It’s great to see all these new miners, it feels like 2017 all over again. Mining at a small scale is a fun hobby. But I’m seeing lots of the typical “X days till ROI” posts and I want to make sure the new guys understand what they’re actually getting into here, coming from someone who’s been mining for 8 years.
So I’ll get straight to the point: mining calculators lie to you. Well, technically they don’t “lie”, but they give you really bad information, and bad information is worse than no information. They are based on an assumption that the price of ETH, fee income and mining difficulty are static. Which in reality are three things that are ridiculously variable and unpredictable, so their projections for more than 24 hours out are completely useless. The combination of those three variables ultimately determine your mining returns, and if you can’t predict them, you can’t predict your returns.
So will you actually pay your rig off in the next few months? The answer is….maybe? Let’s look at each variable separately.
Difficulty is the most straightforward – the more people mining, the less returns you get. As long as mining is profitable, you should expect it to go up. The more profitable it is, the faster it will go up. Ultimately what determines the difficulty increase here is going to be how fast new GPUs and ASICs can be produced, and no one actually knows the answer. The only thing we can be fairly sure of is that it’s going to increase, and it could increase a lot faster than it is today. That will directly eat into the revenue of the rigs you built today. Its not out of the question that difficulty is 2X what it is today within 1-2 months.
Fee income is kind of a new variable that wasn’t really a factor in the past because it was so low. Nowadays fee income can be as much as 50% of your returns, and this is a really, really unusual situation. Every ETH dev is working overtime to reduce this back to an insignificant level because it is really hurting ETH users – so short of a total failure on their part, you should expect this to also drop to insignificant levels in the next few weeks/months, and there’s half your income gone right there.
Finally, the #1 determinant of your returns is going to be the price of ETH. If you can predict that, what are you doing here? Go make a billion dollars as a trader. Of course, you can’t predict it, but even if you have a strong belief that it will go up….in that case, you’re simply going to make more money just buying ETH instead of mining.
So why even bother mining? The main thing you achieve with mining is to protect yourself from an extreme drop in the price of ETH. Because even if ETH goes to zero, the parts in your rigs are still worth a lot to gamers. You will never beat the returns of investing in ETH in a bull market by investing in a mining rig in a bull market. You’re giving up the potential for extreme gains to protect yourself from the potential of extreme losses. That’s a valid choice – just understand what you’re getting yourself into. Forget what the stupid calculator says – there is no stability in mining. You are at the mercy of one force that is consistently reducing your returns (difficulty), a temporary spike in fees that no one knows how long will last, and the whims of the price of ETH, which can move 30% either way in a day.
It’s a fun hobby and even a decent business if it’s done right – just please don’t go crazy building rigs on some mistaken belief that a mining calculator will say you will pay it all off in X days. I guarantee it will take much longer than that because two of the three variables are much more likely to push your returns down than up.