Research Report丨Grin Mining Equipment Investment Return Analysis Report

Preface

This article mainly discusses the investment feasibility of Grin from the perspective of mining investment returns. MimbleWimble is a zero-knowledge proof blockchain protocol that provides privacy and scalability by verifying that all transactions are valid, but does not require storing the entire history of the blockchain. Grin is an implementation of MimbleWimble.

TokenGazer’s opinion

This article calculates the mining income of the newly purchased mining machine (RTX2080TI-11G) based on the comprehensive expectations of the Grin project, and assumes that the market value and price of the digital currency market will remain unchanged for some time in the future, and there will be no ASIC mining machines for the time being.

• If Grin is expected to only rank 100th in market capitalization in 12 months, then buying new mining machines for mining will incur losses anyway.

• If it is expected that Grin's market capitalization ranking will reach 10th in 6 months, or Grin's market capitalization ranking will reach 20th in 3 months, then there is a high probability that the newly purchased mining machines will be profitable.

• If Grin is expected to rank 10th in market capitalization in three months, then the newly purchased mining machines will definitely be profitable.

Other situations require a comprehensive judgment based on the miners’ ability to bear losses.

1 Grin Basic Information

1.1 Grin core knowledge points

① No ICO.

② No pre-mining.

③ One block is generated every minute, and each block contains 60 Grin. There is no upper limit on the currency, the block reward is fixed, and the total amount increases linearly.

④ POW mechanism: Cuckoo Cycle. Cuckoo Cycle does not work by hashing as most people understand, but by searching large graphs.

Grin's official other views on Grin are shown in the table:

Table 1 Some opinions expressed by Grin officially Data source: Grin official Github document

1.2 Grin Inflation Analysis

Grin's block rewards are fixed, the amount of new currency added each year is constant, and the total amount is unlimited. Through analysis, it can be seen that Grin's inflation rate will drop to 10% after 11 years, 5% after 21 years, and below 3% after 35 years. Microsoft's inflation rate is widely used in the fiat currency world, but whether it is feasible in digital currency needs time to test. BTC and Grin had exactly the same issuance rate in the first four years after they went online.

Since Grin and Beam had the same inflation rate in the past few years, the amount of Beam was 1.33 times that of Grin during this period. Considering that Grin is much more popular than Beam, this article predicts that the price of Grin may be more than twice that of Beam in the long run.

Figure 1 Grin supply and inflation rate curve Data source: TokenGazer Research Group

1.3 The spiritual quality of the project

This item does not indicate whether a project is good or bad, but rather evaluates the degree of fit between the project and the community culture. Projects that do not conform to the community culture are at risk of attracting community criticism. The evaluation dimensions involved include whether it is an ICO, whether there is pre-mining, and whether the currency distribution is reasonable.

Bitcoin and the permissionless blockchain movement are built on the principles of equality and transparency, so pre-mining has been widely opposed. 1CO can easily lead to people's suspicion that the project party is seeking personal gain. In fact, most of the early old POW currencies did not have 1CO and pre-mining. Projects that adopt 1CO and pre-mining do not mean they are unreasonable, but compared with the Bitcoin-style community culture, they are obviously more likely to attract criticism.

For example, XMR actually originated from Bytecoin, but XMR is far more successful than Bytecoin. Bytecoin chose to go public after running for two years, at which time more than 80% of the coins had been mined. Therefore, Bytecoin is a typical pre-mining project and has been widely criticized.

Due to the fast mining adopted in the early stage, Dash mined a huge amount of coins on the first day. The miners who participated in the mining on the first day obtained too much profit, which was unreasonable in distribution and also led to criticism.

The Grin project has no 1CO and no pre-mining. It is basically community-driven and has been well received for its spiritual quality, which is close to Bitcoin.

Table 2 Comparison of some tokens Data source: TokenGazer research group (based on data on January 7, 2019)

1.4 Spread of heat

Figure 2 Zcash mining search popularity curve before and after Zcash went online Image source: Google Trends

Figure 3 Beam mining search popularity curve before and after Beam launch Image source: Google Trends

Figure 4 Grin mining search popularity curve Image source: Google Trends

The search popularity of Zcash and Beam both reached the highest on the day the project was launched, and then quickly dropped back to normal. Grin has not yet been launched, and judging from the existing search popularity, the popularity has not risen significantly. It should be noted that people who obtain mining information through web searches are usually novices, and Google Trends can better reflect the popularity of the project, not the popularity of senior enthusiasts or the community of the project. It can be assumed that before Grin was launched, it was not widely spread among novice miners.

1.5 Summary

In summary, the Grin project is very consistent with the community culture and has been highly praised by community enthusiasts. Although its currency issuance model is controversial, the project is likely to survive in the long run. This article will calculate the number of days to pay back the investment based on different expectations for Grin.

2 Mining Revenue Analysis

2.1 Profit Calculation Model

Grin introduced two POW algorithms. The primary algorithm Cuckatoo31+ is designed to be ASIC-friendly, while the secondary algorithm Cuckaroo29 is ASIC-resistant. At the initial release, 90% of the blocks will be mined by the secondary algorithm, while the primary algorithm will only mine about 10% of the blocks. As mining progresses, this ratio will increase further. For example, within two years, 100% of the blocks will be mined by the primary algorithm (ASIC algorithm friendly to miners), thereby incentivizing ASIC manufacturers to develop miners for the primary algorithm. GPUs with memory greater than 11G can also use the Cuckatoo31 algorithm.

Table 3 Configuration table of self-assembled mining equipment Data source: TokenGazer research group

Assume that a hobbyist assembles a GPU mining machine with the equipment in the table. The whole set of equipment can be equipped with up to 3 graphics cards. The whole set of equipment costs 38,700 yuan, and the total power consumption is about 1200W or more. This set of equipment can use the main algorithm or the secondary algorithm. Regardless of which algorithm is used, only personal mining is considered, and professional ASIC mining machines are not considered for the time being. Assume that the total network computing power is h, and the computing power ratio of the main algorithm is x.

When the primary algorithm is used, the computing power of a single device is 5.1 GPS, and when the secondary algorithm is used, the computing power of a single device is 18.3 GPS. The daily power consumption is 86400*1200/(3.6*10^6)=28.8 degrees. The relevant calculation formula is shown in the table:

Table 4 Mining equipment income calculation table Data source: TokenGazer research group

Due to many influencing factors, the table does not consider human expenditure for the time being. Considering that miners will automatically choose the algorithm to seek the maximum profit, the final stable state. The daily net income of the two algorithms should be the same, that is, 0.1*P*86400*5.1/(h*x)- 17.28=0.1*P*86400*5.1/(h*x)- 17.28, and x=0.03 is solved. When x<0.03, it is appropriate to use the main algorithm; when x>0.03, it is appropriate to use the secondary algorithm.

2.2 Calculation of Mining Payback Days

Since XMR has always been mined with GPU, the number of its miners and the computing power they can provide are regarded as the limit of Grin mining. SupportXMR.com mining pool, with a total computing power of 73MH/S, has about 6,600 miners, which is equivalent to an average computing power of 11KH per person. Converted into equipment, it is equivalent to 15 GTX1070 graphics cards per person. The total computing power of the XMR network is 441MH/s, so it is estimated that there are about 40,000 miners in the network. The limit of Grin's total computing power for a long period of time can be understood as that all the existing graphics cards used to mine XMR are switched to mine Grin. At this time, there are 40000*15=600,000 GTX1070 graphics cards. The Grin computing power corresponding to a single graphics card is 2.5GPS (using the secondary algorithm), so the maximum computing power of the entire network is 1,500,000GPS.

Referring to the fact that ZEC, XMR and other privacy currencies quickly ranked around 10th in market value after they were launched, we judge that Grin will definitely be ranked in the top 100 in market value within one year after its launch, and may even have a chance to hit the top 10. Assuming that the total market value of the digital currency market remains unchanged in the next year, if Grin ranks 10th within one year after its launch (market value 1.54B), the price of Grin should be $48.8 in one year; if Grin ranks 10th within 6 months after its launch (market value 1.54B), the price of Grin should be $97.6 in 6 months; if Grin ranks 10th within 3 months after its launch (market value 1.54B), the price of Grin should be $146.4 in 3 months.

The assumptions for this calculation are summarized as follows:

① This article is based on the calculation of self-assembled equipment, which has a total price of 38,700 yuan, equipped with three RTX2080TI-11G graphics cards, and an estimated total power consumption of 1,200W. The total computing power is 5.1GPS when the primary algorithm is used, and the total computing power is 18.3GPS when the secondary algorithm is used. The electricity price is 0.6 yuan/kWh. Labor costs are not considered for the time being.

② Since the mining quota allocated to ASIC miners in the early stage of the project is relatively small, it is assumed that no ASIC miners for Grin will appear within a year.

③ Assume that the current total market value of the crypto market remains unchanged for some time to come.

④ The maximum computing power of the Grin network is 1,500,000GPS, and the maximum number of miners is 40,000 (according to Section 2.2).

⑤ Assuming that miners automatically select the primary algorithm and the secondary algorithm based on mining revenue, and eventually reach a balance point, the computing power of the primary algorithm is 3% (according to Section 2.1).

The calculation results are shown in the table. Since mining causes serious damage to graphics cards, in the current quiet market, if you are not hoarding coins for the expected appreciation, then mining is not very attractive when the payback period is greater than 300 days. The cases where the payback period is less than 300 days are marked in green in the table.

Through analysis, we can find that:

• If Grin is expected to rank only 100th in market capitalization in 12 months, then buying new mining machines will be a loss anyway;

• If Grin is expected to reach the top 10 in market capitalization within 6 months, then it is highly likely that the newly purchased mining machines will be profitable;

• If Grin is expected to rank 10th in market capitalization in three months, then the newly purchased mining machines will be profitable;

• If Grin is expected to rank 20th in market capitalization in three months, then it is highly likely that the newly purchased mining machines will be profitable.

• Other situations need to be judged based on the miners' ability to bear losses.

Data source: TokenGazer research group

2.3 Analysis of influencing factors

Since many assumptions are made in the calculation process of this article, it is necessary to make corrections based on actual conditions.

Corrective factors in favor of mining:

① Due to the scarcity of currency in the early stage, the price of Grin is likely to be high in the early stage after listing (refer to ZEC), resulting in higher initial mining income. The actual payback period should be much smaller than that shown in the figure.

② RTX2080/2080TI was launched on September 20, 2018. At that time, the mining market was extremely quiet. It is estimated that the number of miners who purchased RTX2080TI for mining can be ignored, and most miners may use old graphics cards for trial mining. Therefore, the proportion of computing power capable of using the main algorithm for mining may be very low, and x<0.03 is expected. Therefore, the mining income of the equipment used in this article may be better than the calculated result.

Figure 5: Changes in price and computing power in the early stage of ZEC launch Data source: TokenGazer research team

Corrective factors that are unfavorable to mining:

① If mining returns are good, it is only a matter of time before ASIC mining machines appear. The longer the payback period, the greater the risk that GPU mining will be squeezed out by ASIC mining machines.

② Mining causes serious damage to graphics cards. In the current quiet market, if you are not hoarding coins for the expected appreciation, then mining is not very attractive when the payback period is greater than 300 days. The longer the payback period, the greater the risk.

2.4 Summary

From the above analysis, we can see that Grin mining is an investment activity for future uncertainty in a bear market environment. There are two aspects to consider when participating in mining: ① the judgment of the prospects of the Grin project; ② the ability to bear losses. We have provided an analysis table of the most likely scenarios. This article believes that the number of miners participating in mining should be less than 10,000 over a period of time.

Table 5: Participation in mining analysis table Data source: TokenGazer research group

3 Overview

• This article calculates the mining income of the newly purchased mining machine (RTX2080TI-11G) based on the comprehensive expectations of the Grin project, and assumes that the market value and price of the digital currency market will remain unchanged for some time in the future, and there will be no ASIC mining machines for the time being.

• If Grin is expected to only rank 100th in market capitalization in a year, then buying new mining machines for mining will incur losses anyway.

• If it is expected that Grin's market capitalization ranking can reach 10th in half a year, or Grin's market capitalization ranking can reach 20th in three months, then there is a high probability that the newly purchased mining machines will be profitable.

• If Grin is expected to rank 10th in market capitalization three months later, then the newly purchased mining machines will definitely make a profit.

Disclaimer

This report is based on publicly available data or information. The opinions, data, charts and other information in the report are for reference only. The market is risky and investment should be cautious.

This article is original content from TokenGazer. Please indicate the source when reprinting.