$, you would not reinvest more than 35 / 100 = 35% of future coins produced by your processing power.

Now that I have recovered my investments, I am using a full re-investment strategy, since I am interested in maximizing long-term benefits.  

How To Get Started With Cloud Mining?

One issue to tackle are wallets. It is technically complicated to hold them on your laptop. Considering I mine several currencies, I have found Cryptonator to be a good solution (but with some caveats, read the warning **). Although Cryptonator offers cryptocurrency conversions, I found Changelly to offer better conversion rates. For my Bitcoin wallet and for conversion to EUR and SEPA wire transfers, I use Bitwala.

Then, buy your first online mining contract either at Hashflare.io, Genesis Mining or MyCoinCloud too (*). You can shave off 3% of the purchase price at Genesis Mining by using this permanent coupon: 6M1WUC. Hashflare.io offers temporary coupons from time to time. These are published on their website and on their Facebook page.

If you enjoyed this post, please share it or like it !!! Thanks !!!

(*) Disclaimer: I do participate in the affiliation programs of Hashflare.io, Genesis Mining, Cryptonator, Bitwala and Changelly. If you register with the links in this post, both you and I will get some benefits (sometimes immediate, sometimes deferred, sometimes after doing some business with them).

(**) Warning: Some of my Bitcoin transactions with Cryptonator have been waiting for confirmation for several days now because the transfer fee was too low (***). Unfortunately, Cryptonator does not let one set its own transfer fee. This resulted in failed EUR SEPA transactions too. I had to insist to finally receive the money on my bank account.

(***) Bitcoin has grown so popular that the system has been having issues to process all transactions in a timely manner between May and June 2017. For several months, involved parties did not agree on the solution to this looming issue. Recently (May 2017), they came to a agreement.