Disclaimer: this post is not investment advice. The content is for informational purposes only, and does not advise on the circumstances of any particular individual or entity.
Out of all the investment options widely available, buying cryptocurrency is often considered a risky one. There have been periods in the history of Bitcoin where it has multiplied its value by three in a matter of two months, but the opposite has also happened. However, while this volatile crypto market is a fantastic playground for trading and DeFi, 2019 showed that holding Bitcoin is also a strategy to take into account, as it was the best performing asset of the year.
Mining cryptocurrency instead of buying it directly might mitigate the volatility risk. While still affected by it, cryptocurrency mining equipment ensures continuous value generation. Therefore, instead of owning an asset which may greatly vary in price, mining farm owners have hardware which generates cryptocurrency, and thus constantly generate revenue. There are two strategies to ASIC mining cryptocurrency: the long-term strategy and the short-term one. The long-term strategy has mainly one name: Bitcoin. Currently, there are around 27,500 new Bitcoins created every month. At $10,000 per Bitcoin, that means $275,000,000 are distributed among all Bitcoin miners each month. This situation has been approximately maintained for several months, and since Bitcoin is the oldest and highest priced cryptocurrency by far, mining is the safest long-term strategy for ASIC miners.
There are many SHA-256 ASIC solutions to mine Bitcoin. Currently, Bitmain is the lead manufacturer of Bitcoin ASICs, as can be seen in this table:
Data source: Tokeninsight 2019 Cryptocurrency Annual Report
In Q1 2020 Bitmain’s most profitable SHA-256 ASIC miner was the Antminer S17 family, while the next most profitable one was the S9 family. Therefore, these ASICs comprised the majority of the Bitcoin mining landscape. Before the recent Bitcoin halving, miners owning farms in regions where electricity rates are low (around $0.04 or lower) could still make a profit with the S9’s. However, after halving only mining farms with the lowest electricity costs (around $0.02 or lower, for the same Bitcoin price as above) are profitable using them, as can be seen in this fantastic Bitcoin halving analysis. Hence, S9’s have started decreasing in number in the network but still play an important role, and together with S17’s will be the most relevant ASICs at least for a few more months, until the Bitcoin mining ecosystem evolves to its next phase.
ASIC generational shift
Each new ASIC model usually has a higher hashrate than the previous one. Higher hashrates directly translate to higher chances of mining blocks. That is why an everyday CPU is useless to mine Bitcoin nowadays: its hashrate is so low that the probability of winning any block is tiny. And exactly the same happens with ASICs; when a new one comes out, the previous generations with lower hashrates are not able to compete with them, and stop being profitable (unless electricity running costs are very low).
With Bitmain’s S19 ASIC generation around the corner and the recent Bitcoin halving, in a few months we can expect a similar situation as we have now with S9’s and S17’s: when many S19’s are plugged in the network the difficulty will raise accordingly, the S17’s will only be usable in regions of cheap electricity and the S9’s will most likely stop being profitable even for $0.02 electricity rate locations. That is why investing in new equipment, moving the mining operations to areas of low-cost electricity and colocation are essential operations for many mining farm owners if they want to stay in business, as are using better ASIC firmware and a more optimised management solution.
ASIC mining for altcoins
We mentioned the short-term strategy for mining cryptocurrency above. This strategy involves buying a novel ASIC, belonging to a first batch for a given algorithm. Without taking into account the appreciation in price of that altcoin, this strategy is considerably riskier than buying Bitcoin ASICs, as the ROI expected at the presale for these devices uses a network difficulty which does not have ASICs in it. As these devices are incredibly efficient at mining that coin, the hashrate of the network dramatically increases when they are released into the market, and the revenue earned by each one decreases accordingly.
A recent example is the Eaglesong algorithm, which the CKB coin uses. ASICs like Bitmain’s K5 promised a very high revenue and very short ROI. While that was true before the launch of any ASICs for CKB, once the ASICs entered the mining landscape the difficulty greatly increased. That caused the revenue of each ASIC to drop in a matter of days, and so shipping and setup times were absolutely critical. Just a few weeks delay may translate into devices which will never even pay for themselves. While the coin might greatly appreciate in price and solve that, it is not always the case, as it also happened with the L3 miner for example.
This timing issue is why this short-term ASIC mining strategy is more risky than the Bitcoin one. While for Bitcoin ASICs the delays setting up the farm may still happen, their impact is much milder. That is why at Cudo we have started our ASIC support and profit optimisation with the S9 and S17 miners. We are also constantly adding new features in our management solution to accommodate for different requirements and priorities.
Stay tuned for more posts and updates on ASIC farm management to appear soon. We have worked very hard to deliver the much needed features that mining farms have been waiting for, with boosts in revenue as an extra benefit for all of us miners, and we are very excited to share it all. Happy mining!