In recent months, interest in cryptocurrencies have surged as bitcoin and other cryptocurrencies have skyrocketed in value. At one point in December, the price of a single bitcoin was above $20,000, and the boost in price also impacted other cryptocurrencies, with Ethereum selling for more than $1,400 and Litecoin reaching above $190.
While buying on an exchange like Coinbase is usually fairly simple (and you can even buy fractions of cryptocurrencies), there are those who prefer to mine their coins.
But does it make sense to mine cryptocurrencies when you can just buy them and hold onto them?
How Profitable Is Mining Your Own Cryptocurrency?
Mining cryptocurrency seems like a no-brainer. Set up a computer to help solve complex math puzzles and you are rewarded with a coin (or a fraction of a coin). Back in the day, the first bitcoin miners were able to earn coins relatively quickly just using what computing power they had in their homes.
Today, cryptocurrency mining is a little more complicated and involved. With bitcoin, the reward is halved every four years. On top of that, serious miners have built huge arrays to mine, making it harder for smaller miners to compete. You can join a bitcoin mining pool to be more effective, but that comes with a fee, reducing your profits.
Some crypto miners instead opt for other currencies. It’s possible to mine ether, litecoin, monero, z-cash, and a number of other cryptocurrencies.
Some of these cryptos are worth very little in U.S. dollars. However, it’s possible to use what you mine and convert it into fractional bitcoins on an exchange, and then hope that BTC gains in value.
No matter what you decide to mine, though, you have to account for your setup costs. You need to buy the right equipment, including, in some cases, graphics cards that can cost upward of $700 apiece.
It’s possible to put together a basic rig for some of the less popular cryptocurrencies for around $3,000. However, some miners spend more than $10,000 on their rigs.
On top of building your rig, you also need to realize that you are going to be using quite a lot of power. If you have high power rates, you could end up spending quite a lot to mine coins— especially bitcoin. According to Marketwatch, the electricity cost involved in mining a single bitcoin is more than $3,000 in the cheapest states. For more states with higher electric rates, you could spend more than $6,000 in electricity to mine a single bitcoin.
A less powerful rig mining currencies like monero or z-cash could save you money. Even so, it can take several weeks, or even months, to recoup your original investment and become profitable.
What About Cloud Mining?
If you don’t want to spend the money to build a crypto mining rig, you can use cloud mining. With cloud mining, you purchase time on someone else’s rig. Companies like Genesis Mining and HashFlare charge you based on what’s called a hash rate—basically, your processing power. If you purchase a higher hash rate, you are expected to receive more coins for what you pay for, but it will cost more.
Depending on the company you choose, you might pay a monthly fee, or you might pay according to hash rate. Some companies also charge a maintenance fee. In general, cloud miners that allow you access to bitcoin come at higher rates. Once again, some miners prefer to use cloud mining contracts to collect dash, z-cash, ethereum, and other cryptos and convert those to bitcoin later.
In some cases, you might be required to sign a year-long contract, locking you in. If the value of the cryptocurrency drops, you could be stuck in an unprofitable contract. As it is, depending on what you mine, it can take between three and five months before your cloud mining investment even becomes profitable.
However, at least with cloud mining, you don’t have to worry about power consumption costs and other direct costs related to doing all of the mining with your own rig.
Bottom Line
In the end, mining can be a lot of effort without the profits you think you’ll see. While there are ways to make it work, you risk putting money into your setup, only to watch the values of cryptocurrencies drop. For example, as of this writing, the price of a bitcoin is around $7500—still more than double what it was a few months ago, but just over half its previous peak reached in December 2017.
If you think bitcoin (or any cryptocurrency) will rise in the future, you might be better off buying fractions of coins and holding onto them. Like all assets, though, you could lose money—and that’s true whether you buy cryptocurrencies on an exchange, or whether you invest in a setup designed to mine them. Consider your options and decide what is likely to work best for you.