How to Calculate Mining Profitability

Getting started with Bitcoin mining is not too complicated and can be a great way to participate in the crypto community network. However, as with any business undertaking, before diving in it’s essential to consider the actual profitability of the enterprise. Here are some tips for figuring out the best setup for you.

Which cryptocurrency do you want to mine?

Cryptocurrency mining requires proof of work, and there are two main hashing algorithms that compute the necessary calculations: SHA-256 and Scrypt. Bitcoin uses SHA-256, which favors pure processing power. The escalating difficulty of Bitcoin mining has created a hardware arms race, making the most powerful processors obsolete very quickly. Most altcoins, on the other hand, use Scrypt. This algorithm relies on RAM memory use along with processing ability. Since memory can be expensive, the difficulty level and power consumption of altcoin mining has not scaled up as rapidly as that of Bitcoin mining.

What kind of rig is best suited for the purpose?

Depending on how much you want to invest and what currency you want to mine, there are two options: you can build your own GPU-based rig with as many graphics cards as you can afford, or purchase an ASIC miner — specialized equipment that is more expensive, but also more powerful. Again, the exponential increase in Bitcoin mining complexity means that choosing to mine Bitcoin as opposed to other currencies will require more processing power.

Keeping track of electricity use

Mining is infamous for consuming large amounts of electricity. When setting up your own rig, you need to determine the power requirements of all components and the efficiency of the PSU (power supply unit). ASIC miners are specialized machines, so they are designed to do more operations with less power, and come with their own power adapter, taking some uncertainty out of the equation.

In any case, mining efficiency is calculated by number of hashes per second divided by power consumption: 

Hashing speed / power consumption = mining efficiency.

If the electricity bill ends up being more than you earn through mining — clearly, it’s not profitable.

Minding the details

Aside from hardware and electricity expenses, there can be additional concerns, like cooling costs, avoiding rig downtime and cryptocurrency price volatility. You can also use online profitability calculators, but keep in mind that they can produce quite a wide range of estimations given the same data.