Ethereum network hashrate growth<\/a>. In this example, Hashflare.io contracts run in 12 month increments. So we need a realistic estimate of how much the hashing power (and thus mining difficulty) will go up over a 12 month period.<\/p>\nThis takes some guesswork but the best indicator is the past.<\/p>\n
The\u00a0August 2015 hashrate of 55 GH\/s to the August 2016 hashrate of 3,811 GH\/s\u00a0represents a 6,800% increase. This was the first 12 months of the Ethereum network coming online so I think this number is too high.<\/p>\n
In 2016 the Ethereum network hashrate went from 511 GH\/s to 5,700 GH\/s. A 1,015% increase.<\/p>\n
From April 2016 at 1752 GH\/s to April 2017 of 20,300 GH\/s was a\u00a01,058% increase.<\/p>\n
So I based on 2016 I think a 1,000% increase in hashing power is a good conservative guesstimate. That means the hashing power would be around\u00a0230,000 GH\/s by April of 2018.<\/p>\n
So then we follow step 1 again using the static calculator. Using the 1 MH\/s and a network hashrate of 230,000 GH\/s. The monthly ETH mined would be 0.004233 worth $.21.<\/p>\n
Step Three of How to Calculate Cloud Mining Profitability<\/h2>\n
So at this point we have a projection of how much we’ll get from mining in the first month. And how much we’ll get in the last month. These are just a projections based on a static analysis and a guesstimate of where mining difficulty will be in the future.<\/p>\n
But the amount mined doesn’t jump down from the first month to the last month. The amount mined is slowly and steadily decreasing.<\/p>\n
I think a exponential decay model fits the data better but for the sake of ease I think a linear model will suffice.<\/p>\n
I also think a simplified method\u00a0works because the cloud mining rates I’ve seen are not close to what they would need to be for mining to be profitable.<\/p>\n
Take the amount we think we’ll mine in the first month. In this case .043093. Then take the amount we’ll think we’ll mine in the last month, .004233. Subtract the first from the last. Then divide that by 11.<\/p>\n
From that point you take the starting value of .043093 subtract the decay amount .003943 to get the second months value of .039149. You do this again until you get to month 12. By summing up each month’s value we get 0.283956. Multiply that by the price of ETH of\u00a048.63 USD and we get $13.80.<\/p>\n
The contract in this example cost\u00a022 USD so this would not be profitable if the network hashing power goes up by 1000% (as it did in 2016) and the price of ETH stays the same.<\/p>\n
You’d end up losing $8.2.<\/p>\n
Okay, what if the network hashing power only goes up 500% so it goes up to\u00a0135,600 GH\/s after one year? You’d mine about .3 ETH worth $14.66. You still lose.<\/p>\n
What if the network hashing power only goes up 100% to about\u00a045200 GH\/s? You’d mine about .387 ETH worth less than $19. Loser.<\/p>\n
What if the network hashing power only goes up 35% to\u00a030,500\u00a0GH\/s. You’d mine about .45 ETH worth $22.88. Small winner.<\/p>\n
If Network Hashing Power Goes Up You Start to Lose<\/h2>\n
So what I hope this shows is that if the hashing power goes up, which in the case of Ethereum (and I suspect most coins as well) the amount of coins mined will drop and the profits will be eroded.<\/p>\n
Easy Method<\/h2>\n
If you believe network hashing power will continue to go up then use this method to determine if mining is even worth a closer evaluation: use the static mining profitability calculator. Use the amount of ETH mined and the cost of the mining contract to see how much you’re effectively paying per ETH.<\/p>\n
For example Hashflare.io is selling 1 MH\/s for 22 USD for a year. That would yield 0.043093 ETH per month x 12 would be 0.517116 ETH for the year mined if the network hashrate stays the same. So the cost per ETH would be 42.54 USD. With ETH trading at 48.63 USD that is only a 14% discount over a year.<\/p>\n
Unless you’re going to get ETH (or whichever other coin) at a significant discount using the static calculation (say 40-50% below spot price). It’s not worth it.<\/p>\n
But the Price of ETH is going to double!<\/h2>\n
Great! Then buy ETH directly. Lets say the price of ETH does double in a year. It goes from 48.63 USD today up to $97.26. You could have bought $22 worth of ETH (.45 ETH) and the $22 worth of ETH would now be worth $43.76.<\/p>\n
With a 1000% network hashrate increase you’d have only mined 0.283956 which would be worth $27.61. Unless the mining is profitable with the price of ETH fixed, you’re better off owning the currently directly even if the price of the currency goes up.<\/p>\n
At what price would cloud mining be worth it?<\/h2>\n
As of today 23 April 2017, based on a 1000% increase in hashing power over the next year I would not pay more than around $7 for 1 GH\/s of hashing power.<\/p>\n
Based on my projections that would yield about 40%. Given the risk and volatility in cryptocurrencies I would need to see that kind of return for it to be worth the risk to me.<\/p>\n
With 1 GH\/s costing 22 USD, if the network hashing power stays the same I would still only make about 15%. Given the history of network hashrate increases that isn’t worth it.<\/p>\n
Hashflare.io is nowhere close to $7 per GH\/s. Genesis Mining offers 1 GH\/s for 2 years for 29.99. Who knows where the network hash rate will be in 2 years.<\/p>\n
Some People Claim Cloud Mining is Profitable<\/h2>\n
I have read testimonials from people who think cloud mining is profitable. My main question would be is it profitable because the underlying cryptocurrency went up, or because the mining itself was profitable? In other words would you have been better off just owning the cryptocurrency directly?<\/p>\n","protected":false},"excerpt":{"rendered":"
I go through the process of determining cloud mining profitability.<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[185,44,9],"tags":[153,16,17],"yoast_head":"\n
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