In the previous articleabout mining machines , it was mentioned that miningcrypto assets based on the PoW consensus mechanismis a technology that turns electricity into "gold". This technology, which sounds quite tempting, has also caused many friends who invested in mining with hope to lose all their money and exit the market in dismay.So, what’s the problem here ? If mining is a blatant lie, why do so many people actually benefit from it and even continue to invest in it?Mining has grown wildly in the beginning, and has gradually become a market with a rich industry and clear division of labor worth hundreds of billions of yuan . However, in the implementation process, there are actually various " traps " that lead to lower returns than expected. If there are no reasonable risk avoidance measures, it is indeed easy to lead to losses.The author still takes Bitcoin mining as an example to share a commonmarketing trap - "mining machine payback period", and hopes that readers can benefit from the next ten minutes of reading. 01 “Toxic” marketing slogansIn the process of promoting and selling mining machines, there is a parameter that is both critical and useless, called the “payback period”. If it is a more responsible merchant or channel dealer, it will be noted that this isthe “static payback period”.This data is calculated based on the theoreticalcomputing powerandpower consumption of the mining machine, the mining difficultyat the time of data release,block rewards, real-timecurrency prices, and a specificelectricity price. Based on the above data, first calculate the net incomeof mining on that day . Then divide the net incomebythe cost priceof the mining machineto get the staticpayback period.This value is generally not large. The static payback period of most mining machines is within 300 days, and the performance of some mining machines far exceeds that of similar mining machines (such as mining machines with performance increased by 2-4 times, orFPGA mining machinesorASIC mining machines that appear for the first time in a certain currency ), and the static payback period can even reach within 150 days.Such a quick payback time is simply huge profits for ordinary investors, just like a colorful poisonous apple that attracts investors to devour it!But the actual situation is always very different from expectations. As mining machines are shipped in large quantities, the revenue of each mining machine will be quickly dilutedbecause the output per unit time of most crypto assets is fixed.Imagine that a few months after you bought the mining machine, the computing power soared by 30% due to the large-scale shipment of the manufacturer, and the electricity pricewas raised by 10% by the mining farm due to "various reasons". The market turmoil caused the coin price to plummet. To make matters worse, the block reward halved at this time. You will suddenly find thatthe static payback periodof the mining machine is infinitely long , because the mining income is no longer enough to cover the electricity bill. You can only look up at the sky in silence, and say in your heart, "What the hell am I mining?" 02 Factors Affecting Mining RevenueThe static payback period is a pie in the sky that cannot be used to satisfy hunger, but when we make investment decisions, we cannot ignore the issue of return on investment. So how do we evaluate the payback period of a mining machine to make it as close to the actual situation as possible?To solve this problem, we must first understand the factors that affect mining revenue and why the static payback period is not worth referring to.Taking Bitcoin as an example, most mining pools currently usea PPS-based revenue model(such as PPS+, FPPS, etc.). According to the "Calculation Method of Mining Revenue", we can get:The bracketed part is the theoretical daily income per unit of computing power. When calculating, you can also directly obtain it from a third-party website.We found thatthe factors that actually affect Bitcoin mining revenueare as follows:
Mining machine computing power: fixed;
Mining difficulty: From the development history of Bitcoin, the difficulty of Bitcoin mining continues to increase. The current mining difficulty istwice that of the same period in 2019 and three times thatof the same period in 2018,which is a dramatic change;
Figure 1 Bitcoin mining difficulty change curve
Block reward: Bitcoin’s current block reward is 6.25 BTC, which will remain the same for nearly 4 years (the next halving will be in May 2024) and can be regarded as a fixed parameter;
Transaction fee rewards: Over a long period of time, the average transaction fee is stable in a fixed range. If the market does not experience drastic fluctuations (such as the bull market at the end of 2017, which led to a large number of BTC transactions, network congestion, and a significant increase in transaction fee rewards), the change is not large and can be regarded as a fixed parameter;
Figure 2: Changes in the proportion of Bitcoin transaction fee rewards in mining revenue
Coin price: If the coin price is different when the mining income is converted into cash, the mining income will also be very different. However, in actual operation, the mining income can be locked in advance at the expected coin price through financial means such as hedging. In order to minimize variables, the coin price can be regarded as a fixed parameter when calculating mining income.
In addition, the impact of electricity priceson mining is also relatively direct. Electricity prices affect mining costs. The higher the electricity price, the lower the mining income. Generally speaking,reliable mining farmswill not frequently change electricity prices, and electricity costs can be regarded as fixed parameters.
In summary,the sharp fluctuations in mining difficultyare the main reason for the huge difference between the static mining payback period and the actual mining payback period. Therefore, in order to more accurately predict the mining payback period, it is necessary to take the changes in mining difficulty into account. 03 Estimation method of mining machine payback period
After organizing our thoughts, we can try to estimate the payback period of a mining operation. Take the latest generation of Bitcoin mining machineS19as an example:
Parameter Type
Specific situation
Mining machine price (yuan)
14260
Rated computing power (TH/s)
95
Wall power consumption (W)
3250
If you purchase S19 at the official price and start mining in a year-round electricity mine (electricity price: 0.35 yuan/kWh ), your daily mining incomein the current difficulty cycleis:When I wrote this article, the mining machine computing power = 95TH/s, the theoretical daily income per unit computing power = 0.00000929 BTC per TH/s (data fromF2Pool), the current coin price = 68549.55 yuan (data fromCMC). Daily mining income = 60.5 yuan. The daily mining expenses(i.e. electricity costs) are:The power consumption of S19 mining machine = 3250W, the mining machine runs around the clock, and the running time = 24 hours. Therefore, the daily power consumption of the mining machine = mining machine power consumption × mining machine running time = 3250 × 24 = 78000 W·hour = 78 degrees. The electricity price = 0.35 yuan/degree.The daily mining expenditure = 27.3 yuan. It can be seen that at this time,the net mining income of S19=daily mining income - daily mining expenditure = 33.2 yuan. The static payback period of the mining machine calculated according to the current mining difficulty and currency price=S19 mining machine price / S19 net mining income = 429 days. However, as mentioned earlier, the actual mining situation isgreatly affected by changesin mining difficulty, and will differ greatly from the static payback period of the mining machine. In order to more accurately estimate the mining payback period,it is necessary to consider the fluctuations in mining difficulty.Looking back at the changes in Bitcoin mining difficulty in the past two years, Bitcoin mining difficulty has been adjusted54 times in two years, with an average increase of 2.38%each time(mining revenue is inversely proportional to mining difficulty, that is, each mining revenue decreases by2.32%). Assuming that the mining difficulty continues to increase at this rate in the next two years, and the difficulty is adjusted once every 14 days on average, it can be estimated that by the time of the nth mining difficulty adjustment:
Among them, 0.0232 is the decline in mining revenue after each mining difficulty adjustment, and n is the number of mining difficulty adjustments.
In the total mining expenditure, the daily power consumption of the mining machine × the electricity price = daily mining expenditure = 27.3 yuan
Substitutingthe mining machine computing power, the currenttheoretical daily income per unit computing power,the currency price,the mining machine's daily power consumptionandelectricityprice data, we can get a curve of the net mining income changing over time:
Figure 3. Changes in the net income of mining machines
It can be foundthat at the 35th difficulty adjustment (around October 2021), the mining income of the mining machine began to be less than the electricity cost. At this time,the net mining incomereacheda maximumof7076.9yuan, less than half of the cost of the mining machine, andthe investment did not pay off. (As an inspirational blogger who promotes popular science mining, I feel so embarrassed) Fortunately, the actual situation is not necessarily like this: if the depreciation price of the S19 mining machine can reach half of the sales price at this time, choosing to sell the mining machine at this timecan make a profit. (As the latest generation of the king of mining machines, the S19 still has this value preservation) In addition, the above results are subject to the following conditions:
Electricity price: 0.35 yuan/kWh
The update and iteration of mining machines has maintained the speed of nearly two years
The price of the currency is stable between 63,000 yuan and 70,000 yuan, or the price of the currency is locked in this range in advance through hedging
However, the actual situation is changeable, and the above conditions may not be valid in this investment mining process. When calculating the return on investment, you shouldconsider your own situation comprehensively. Here are several other possible situations for reference:
If there aremore advantageous power resources, the data will be different. For example, if the electricity price reaches0.21 yuan/kWh , the mining machine will reach the maximum net mining income of 13,900 yuanat the 55th difficulty adjustment (approximately August 2022);
Given that the chip manufacturing process used by the latest generation of mining machines has reached a very high level, it is optimistically estimated thatthe update and iteration speed of mining machines will be greatly reduced in the next 2-3 years. The change in the computing power of the entire network will continue to revolve around the replacement of all previous old mining machines by the new generation of mining machines represented by S19, andthe computing power of the entire network will grow slowly. Therefore, in the next three years,the average increase in the difficulty of each mining can be set lower. In this way, the results will be very different;
The price of coinshas a dramatic impact on mining income. When investing in mining, you can use hedging to sell future mining income at a certain price in advance to lock in the price of coins (the author is optimistic about the market in the next two years, and investors cankeep enough cash flowandwait for a higher price to hedge), reduce the impact of coin price fluctuations on mining income, and obtain stable income.
In general, as the audience of crypto assets grows and the mining industry gradually becomes compliant, mining profits will inevitably return from huge profits to small profits, and the risks of mining investments will become greater and greater. Future mining investments must integrate high-quality resources and use necessary financial means to avoid risks and lock in profits.All the above estimation results are calculated according to the mining difficulty and coin price at the time of writing. Readers should make estimates based on the actual situation. This article only provides a relatively reasonable estimation idea for the mining payback period. I believe that some experts will make an estimation model with more variables to more accurately estimate the return on investment of mining.
