Have you ever wondered how to mine cryptocurrency from your home?
As you read this, thousands of miners are earning daily profit with the highest tech for BTC mining: ASIC.
More miners imply more mining difficulty and less efficiency.
It makes obvious the importance of high-performance hardware.
But how far can it go?
Not too long ago, people were mining cryptocurrency from their home laptops.
If you leave those devices connected to the power supply, you could expect to earn one Bitcoin pretty soon.
Of course, they weren’t worth that much then, the network was smaller, and technology was more limited.
As hash difficulty increased, miners had to upgrade their tools, going from basic processors to gaming computers and ASICs.
Traditional mining is no longer viable: you could mine for years and not make a substantial profit.
Then what are ASICs, and what will their role be in the future?
To answer that question, we need to understand first the validation system most cryptocurrencies use: proof of work(PoW).
Proof Of Work: Why you can’t mine bitcoins without an ASIC
Whenever you make a transaction, you’re creating a hash, which is a mathematical function requiring a lot of processing power to resolve.
In proof of work, miners compete against each other to get to the solution faster.
Whoever proves the solution first wins a BTC reward.
Let’s clear a confusion: the miner sharing the most accurate solution first wins.
It doesn’t need to be the exact one.
But PoW models bring a hard-to-solve problem literally: the hash difficulty increases exponentially as the mining network grows.
If the difficulty factor was only a million back in 2012, today, it has risen to 10E +13.
But wait, there’s more!
After around a hundred thousand blocks are mined, block rewards halve, which also reduces mining efficiency abruptly.
We also expect the Bitcoin price to increase and compensate for this decrease, but it doesn’t have to happen that way.
Unless you use ASICs, the process is unsustainable.
Companies are spending thousands a month on electricity only to keep their hardware working.
Upgrading technology has become a necessity.
You may think that the increasing difficulty has driven miners away.
There’s no guarantee you’ll profit from Bitcoin mining, it’s expensive, and competition is increasing.
However, the number of Bitcoin miners has kept growing along with technological advancements.
Instead of mining crypto alone, they join the so-called mining pools, where miners cooperate instead to win the transaction block.
Once they win, they distribute the rewards based on your hardware contribution to the community.
If you join with an ASIC chip, you would likely earn $7 to $10 on every operating day.
But don’t get excited too early.
Cooperating is often a synonym for centralization.
The moment you regulate cryptocurrency, you’re going against its most essential feature.
Currently, more than 70% of the hash power comes from China because of their cheaper electricity costs.
As hash difficulty increases, we will very likely see crypto mining concentrated in smaller groups, which makes the network more vulnerable(learn more about 51% attacks).
We’re also witnessing the Proof of Stake(POS) innovation, which tries to remove miners altogether.
An example of this would be Ethereum and nBTC.
With all these factors in mind, we can now consider whether ASICs make sense or not.
Is it still worth it for someone to spend thousands on high tech and justify the electricity costs?
How ASICs are changing the cryptocurrency world
The price of Bitcoin is increasing, and mining is still profitable.
But instead of using a generic device, the best miners use ASIC units.
Due to the benefits, investing in ASICs could have become as lucrative as holding Bitcoin.
Except that the reward is guaranteed.
As difficulty increases, technology will keep evolving.
Although we don’t know for how long ASICs will be prevalent in mining, future advancements will likely share the same features:
It’s no secret that a smaller size improves tech efficiency.
It’s a pattern we’ve seen since the 1980s.
ASICs are Application-specific integrated circuits that consume large amounts of energy to complete trillions of operations.
The larger the number is, the more influence has smaller details such as performance or size.
When you can make a chip smaller, it physically needs less energy to consume while doing the same work.
You could then upgrade the ASIC to work faster or use multiple at once.
Size improves profitability, which also makes these devices cheaper and accessible to buyers.
You will not find better devices than an ASIC because they use 100% of the hardware for a single purpose: to mine Bitcoin(in this case).
This focus increases performance and lowers costs.
Generic processors cannot reach such numbers because their parts may serve different functions.
When all your circuits focus on a single one, the efficiency maxes out.
If your ASIC can mine Bitcoin, it will likely be able to mine other coins as well if they use the same algorithm: the SHA-256 encryption.
A common saying in business is: “during a gold rush, sell shovels.”
Who’s selling the shovels in this case?
Could you manufacture your own ASICs and sell them?
Perhaps you could if you understood how to develop that technology.
Nothing stops people from breaking down commercial ASICs to see how they built them.
Then, it would be quite easy to copy these brands and compete with them.
Because of it, ASICs include IP protection, which is unique for every device.
It ensures that each hardware brand uses its own ASIC version only.
Fair return on investment
You can acquire these chips for as little as a thousand dollars.
If you put them to work in the right pool, you might earn $7 to $10 per day, depending on Bitcoin’s valuation($7 based on $9,000).
You can also upgrade to better versions, which cost anywhere from three to five thousand dollars.
Here are other relevant facts to know:
- The average half-life of an ASIC is three years. After that period, their performance decreases, or they stop working.
- These devices consume 1000Kw/h(portable ASICs) to 3000Kw/h(industrial ASICs). Electricity costs vary by country, with China being the most efficient.
- The average hash power goes from 20Th/s to over 100Th/s, depending on the model and brand you choose.
If you do the numbers, you could end up with a couple of thousand dollars in profit.
After spending around $1500, you would break even after having it working for a bit more than a year.
If you have the capital to buy ten of these, for example, you might be able to make five figures a year.
We’re talking of five figures of passive income, doing nothing else other than buying and setting up the devices.
Knowing that the long-term projection of BTC’s value is positive, it’s not surprising why most ASIC brands have their products out of stock.
Which coin should you mine?
If you follow the charts, you may have tried to find the best-performing coin in the market.
Most of them seem to follow the same pattern as Bitcoin: these will rise and fall almost at the same time.
However, each coin makes it at a different interval. A 30% surge in Bitcoin could mean 200% in Ethereum.
There are other stablecoins to consider before becoming a Bitcoin miner.
Profitability can change very quickly, so make sure not to miss out on other coins.
Statistically, ZCash proves four times more efficient than Bitcoin for beginners.
When you look at last year’s performance, values have steadily increased since March 2020.
Many investors are still hoping to see ZEC’s exponential growth, which is why you can justify mining this coin.
If you want to get started, check the Antminer Z11.
Other options to consider are mining Litecoin, Monero, Dash, and Ethereum Classic.
You can expect widely different results, profiting from $1 to $15 a day.
The problem is, that they present the same limitations as Bitcoin mining: you cannot win big unless you buy an ASIC or move to China for electricity.
Proof of work creates a never-ending race for technology, especially in Bitcoin mining.
If you want to get the best rewards for those blocks, you may have to join the biggest pools, buy the latest ASIC processor, and upgrade your tech every few years.
Despite the lack of sustainability, it’s still a working passive income model.
The million-dollar question is, when miners reach the last BTC block, what will come next?
Will they leave their ASIC facilities and just stop, or will we discover an alternative reward system for mining?
Nobody knows. Some day perhaps, Bitcoin may update the proof-of-work model to another that doesn’t rely so heavily on power consumption.
Ethereum is already trying to switch to a proof-of-stake model.
All in all, ASICs are a real means to mine cryptocurrency profitably.
Just make sure to acquire the latest version before they run out of stock.