Garage vs. Hotel: Which mining option is most profitable?
Single miner or a full member of a cryptocurrency society?
There are a few options. You can mine alone in your own apartment (and some enthusiasts even manage to do it in their workplace), you can install equipment in a place especially adapted for that, which is rented by its owner; you can organize a mining pool or join cloud mining (this variant seems to be an easy money). Each of these methods has its own admirers, and each of them can justify their decision.
Mikhail Yezhov, co-founder of blockchain service for speech recognition and analysis Anryze, identified three main factors influencing the choice of mining method.
Firstly, it's time limit - how much time people are ready to spend on mining. Secondly, resources limit, since not everyone has a free room. Third, the size of the investment matters, miners get together for wholesale purchases of equipment.
Not everyone is ready to go into the details of mining, understand the characteristics of hardware, and configure it. However, some people want to participate in the production of cryptocurrency, and not just to buy it on the exchange. As noted by Nikolai Ermakov, co-founder of the multi-currency crypto-market Coin Place, co-founder of the Nakamoto Capital cryptocurrency fund, there is also a way out for beginners:
"The main reason for the wish to unite is probably a little experience of the miners. In most cases, it is more profitable to mine in a large pool, since, by joining efforts and mining capacities, a cooperative may be more likely to win in a race for creating a new block in different blockchain systems. Thus, they have more chances to get this cryptocurrency first compared to all miners around the world. The profitability is distributed in proportion to the capacities of each participant. The chances to mine something by yourself are much less."
Overestimating one's own forces and the apparent ease of mining can be another reason for miners to join someone more experienced, who is ready to lead and take responsibility. Mikhail Mashchenko, an analyst of eToro, the social network for investors, warns that Internet is not always a reliable source and one shouldn't be overconfident:
"The first thing that a potential miner is most likely to read are various "success stories" in the media, then he will probably get some "first-hand information from the guru" and end up going to buy equipment. And only if you receive a certain, perhaps not the most positive experience, there will be a desire to move to the next level."
According to Eldiyar Muratov, president of the Singapore Castle Family office, not only desire and experience, but also the available resources, play a role in the choice of mining strategy, as well as what currency the miner is going to produce:
“Relevant expertise, significant areas with the required capacity of electricity and funds give the perspective for developing your own mining hotel with your own farms.
If you consider a more conservative approach to generating income, then you can consider renting out farms and earning up to 15% of the profits of each farm.
If there is only expertise and desire and there are no significant resources , areas and capacities, then it is likely that combining into a farm or your own farm structuring will be reasonable solutions.
Another important factor is the decision on which currency to mine because your equipment and electricity costs depend on it.”
Start from scratch
If one farm can still be run on your own, then mining pools, which generate significant revenues, require much more investments. How realistic is it for a miner-enthusiast to create a mining pool, as they say, from scratch?
Mikhail Yezhov, co-founder of the blockchain service for speech recognition and analysis Anryze, believes that the human factor plays the main role here. The expert noted that it is possible to make a mining pool if you find miners who will join it, since each pool is fighting for miners and offers all kinds of bonuses.
Eldiar Muratov, president of Singapore Castle Family office, is more skeptical:
"Running your own mining pool that will be used by other miners requires the large-scale administration, as well as the large budget, patience, troubleshooting skills, and a solid knowledge of how cryptocurrency works."Obviously, pools are created in pursuit of the biggest profit. The TOP-3 mining pools in terms of capacity (and, accordingly, income) are located in China. Cryptotrader Ivan Tumanov, the speaker of Nakamoto News, cryptocurrency expert, says what determines the income of mining pools:
"Creating a pool is real, but the smaller its power, the less likely it will be to find blocks. If you have 10% of the network capacity in the pool (which is a lot), then in theory you will get 1 out of 10 blocks, but in practice it can happen that you will gain 2 blocks in a row, and then 20 will not get to you. If 1%, you will get 1 out of 100. And the less power, the longer the waiting.
It should also be understood that the mining-pool and the mining farm are different things. Mining Pool is the union of many farms (thousands) into one big one, and the revenues from the blocks are divided between them. In Russia, as far as I know, there is not a single large pool. Only farms."
Installing a farm in your apartment or garage or creating a pool of several thousand cars, it is worth remembering that the amount of profit is significantly influenced by the cost of electricity. Often, all income of single -toners "eat" bills for electricity, which is consumed by farms in huge quantities. Therefore, other things being equal, the winners will be the miners of those regions, the cost of electricity in which is minimal. Ivan Tumanov agrees with this, believing that the cost of equipment for miners is about the same. But does it make sense to save on it?
Eldiyar Muratov, President of Singapore Castle Family office, is categorical:
It's possible but equipment quality has an influence on the speed and efficiency of mining process and as a result on a profit.
Equipment, storage conditions, specialists, software, and in fact everything should be of high quality, because that's what the final result depends on - your profit. A new car or a new flat is what you can save on.
Mikhail Mashchenko added that most likely, the ordinary miner will not be able to save money, while large players have the necessary contacts and can expect to receive a discount for bulk purchases.
Mining moves to hotels
A relatively new, but already popular idea is mining hotels. Owners of areas, necessary capacities and equipment prefer to lease them for mining, and not to deal with them on their own. The portrait of the average owner of the mining hotel was drawn by Nikolai Ermakov:
"Who can become an owner of a mining hotel? For example someone who has a large ventilated room with cheap electricity, but doesn't have enough capital to fill this room with equipment. The space is leased and serviced, the mining is made by third-party machines. The owner in this case receives a passive income - for example, 15% of the miners' income. It is similar to renting apartments through online services. Well, accordingly, lessorы can also reinvest their income and install their own equipment."
Everyone has his own reasons for doing such a business - some people who are far from mining own an empty building for industrial purposes; some people have had enough of cryptocurrencies but they have some experience, however, Mikhail Yezhov says that
"selling shovels in a gold rush is more profitable".
Earnings on resale and leasing of equipment are greater than profit from mining itself, the expert believes. In addition, a person does not bear the risks of increasing the complexity of the network, which influence the size of his profit.
In addition, the principle of "not putting all the eggs in one basket" can be applied here. Mikhail Mashchenko points out the reasons why those who are theoretically capable of being engaged in mining still haven't started it. It is due to both diversification and the risk of uncertainty: for many investors it is much more comfortable to deal with "real" assets, despite the huge potential of the "virtual" tools.
In general, Eldiyar Muratov agrees with these opinions. He believes that they do not have the necessary knowledge and expertise, do not understand the details of the process or they are just looking for more conservative, guaranteed and passive sources of income.
Business is business
What is more important for owners of mining hotels: to understand the technology of mining or is it enough just to be a successful businessman? Most experts agree that entrepreneurial skills are more important - after all, not all miners become owners of their own hotels with farms. Of course, basic knowledge is needed - the size of the equipment, electricity consumption and cooling system - that's what according to Michael Yezhov will be useful for everyone who decided to do business in mining hotels. Besides, correct understanding of your business will help reduce costs and competently sell the service, says Mikhail Mashchenko. He also added that the lack of deep knowledge can be compensated by cooperation with professionals.
The first thing that the owner of a mining hotel should have first are of course business skills, Eldiyar Muratov, believes:
"There are so many cryptocurrencies that it is almost impossible to know everything, because nowadays technologies do not stand still. Therefore in addition to the basic knowledge of the necessary conditions to organize and develop farms and the necessary resources, one must have a business acumen to create its own mining hotel."
Flying in the clouds
Another option for those wishing to earn cryptocurrencies is cloud mining. Nikolai Ermakov tells more about it:
"What does cloud mining look like? Suppose it will take several hundred thousand rubles to make a normal farm. In addition, there are many other problems, including maintenance. And there is another option: some company offers to buy its processing power. The client deposits his money on the website of this cloud-mining and chooses a plan, and depending on how much he has - $1500 or $3000, the company allocates the number of purchased capacities.
Well, and as in the equity fund (in this case in the capacity fund), depending on how much cryptocurrencies the mining pool produced, the total revenue is distributed in proportion to the share of each contributor to the cloud miner. That's how cloud mining differs from mining hotels. In mining hotels, a person already owns his hardware, has his own computers, which are simply rented. Machines are serviced there and generate profit primarily to the owner, and he just gives out some little percent.
Cloud mining is always mentioned in the context of large number of various financial frauds and pyramids. A certain amount of income is sent to the account, and it can not be immediately withdrawn. But there are strong referral bonus systems, and a client is likely to invite other people who in their turn would deposit their money to the cloud mining. All these services collect the maximum amount of money, and then disappear."
From the expert's opinion, it can be concluded that either cloud mining has not yet gained its positions on the cryptocurrency market (and everything new and unexplored always provokes mistrust), or indeed gives more opportunities to fraudulent schemes. A similar opinion is shared by Mikhail Mashchenko, who notes that cloud mining, although it can potentially generate more revenue at fairly low costs, is, however, less trusted due to external similarity with different financial hypes and Ponzi schemes. Mining-hotel, according to Mr. Mashchenko, on a subconscious level seems more reliable, but at the same time an expensive option: investors have the awareness of full control over the process and the opportunity to "touch" the object of investment.
The difference between the cloud mining and the leasing of space and facilities in hotels from the point of view of risks was characterized by Mikhail Yezhov:
"The hotel maintains your equipment, the cloud sells you the right to a hashrate. These are risks of a different kind."
Eldiar Muratov believes that the choice from these two options should depend on the experience and qualification of the miner:
“Cloud Mining is the best solution for beginners who are not particularly inclined to work with technology. It will be enough to understand only a capacity of 100 Gh / s and understand what kind of profit it is able to bring every day.
Beginners will be able to digest the desired types of crypto coins without digging in analytics, as they invest money in a company that has its own farm. At the same time, they do not take part in the process, but only receive dividends. Here you will need to pay monthly for renting equipment.
Those who have managed to become friends with programming, are free to understand the capabilities of equipment for mining and to learn how to build crypto-farm. It is easier to get digital money on its own through the mining hotel. Expensive equipment is the other side of a coin”.
What are the prospects
The most famous and the most expensive cryptocurrency today is bitcoin. In most cases, when speaking of mining, layperson implies the production of bitcoins. But the mining of this particular cryptocurrency requires special equipment due to the complexity of generating blocks. And that is why most bitcoins are produced by large mining pools located in China. Single miners are more likely to earn digital currency by using video cards. In this way, you can mine Ethereum, Zcash, Monero and some other coins. The amount of profit depends on the cryptocurrency, that enthusiasts will orient to, - says Mikhail Mashchenko. - Coin production is a highly competitive business: the threshold of entry into reliable and not so extra volatile instruments is high enough and requires high costs, while the profit from mining of more affordable altcoins can be destroyed by a sharp drop of their exchange rates.
Where to invest a million?
The opinions of the experts were divided: Mikhail Yezhov and Eldiyar Muratov are not categorically against investing in equipment for mining, but advise to diversify investments. Moreover, as Mr. Muratov noted, this should not be a large part of the "free" funds:
“To invest 95% in more stable solutions and if there is a huge desire to develop yourself in mining, so 5% can be invested to create own farm or join a group of miners. Larger projects can be considered on further steps once you get enough experience.”
Ivan Tumanov recommends against investing in mining for beginners, arguing that there are many subtleties and nuances in the production of cryptocurrency. The simplest example, the expert notes, some guys mined 1000 ethereum, its price rose to $400, but they did not sell it, and waited for further growth. After that, it fell to $150, they thought it would be lower - and decided to sell it. In the end, you have to get involved in trading, if you want your investments to be more effective.
Mikhail Mashchenko believes that equipment for mining has become too expensive, and instead of creating a "farm," it would be more appropriate to invest directly.
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