The 10 Cardinal Rules of Crypto Mining

1. In difficulty lies profitability

In difficulty lies profitability - Cardinal Rules of Crypto MiningMining is competition, not cooperation. This is rule #1 for a reason. Always keep it in the back of your mind. In almost every case, if a rig or crypto is easier to build, mine, configure, find, understand, trade, buy, sell or easier in just about any way, it’s likely to be less profitable. Because if everyone is a winner, no one is a winner. It’s why profits on an ASIC tend to be so thin – because they’re so easy to use. It’s why Nicehash pays less than mining just about anything directly – because everyone can download it and click the big green button. Much fewer people know where to find custom software, run it, tweak it or even program their own. Even if you find an easy way to increase profitability today, I guarantee you that it won’t last, because if it was easy for you, it’ll probably be easy for everyone else. And likewise, if you’re increasing profitability through a technique, optimization or coin that is unusual, unique or novel, it will have more staying power and add much more to the bottom line. In a lot of ways, mining is easy to learn but difficult to master, particularly because the best returns are always a moving target.

2. Mining is investing

Mining is investing - Cardinal Rules of Crypto MiningIn one sense, a mining rig is an almost magical machine that converts electricity into money. But at the end of the day, it’s not converting electricity into dollars, it converts electricity into cryptocurrency. And since we all know that a day in the crypto market is like a year in the stock market, those ROI figures you calculated in January are going to be completely useless by March. I don’t mean off by a few percents, I mean completely useless. In fact, they are worse than useless, because they give you bad data on which to base your decisions. Garbage in = garbage out.

Even if you choose to think of a mining rig as a money machine, never forget that your returns are still closely tied with the state of the crypto market. It will be a wild ride, and as with direct crypto investing, there will be euphoric highs where you wish you had gone all in and depressing lows where you wish you hadn’t dipped even a toe in. Yet even still, the adage of “you should never invest more into crypto than you’re willing to lose” doesn’t quite fit with mining. Because an investment in mining serves to smooth out the ride, produce income over time and perhaps most important of all, set a floor to your losses when the shit hits the fan. Unless your rig is destroyed or stolen, you will always be able to recoup the majority of your upfront investment. Dare I even say it’s the “safer” way to invest into crypto. But only for those who have the patience and discipline to stick with it.

3. ROI includes resale

Profit = Income – Capital Cost – Electricity + Residual Value

ROI includes resale - Cardinal Rules of Crypto MiningIf you look at most ROI calculators, they typically frame it in terms of days to ROI by factoring in the first three variables. Never mind how laughable it is to try to project anything 6-12 months out in crypto, but it’s missing one of the most important parts of the equation. You’d never even consider throwing your mining gear in the garbage (unless it’s an ASIC, but I digress). When those GPUs are no longer profitable to mine with, you’re going to sell them on eBay or Craigslist (or to us!) for most of what you paid for them to a gamer or scientist or whoever. The point is, someone is going to enjoy using it for many years after it’s lost its utility to miners, and they’re going to be happy to pay you good money for it. And what are you going to do with that money? Turn around and buy more efficient GPUs, plug them into the rig that you still have, and start the cycle all over again. I can’t reiterate enough how important it is to factor this into your strategy. In most cases, you will hit your ”true ROI” – where your net income has outpaced the depreciation of your hardware – much, much faster than the nominal ROI against the sticker price. Especially if you take rule #4 to heart. 

4. Think in Bitcoin

Think in bitcoin - Cardinal Rules of Crypto MiningThis is challenging even for those who have been immersed in crypto for years, but I would argue that one doesn’t truly understand mining or crypto until you are comfortable thinking in Bitcoin. Now to be clear, I single out Bitcoin because I believe it to be the reserve currency of crypto and I don’t expect that ever to change. If you have a strong belief otherwise, then, by all means, think in whatever crypto you prefer.

The essence of the idea is simple. Most invest in Bitcoin because they believe in its long-term prospects. Knowing that this investment may not bear fruit for many years, the long game isn’t to maximize the number of dollars you’ll have tomorrow because that’s bound to be very different next month, and the month after that. The real goal is to increase the amount of BTC you’ll be able to accumulate before the next wave of adoption and price growth. With mining still being an investment in crypto, it’s best to gauge your ROI not against the dollars you paid for the hardware, but rather the amount of BTC those dollars would have bought at the time. For example – if you bought a GPU at $800 when BTC was $16K, you spent 0.05 BTC. If the price of BTC falls to $8000, and your GPU is only worth $400, what have you lost? It’s still worth 0.05 BTC, and you’re exactly where you would be if you had bought the BTC instead. The trick with mining is that even when fiat profitability has fallen through the floor, BTC profitability may still be reasonably healthy. And you might find that even when fiat ROI looks next to impossible, you may be even or ahead in BTC ROI. Over the long term, as long as your net income + residual value in BTC exceeds what it would be vs. if you bought directly, you’re winning. And a close analysis of historical returns shows that it has been consistently difficult to not achieve this goal of increasing your stack of BTC over a 2+ year timeframe.

5. Expect the unexpected

Expect the unexpected - Cardinal Rules of Crypto MiningJust as diversifying your investment in the stock market shields you from the risk of any one investment going sour, likewise you should invest in a diversity of mining hardware. All hardware has pros and cons, strong points and weak points. What’s most profitable today is unlikely to be what’s most profitable tomorrow. I can practically guarantee it – what I can’t guarantee is what will be in favor when the tides turn. Polaris cards used to be the best buy until the market boom priced them out of profitability because every new miner read they were the best mining cards and jacked the prices up to ridiculous and unjustifiable extremes. Likewise, the GTX 1070 was the obvious play on the NVIDIA side until some late-game developments supercharged the 1080 and 1080 Ti. Equihash ASICs are currently making life more difficult for all things NVIDIA, and if you think Cryptonight on Vega is safe well maybe it is, maybe it isn’t. (Hint: It’s not, and we know why.)

But who knows what the next GPUs will be great at, the next ASIC on the horizon, and all the other things that will upend the status quo in the next few months let alone years? We certainly have a better idea of what’s coming down the line than most, but to that end, the best policy is to spread your investment over multiple makes and models, and perhaps even other non-traditional mining hardware. That way whichever way the winds of change blow, you’ll be able to ride the wave to some degree. However, I am very specifically excluding ASICs from that statement, as they tend to be the least safe and most fragile of all investments into mining. An ASIC never made a GPU obsolete, but ASICs routinely make other ASICs obsolete.

6. Step back from the ledge

Step back from the ledge - Cardinal Rules of Crypto MiningIt’s possible to spend all day fiddling every last knob to squeeze every last drop of hash out of your hardware and building ridiculously large rigs to squeeze every last drop out of that motherboard and CPU. But I highly recommend against this plan of action. First, your number one enemy is downtime. You’re losing precious time as your GPUs crash over and over while you tune them. You’re losing more time when a slightly unstable GPU brings down your whole rig. You’re losing even more if that rig contains 12 GPUs. And perhaps most importantly of all, you’re wasting valuable time that’s better spent researching and educating yourself than squeezing out another 1 cent a day. Complexity and over-tuning is your enemy. Build simple rigs with fewer GPUs. Overclock and undervolt moderately. Even if you tweak it to the limit, take a step or two back from the edge when you settle in for the long haul.

7. Beware of false economy

Beware of false economy - Cardinal Rules of Crypto MiningWhenever you’re making a hardware purchase or infrastructure upgrade, ask yourself this simple question: is this purchase a net positive to long-term profitability? In other words, does it increase income, prevent a major loss, or attract investors? And is this the most efficient way I can achieve that goal? If you can not answer yes to any or all of those questions, you should reconsider the purchase.

The #1 enemy here is aesthetics and complexity. Yes, that $150 mining frame looks sweet. That’s also $150 more you need to bring in before you hit ROI when a less expensive frame would have served the purpose just as well. You don’t need a $500 server rack either when a $30 shelf will hold a half-dozen 4U rigs stacked side by side. You don’t need or even want a GPU that costs $30 more with 3 enormous fans overclocked to the edge with 2 8-pin power supplies, because you’re probably going to undervolt and underclock it, and those connectors just add headaches and cost for adapters. You don’t need 10 industrial Noctua fans for $20 a pop for each rig when there are inexpensive ways to cool down entire racks for less than $100. You certainly don’t need LEDs, LCD screens, or any of that other stuff. Not that I don’t appreciate a finely crafted rig, and a few bucks on aesthetics aren’t going to kill you…just be careful not to go overboard and undermine your venture on things that add no lasting value. The only exception I’d make is if you intend to impress outside investors to raise capital – in those cases, a clean and aesthetically pleasing presentation will be worth the expense, as it lends an air of professionalism to your operation, and results in a net positive influx of capital.

On the flip side, don’t cheap out on things that can lead to total catastrophe. Buy much bigger power supplies than you think you need. Because if you cut it too close, the best case is downtime and the worst case is a fire that burns your farm and/or your house down. Saving a few bucks on a power supply isn’t worth the risk, and a quality power supply will have a 5-10 year warranty. Cutting corners on power and safety is false economy, and we never build our rigs that way. Likewise, use strong passwords. Use a hardware wallet. Understandably when your goal is to make money, these things are costs and procedures that stand in your way. But that’s fine because they’re also standing in the way of a total loss of your investment.

8. Bitmain is not your friend

Bitmain is not your friend - Cardinal Rules of Crypto MiningIf you’re reading this, don’t buy an ASIC. Not even one. Are you a multi-million dollar corporation with access to megawatts of power in a location with cheap land, cheap labor, a cold climate and loose regulations? If so, then ASICs are for you. If not, you’re seriously just wasting your money and time. Not that even the little guys can’t profit with an ASIC every now and then, but generally speaking if you don’t get in the first batch, you’ll probably never make your money back. I don’t care what that ROI calculator says today, because it’s going to say something very different next month, and in virtually all cases it will be dramatically lower than it is today. You can do the math if you want, but I’ll spare you the effort – unless you have ultra cheap or free electricity, in virtually any situation where you would have profited with an ASIC, you’d have profited even more by just buying the crypto or buying an equivalently priced GPU setup. In any situation where you would have lost buying the ASIC, you’d have lost less by buying the GPU rig and often even the crypto itself. Maybe you’ve bought ASICs in the past and you think I’m crazy and wrong because you made money…sit down and do the math, and make sure not to forget the time between when you ordered the ASIC and when you received it, and any interest you paid on credit to buy it, all of the electricity, etc. And if not, congratulations – you’re the exception that proves the rule.

The reason for this is simple – if you built an easy-to-use machine that prints money, the only price it makes sense to sell it for is more than you expect it to produce over its lifespan. Every ASIC manufacturer can do this simple math and price their machines accordingly. Whereas NVIDIA and AMD aren’t pricing their GPUs based on mining profitability, because their product was never purpose-built for miners to begin with. Most of their customers will never mine with their GPUs, and thus mining profitability is only one factor that influences GPU pricing, and it’s rarely the biggest.

9. Don’t hodl what you mine

Don't hodl what you mine - Cardinal Rules of Crypto MiningI find that this is the hardest thing for even many experienced GPU miners to wrap their heads around. To exchange between cryptocurrencies is so absurdly easy that there’s barely any friction at all. So there’s no reason to hold any bags you don’t want to, and no reason to mine anything but the most profitable at any given time.

Imagine there’s a farmer that LOVES corn. Like he has a pathological corn fetish, and he is single-mindedly obsessed with acquiring as much corn as possible. And he’s got a field out there just begging to be planted. Every bone in his body is urging him to plant corn. But should he? NO. He should plant tobacco, sell it, and buy 4 times as much corn as he could have grown himself.

So it doesn’t matter if you really want Zcash but your RX580 can’t mine it as good as a GTX 1060. Don’t mine Zcash. Mine Ethereum and sell it for Zcash. You’ll simply get more ZCash that way. Many exchanges and pools will even do this for you. Me? I’ve personally got a fetish for Bitcoin, and I can never get enough. Practically all I mine is Bitcoin – but I never actually mine Bitcoin. I don’t hodl what I mine, and I don’t mine what I hodl. 

10. Loose lips sink ships

Loose lips sink ships - Cardinal Rules of Crypto Mining

I’ve saved this for last because it’s somewhat situational and controversial. But if you’ve discovered a coin or technique or hardware that’s extra profitable, even if someone else told you about it…the last thing you should do is tell anyone else about it. Just shut up and mine, because opening your mouth will only ever come back to bite you. Sure, telling your friend with a few rigs about Ravencoin in March wouldn’t have made a big difference, but he might tell someone else, who might tell someone else, who might tell someone else with a giant farm. And then the party is over. Sure, it’ll all get out eventually, but why accelerate it? The only exception to this rule is if you can genuinely make the case that letting the information out will help you more than harm you, which usually means you’re selling the information or technique. You should not feel embarrassed or even slightly guilty about that – presumably whoever is paying you is doing it because they’re going to make more money than they paid you. And there’s nothing wrong with that, its business 101.

And believe me, I am quite aware of the irony of just giving away for free all of the awesome advice earned through years of experience in this definitive list of ten. But it’s just a taste of the expertise you’d get access to by working with Bitpro, and we’ve got plenty more tricks up our sleeve.

Leave a Comment