Major 4 Factors Affecting Cryptocurrency Mining -

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In this article, we will make further analysis of various factors, especially the impact on mining revenue, but the specific concepts and definitions will not be discussed here.

There are many factors related to mining Revenue but they can be divided into four categories as follows.

Algorithm
Miners
Farm Maintenance
Crypto Market

Algorithm

Ⅰ. Hash Rate

The HashRate is the sum of all miner’s hash rates. The miner layout is completely a kind of market behavior and is classified into the market factor for further discussion. Here, we only discuss the relationship between hash rate and difficulty.

The relationship between difficulty and hashrate can be simply known as: difficulty = hash rate / constant (constant is approximately equal to 7M). The difficulty is determined by hash rate, that is, a higher hash rate brings higher difficulty and vice versa.
However, the hash rate cannot be calculated in real-time, which is the statistical value after each cycle (about 14 days), so there is a certain degree of hysteresis.

Ⅱ. Difficulty

It’s also a value based on post-statistics to ensure one block is generated every 10 minutes and adjusted after 2016 blocks have been mined. The following aspects should be noticed:

Difficulty does not always increase. If the average time of block generation in the last cycle (2016 blocks) is longer than 10 minutes, that is, in the case of a lower hash rate, the difficulty in the current cycle will decrease so that the block generation time will be accelerated.
Since it’s based on post-statistics, the difficulty changes will occur about 1-2 cycles later than the hash rate. If the hash rate increases, the mining speed will increase in the 1~2 cycles, and the mining revenue will increase; otherwise the revenue will decrease. However, it still maintains balance in the long run.
In terms of mining, we should focus on the increased speed of difficulty. A lower growth rate brings fast returns while a higher rate results in slow returns and even losses.

Miners

Changes in hardware factors are related to ASIC chip updates and the efficiency of miner assembly manufacturers.

Hash rate: miner hashrate. For instance, some miners are claimed to reach 1T, but many are the only optimal values theoretically. The mining revenue should be based on the stable hashrate in the actual situation.
Power consumption: Power consumption of the miner itself. Just like the miner hashrate, we should distinguish the optimal power consumption and the actual one. The mining revenue should be based on stable power consumption in the actual situation.
Miner price: The calculation of the miner price seems quite complicated. There’s only one thing to be reminded of: some quotations have included other factors such as labor / hashrate compensation/failure replacement. For joint mining activities, the miner prices including the aforesaid factors should be the most reliable ones. Otherwise, the extra costs in actual deployment will be uncontrollable which will affect the calculation of the final revenue.

Farm Maintenance

Ⅰ. The deployment period

The deployment period refers to the time period from the production, installation, and testing to the formal online mining of the designated miner models with personal investment. The longer deployment period means the later revenues generated by an investment.

Meanwhile, since the hashrate and difficulty are gradually increasing, it means less revenue with the same miner hashrate. Simply speaking, the shorter deployment period brings greater mining revenue and a shorter cost return.

The current standard for the miner deployment period is as follows:

Investment mining agreement, 3 days.
Purchase Miner, 20 days.
Delivery time is 7 days, based on the actual location of the mining farm.
Installation and test, 7 days.

Ⅱ. Cost of electricity

With the improvement of hashrate, the new mining farms are deployed based on the scale of 5,000 KW to 10,000 KW, which means electricity will become a considerable expense. Meanwhile, the cost of electricity also affects the cycle of mining life. When mining revenue is less than the electricity cost, it will be reflected by the intersection of the profit curve and cost curve in the revenue chart. Relatively speaking, the cost of electricity can be manually controlled.

Ⅲ. Operation maintenance

Operation maintenance refers to the capability of ensuring failure-free operation of a mining farm, including trouble-shooting with timely solutions and restoration of mining production.

Operation maintenance mainly depends on whether there is professional staff on duty on mining farms.

Although it’ll not be directly reflected in mining revenues, it should be taken into consideration before investing. If a mining farm with a 5P hashrate can only ensure half of its normal operation time, the revenue will certainly be less than a farm with only a 2P hashrate if 99% of its operation is normal.

It should be noted that bitcoin’s algorithm determines that the difficulty of mining is continuously increasing, and the revenues resulting from the same hashrate at different times can be greatly different! Can you imagine such a situation where a slovenly expert suddenly appears on the mining farm with professional on-duty staff and helps to solve the problem with a cigarette, while you, the investor, only need to check the status of the mining farm through a surveillance system without any disruption to your romantic dating!

Crypto Market

Ⅰ. Bitcoin price

It directly affects the revenue, but it’s very hard to make medium and long-term predictions due to big fluctuations. As a maximalist, I’m optimistic about bitcoin dominating the all cryptocurrency market at the price of 10,000 dollars, however, it’s still unknown when it will be realized because the beautiful future is always accompanied by various twists.

In the revenue model, the calculation is still based on constant cryptocurrency prices. It should be noted that the BTC price is one of the biggest risks to mining revenues. If the price drops, the chances of mining loss are also greatly increased. Considering the capital investment and time cost, it’s not worthwhile indeed.

In the long run, the BTC price will be mainly affected by macroeconomic environments such as regulatory policies, industry development, and public awareness instead of human factors; in the short run, there may be human influences.

Ⅱ. HashRate

The hashrate can’t be monitored in real-time, it’s just the statistics in the previous cycle, so it’s less likely influenced by individual/single institutions since nobody can accurately predict the growth changes.

Ⅲ. The growth rate of difficulty

Just like the hashrate, it’s impossible to make an accurate prediction, so it’s less likely affected by individual/single institutions. Only when the chip capability has been greatly improved with upgraded hardware, the hashrate may skyrocket again

Summary

Among the four major factors affecting revenues:

The algorithm belongs to the inherent feature of bitcoin which restricts other factors.
Hardware performance and power consumption are continuously optimized with new technologies and miner manufacturers are also trying to make improvements;
The mining farm deployment now tends to be centralized on a large scale to reduce mining costs and increase revenue by means of total quantity control;
Markets are affected by the macroenvironment with both risks and opportunities.

Major 4 Factors Affecting Cryptocurrency Mining