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.

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: April 25th, 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 in October 2016.    

Hashflare.io

Currency Type Profitability Power Break-Even (Max)
Bitcoin Lifetime 0.0002407 BTC  1 TH/s 12.3 months 19 months
Litecoin Lifetime 0.00003166 BTC 1 MH/s 10.5 months 17 months
Dash 1 year 0.00024897 X11 1 MH/s 10.6 months 14 months
Ethereum 1 year 0.00151603 ETH 1 MH/s 9.5 months 12 months
Zcash 1 year (n.a.)  1 H/s - - ??

Genesis Mining

Currency Type Profitability Power Break-Even (Max)
Bitcoin Lifetime 0.00027384 BTC 1 TH/s 13.5 months 16 months
Litecoin 2 years 0.00453508 LTC 1 MH/s 7.0 months 9 months
Dash 2 years 0.00030112 X11 1 MH/s 9.1 months11 months
Ethereum 2 years 0.00151603 ETH 1 MH/s 12.9 months 14 months
Zcash 1 year (n.a.) 1 H/s - - ??
Monero 2 years 0.00009530 XMR 1 H/s 19.8 months 20 months

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. For Bitcoin, it has been steadily rising, even when it lost nearly 30% of its value in early 2017.
  • 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$, then up to 13.5$ because of the recent Litecoin breakthrough.
  • 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. 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, Etherium). For the former, this means mining material becomes obsolete faster, while difficulty can rise faster. For the latter, the corresponding difficulty is less likely to rise suddenly and the coin production is more likely to remain steady.
  • Halving - Some cryptocurrencies see their mining reward halve from time to time (Bitcoin in June 2020, Litecoin in August 2019, Zcash in October 2020). The due date can only be estimated. This puts a sudden stress on older material profitability. 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.
  • 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.
  • Check the break-even against the contract duration - If the break-even is close to the contract duration, then the risk of losing money overall is higher than when it is not. Check the maximum observed break-even too.

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 on the list...  

However, 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 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. I am following the latter strategy.      

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. Although Cryptonator offers cryptocurrency conversions, I found Changelly to offer better conversion rates.

Then, buy your first online mining contract either at Hashflare.io or Genesis Mining (*). 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 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 you will have done some business with them).