Can mining Ethereum be a profitable business venture?

This is a constant question, especially now that the price of Ethereum is rising. This year, Ethereum has seen an almost 20x jump in price. This increase has led people, who hadn’t considered cryptocurrency, to sit down and become suddenly extremely interested. When this happens, I believe that most of the biggest profits have already been made.

People have been mining the coin for months or years, and they have probably seen some tremendous gains, especially if they have a decent-sized operation.

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OK, let’s get back to the question: “Is it worth it to start mining?”

If you are just hearing about Ethereum and interested in maybe jumping on board, this can be a very difficult question and the answer depends on a lot of factors. Well, hopefully, this article will help you get an idea of whether it is good to mine Ethereum.

What is Ethereum?

In elementary terms, Ethereum is an open software platform based on the blockchain technology that enables developers to build and deploy decentralized applications.

I remember a friend once came up to me and asked, “Is bitcoin and Ethereum similar?” Well, sort of, but not really.

Like bitcoin, Ethereum is a distributed public blockchain network. There are, of course, some significant technical differences, but the most important is that they differ substantially in purpose and capability. Bitcoin offers one application —a peer-to-peer electronic cash system that enables bitcoin payments. The Ethereum blockchain can support many different types of decentralized applications.

So, how do I get Ether?

There are a few different ways to earn Ether, but the two most common ones are:

1. Cryptocurrency exchanges

These exchanges work exactly like foreign exchanges. You can buy, sell, or trade cryptocurrencies for other digital or traditional currencies like the US dollar, Euro, and Singapore dollar.

2. Mining

Mining originates from the gold analogy of the cryptocurrency sphere. In the simplest terms, cryptocurrency mining is a process of solving complex math problems. “Miners” are people that spend time and energy solving these math problems. They provide the solution to the issuers, who verify it and reward the miners with a block of Ether (proof-of-work).

Mining sounds easy. Should I start now?

Wait a minute. Before you start, there are quite a few things you need to keep in mind.

Cryptocurrency mining, including bitcoin and Ethereum, has become increasingly harder for miners to make a profit. All miners need to check a few statistics including the mining hardware’s hash rate execution, the coin network’s current difficulty, and the electrical costs associated with mining.

1. Hash rate

A hash is nothing but a mathematical problem that a miner needs to answer. The rate at which the miner solves these problems is the hash rate. As the number of miners joining the Ethereum network increases, the computers (CPUs, GPUs, or ASICs) available for mining also get better and provide a higher hash rate.

2. Mining difficulty

This is a measure of how difficult it is to find a solution to the mathematical problem. The Ethereum network is designed to produce a constant number of coins every few minutes. As the hash rate of computers increases, the mathematical problem also gets more and more difficult to solve.

So, as more miners join the Ethereum network, the harder it becomes to solve the problem , increasing the mining difficulty.

3. Electricity

Now, as very powerful computers are running to solve these complex problems, a high amount of power is necessary to support these machines and their calculations. So, the cost of electricity should be factored in when calculating the return on your mining investment.

In a nutshell, more and more miners join the network every day as the price of Ethereum rises. More miners mean a higher hash rate, but the mathematical problem becomes more difficult. And if a computer consumes more time completing one calculation and receiving one block of Ether, there’s more electricity consumed.

In addition to these factors, one should also incorporate the cost of the device and the maintenance expenses when calculating the ROI.

Let’s take an example

Suppose you buy a mining rig that consists of six Radeon RX 480 GPUs (Ethereum Mining Rig 2) or a Geass Asic Miner and set it up for Ethereum mining (as shown in blue borders in the image below). Let’s compare these two systems and see if Ethereum mining is worth it.

By doing some back-of-the-envelope calculation, in one month, you can earn 1.4 ETH using the Ethereum Mining Rig 2 or 1.5 ETH using the Geass Asic Miner. Besides, you will also be spending at least US$100 per month on electricity.

Looking at these figures, mining seems to be a good proposition, and we could achieve breakeven in about six to seven months. However, just like any computer that operates consistently, factory parts can malfunction (fan replacements might be needed because the devices can run so hot), and I have not included maintenance costs such as this as well as the electricity consumed. If these expenses will be covered, I would assume breakeven to occur after one year. As the difficulty increases, the profitability of mining Ethereum drops until it is no longer profitable to mine.