Are you planning to start Bitcoin mining? Hmmm.

Real image of Bitcoin miners at work.
Cash is printed and Bitcoin is solved.

There are a total of 17 million Bitcoin in existence and they were all created by solving math problems; really really hard math problems. Not many people like math but thankfully machines can solve these problems for you. In the beginning of time, (2009:Birth of bitcoins), the problems were simpler and could be solved using a regular computer and people were rewarded 100s of Bitcoins for solving them. But Lord Satoshi, in his immense wisdom, had designed the system in such a way that the complexity of the problems kept increasing with time.

Bigger problems requires bigger machines and that is where came in the influx of mining equipment which are basically a bigger versions of the processors inside your laptops. These machines are supplied by hardware companies like Bitmain, Canaan with Samsung also foraying in to mining hardware manufacturing. All they do, day and night, night and day, is solve math problems.

Consume Power, Solve Problems, Earn Bitcoins, Repeat.

How this works is that you buy the machines, which are sold-out quicker than a discounted TV on a Black Friday sale, plug them in, connect them to the internet, do some software settings and BOOM! The machine starts mining. One of the ways of getting started is that you can lend the computing power of your devices at the crypto-mining marketplace Nicehash and just like Airbnb, your assets start generating revenue for you. Here is a great article, which explains the process of starting Bitcoin mining and what it entails using mostly using gifs.

So, should you invest in these instruments and start mining Bitcoins? Let’s explore. A good investment decision is basically about the amount you put in vs., the returns you get. For this analysis, let us consider the well known mining device Antminer S9 with PSU which is priced at around $1373. Using Nicehash profitability calculator, you can actually calculate the net profit you would get per day/week/month just by providing the input at the device and electricity costs. For S9, following results were provided by the calculator:

$142.63/ month

This calculator assumes that electricity costs are $0.12/kWH, and shows results for the instrument operating at today’s mining difficulty and at current prices. At these rates you can see that you can earn a profit of around $142 per month which is not bad considering you don’t have to do anything at all. But wait, isn’t this too good to be real?

Let’s dig deeper. Mining difficulty increases with time which require more hashing power per block, making the profits curve dip with time. allows you to do a more precise calculation of things by providing inputs like average price growth rate (input 10% monthly) and average increase in difficulty levels (input 14% monthly).

As you can see, it takes around an year for the graph to breakthrough the 0 level and start making any profit. Even after an year, the profits peaks as soon as it becomes substantial at $250 at the 2nd year mark. It is all downhill from here. At the start of the third year, the profit goes down to zero and starts heading toward an abyss. After third year, the device is costing you money for every second you run it. On the positive side of things, it can help you warm your home.

For every 210000, the coin reward size is halved. Currently, 12.5 coins are rewarded to the successful pool of miner but in 760 days, the award is going to be halved to 6.25 BTC. Difficulty increasing, rewards decreasing.

There are many parallels to the California Gold Rush of 1849 and the current borderless crypto craze. Los Angeles which was a really small, unknown town with almost a non-existent population in the upper west of USA but when Sam Brannan, a local resident went around the town announcing to everybody about the discovery of gold in the Californian soil, everybody listened and in less than a few decades, all of America started rushing towards California beating all the difficulties of the long route. California wasn’t really connected to the rest of the world but this didn’t stop them from undertaking the largest migration of humans in America till that point.

A week before making the announcement, Mr. Brannan went around and bought all the shovel from the nearby towns. And as people started quitting their jobs and started pouring into the state with dreams of gold in their eyes, guess what was the first thing they bought?

~Play a classic western movie soundtrack~

The richest man of this whole adventure would be the man who found the richest mines, logic says. But that’s not true. People who truly earned the most during this period were not really engaged in mining gold. But instead they were engaged in facilitating the process of mining and settlement of miner by selling the three fundamental needs of life — food, clothes and land. Levi’s, the most powerful apparel brand of today’s time had its origin in this exact phase.

“A gold rush is never really about the gold. It’s about the people it attracts. That is the real source of wealth: the ambitious, striving individuals lured by gold who ultimately turn their energies to creating civilization.”

More about this crazy adventurous era could be found in this great article.

Bringing it back to the present moment, if you really truly want to earn value for yourself out of the Bitcoin revolution, you should service the people who are involved in this movement. Facilitating the creation of digital and physical infrastructure, doing commerce via Bitcoins, providing other services which are essential to this movement are all the other ways of earning Bitcoins.

Just like shovels during the gold rush, selling mining instruments is more profitable than mining itself. Bitmain is perhaps the richest corporation of the crypto community with operating profits of more than ~3 to 4 Billion dollar for 2017. Again, that is not the revenue but the profits of the company which is only a few years old in an industry which is not even a decade old!

Starting mining equipment manufacturing is not an easy task and requires mammoth investments. But there are a lot of other simple things that can be done. Drop shipping being one of them is an easy, has as little hassles as bitcoin mining. If you are wondering what Drop-shipping is:

Drop shippingsupply chain managementretailercustomerwholesaler

Drop shipping is another name for price arbitrage; a fancy term that means you find low-cost products and sell them at a higher price. So if you say start drop shipping Nike shoes for Bitcoins, then probably you can earn a lot more than mining bitcoins. If the entrepreneur in you is really excited by this, then here is a great article on how you can start a drop-shipping business in less than 5 steps:

  1. Create a free Wordpress/woocomerce store
  2. Find low cost product … list them on your store at higher price
  3. Improve your store branding/look using Wordpress theme
  4. Install free bitcoin payment plugin for checkout.. and give discount on bitcoin purchases
  5. Start selling and enjoy the Bitcoin rollercoaster

Although the industry has become very competitive in the last few years, offering a niche or a feature which is uncommon and in demand like accepting Bitcoin payments, will really boost your sales.

Mining Bitcoins has an intrinsic restriction to the amount of Bitcoins you would get for a machine. But what are the limits you have for a drop-shipping website? None that I can think of. For the same amount of investment and time, you can earn a lot more selling for Bitcoins rather than mining Bitcoins and that is where the real “mine” is.

I rest my case.