In this article, I’m going to walk through an example of how to calculate mining profitability.1 It’s important to make this calculation when considering the rental of hashpower. In this example, I’ll be looking at the Haven Protocol coin, $XHV.
Calculating our breakeven cost
Platforms that rent hashpower usually specify the price in BTC per unit-of-hashpower per day, where unit-of-hashpower is whatever makes sense for the particular coin. In the case of $XHV, which uses the cryptonight-heavy algorithm, the hashpower unit is KH/s, or kilohash per second.
So what we want to determine is the breakeven cost of mining in units of BTC per KH per day.
We start with the data available at our pool. Almost all pools operate the same user interface software, so you’ll nearly always see a screen like the following, regardless of the coin you’re mining.
Now let’s make our calculation, assuming all variables stay constant over a period of a day (which they won’t, but we’ll get to that later). Remember, what we’re trying to calculate is the revenue in BTC per KH/s per day.
- Blocks per day — Our pool estimates finding a block every 11 minutes. There are 1,440 minutes in a day, so our pool should find
1440/11 = 131 blocks per day.
Blocks per hashpower — Our pool has a total hash rate of 872.4 KH/s, which means our pool will be finding
131 blocks/872.4 KH/s = 0.1502 blocks per day per KH/s.
Reward per block — The Haven network is currently rewarding 32.6 $XHV per found block.
Earned coins per day — For each KH/s of hashpower, we’ll therefore be earning
0.1502 blocks/day * 32.6 XHV/block = 4.90 XHV/day. (You can double-check this number using the pool’s calculator, but it’s good to understand how it’s determined.)
Revenue per day — For each KH/s of hash power, we’ll therefore be earning
4.9 XHV/day * 0.00007329 BTC/XHV = 0.000359 BTC/day
And there we have it, our breakeven hash power cost for mining $XHV on this pool is 0.000359 BTC/day.
Should we rent hashpower?
With that figure in hand, let’s go see if it makes sense to rent hashpower to mine this coin. At one site, here are the rigs which are currently available for mining the Cryptonote-Heavy algorithm:
As we can see, the lowest cost per KH/day is 0.00049 BTC which is above our breakeven cost. Therefore, it would not be profitable to mine this coin.
So the only case in which it’d make sense to rent hashpower to mine this coin, under these conditions, would be if we couldn’t outright purchase the coin elsewhere, and we expected the price to appreciate.
What can change?
Let’s imagine you’ve made your analysis, the rental cost is below your breakeven point, and you’ve booked a day of hashpower. What can change?
- Your pool’s net hash rate can change as other miners enter and leave. An increase in hashpower should result in more blocks being found by your pool per day. Likewise, a decrease in hashpower should result in fewer. In the former, you’ll be receiving a lower percentage of a higher number, and in the latter you’ll be receiving a higher percentage of a lower number, and hopefully the result would be net-neutral for you.
My understanding is that proof-of-work networks dynamically adjust the mining difficulty in order to keep the average block discovery time constant. That’s how we can pretty accurately predict when the last bitcoin will be mined, as its average block time should remain 10 minutes. In the Discord chats, some claimed to have heard of coins that change block times. If that’s the case, then such a change during your rental period could affect the breakeven cost.
The market value of the coin could change as well, which, everything else remaining equal, would either raise or lower your breakeven cost.
Finally, the value of the denominating currency bitcoin could change.
So the breakeven calculation is an initial condition that could change during the term of your rental, and so the difference between what you’re paying and your breakeven represents a margin of sensitivity to those changes.
As you’ll have noticed from my previous articles, I’m transitioning from the world of traditional investing, to the world of crypto investing, and in the process am doing a lot of hands-on learning to make sure I understand the ins and outs of this space.
Through this blog, and for the benefit of new entrants to this space, I hope to write articles that simplify some of the complex topics that I’ve struggled with, including details that many others have glossed over or left out entirely.
I hope you’ve enjoyed this one about mining profitability, and if you have any questions or feedback, don’t hesitate to leave a comment below or email me through the contact form.