Continued from Blockchain Investment -- Part III
The last session was on acquiring more of crypto coins or tokens via staking and the last installment of this Blockchain Investment is on acquiring crypto coins or tokens via mining.
4. Mining
In mining, hardware is very much needed. Before getting into more about crypto mining, one need to remember that mining is an essential and critical component in a blockchain network. Mining serves 2 purposes for the blockchain network. The first is to discover new coins/tokens and bring them into circulation. The second is to verify, confirm and consensus every transactions in the blockchain network so as to maintain the blockchain ledger. The underlying of mining is to solve a computation puzzle of the blockchain. To reward and incentive miners, winner for solving the puzzle will be rewarded with portion of the coins/tokens. It is through these rewards and incentives that people are mining for the coins.
Hardware requirement is just one half of the mining process. It also requires software. Different coins will have different cryptographic algorithms and the purpose of the software is to cater for each of these algorithms. The followings are some of the algorithms for the popular coins :-
Bitcoin -- SHA-256
Bitcoin Cash -- SHA-256
Ethereum -- Dagger-Hashimoto
Ethereum Classic -- Dagger Hashimoto
Litecoin -- Scrypt
Dogecoin -- Scrypt
Dash -- X11
Monero -- CryptoNight, RandomX
Ravencoin -- Kawpow
Vertcoin -- Lyra2REv2
While not all crypto coins can use hardware to mine like those belongs to the Proof of Stake category (Solana, Algorand, Cardano, etc), the hardware (in combination with the software) can't mine all the mineable coins too. This is because some of the algorithm is specifically developed for ASIC or GPU or CPU. Example is Monero which can only be mined using CPU (to certain extend GPU) but not ASIC. Bitcoin can only be mined with ASIC but not GPU or CPU and Ethereum which can only be mined with a GPU.
In hardware mining, the term hashrate is often came across and it is also a measures of the performance of the hardware in mining. Hashrate is a measure of the computational power per second used when mining. Obviously, the higher the hashrate, the better it is. H/s, MH/s and Sol/s are some of common hashrate being used. The type of hardware being used shall cap the hashrate and in turn the quantity of crypto coins one can mine in a specific period of time. Normally, 24 hours is the defacto duration used to determine how many coins one can achieve with that specific hashrate.
1. ASIC Mining
ASIC mining is expensive due to the cost and not any retail miners could afford. Without putting in a 5-figure amount of capital, it is impossible to get that ASIC equipment. Even if it is 2nd hand, doubt can get it cheap too. Another minus point of ASIC mining is the type of coins to be mined and the power consumption. More and more algorithms are being developed and re-developed to be ASIC resistance meaning the type of coins to be mined shall be restricted going forward. The power consumption of ASIC is not cheap either as relative to using GPU and CPU for mining. Hence, the session shall only focus on GPU and CPU mining which are more suitable for retail or household miners.
2. GPU Mining
GPU mining as the name suggests require a graphic card. Not just any graphic card but with certain minimum requirement. Take the example of Ethereum mining, one need a GPU with at least 6GB of video memory (VRAM) on it due to the DAG size requirement. Using the same algorithm as Ethereum, Ethereum Classic on the other hand just need a minimum of 3GB of VRAM (as of now as that requirement could be raise going forward). So if one has a 4GB VRAM GPU, except for Ethereum, most others coins (less those specifically for ASIC and CPU) can be mined. Unfortunately, the cost of GPU has like double or even triple over the years due to people using it for crypto mining. More than 5 years ago a new GPU won't cost over S$1,000 but presently, a latest GPU cost as much as or even more than a new 13" MacBook.
While not providing any recommendation or suggestion what GPU one should get (only 2 manufacturers, Nvidia and AMD), Nvidia GTX 1660 shall be used as an example to illustrate the performance of mining. The reasons for using that as an example is because it is a good entry GPU which can mined all GPU mineable coins including Ethereum as it comes with 6GB VRAM. More importantly, its probably the only card in which one could find and purchase now the market that could mine Ethereum that cost sub S$1,000. This GTX card is regarded as "green card" due to its lower power consumption compared to other GPUs with the similar performance. Note also Nvidia GTX 1660 comes with 2 other versions, Nvidia GTX 1660 Ti and Nvidia GTX 1660 Super. All 3 are equipped with 6GB VRAM but the underlying architecture is slight different, which in turn affect the hashrate. Without overclocking, the stock hashrate for the 1660, 1660 Ti and 1660 Super are 20-21 MH/s, 23-24 MH/s and 27-28 MH/s respectively with reference to Ethereum mining (ETHASH). With overclocking, the performance for the 3 become 23-24 MH/s, 27-28 MH/s and 30-31 MH/s respectively. Power consumption is also different for the 3 with approximately 73W, 104W and 90W respectively for stock hashrate. However, with tweaking, the power consumption can be reduced to as low as around 60W for the 1660 and 63W for the 1660 Super without suffer degradation of the hashrate. That the reason why they are termed as "green card".
Now for the performance, how much one can earn per day (24 hours time frame). With mining on ETHASH, one can earn at least USD 1 per day. A worse case mining pool hashrate for ethash is about USD 5 cents/MH/s/day. Thus, with a stock hashrate of 21 MH/s for Nvidia GTX 1660, one can get USD 105 cents per day. This earning will varying depending on pool hashrate as on a good day, the pool hashrate something can rise to more than USD 10 cents/MH/s/day but on average most of the time it will range between USD 5 to 7 cents/MH/s/day. Hence, on average, one can earn at least USD 30 per month. However, one has to remember the GPU consumes power, the electricity cost for a month with 61W on 24 hours mining for 30 days.
Above is a little app that I've developed to calculate the power consumption. With present electricity tariff of 24.11 cents/kWh, that works out to be S$11.33 (inclusive of GST). However, for those who have switched to other open market electricity power provider and locked in a lower fixed tariff, one could only spend S$8.64 (inclusive of GST) as shown in the above. Note, the above is just for the power consumption of the GPU, the power consumption for other parts of the computer yet to factor in. Even if factoring in all those, the overall cost might just be additional 10% to 20% on top of that as a typical idle CPU consumes roughly 5W only. With at least USD 30 per month earned, it is more than enough to cover the cost of the total electricity bill of the mining machine and still register a profit. That's the reason why so many are getting into mining Ethereum presently.
3. CPU Mining
CPU mining is easier to enter compare to GPU and ASIC due to the lower cost. After all, all computers have to have a CPU. Well all computers need a GPU too but not all GPU can use to mine, those Integrated GPU comes with the CPU can't be used for mining and even if it can, the hashrate will be poor to justify using it. Lower barrier to start mining crypto coins but then so far it has yet to see profitable in mining after factoring in electricity cost. Take the case of Monero which can only be mined using CPU (can use GPU functioning like CPU but hashrate will not be as good as pure CPU), on the average it can earn like USD 3 to 4 cents/kH/s/day. A CPU nowadays practically has at least 4 threads as entry level and one thread is roughly about 1 kH/s, older CPU should be lower. Hence, with about 3 threads (one can't use up all 4 threads as the whole computer will run out of threads to do other things and get hang) one can get about 3 kH/s and that only give like between USD 9 to 12 cents after 24 hours of mining. A whole month of 30 days could only produce between USD 2.70 to 3.60, not even enough to pay for all the electricity bill. A CPU working at almost max capacity can draw as much as 85W. Even with a higher end CPU with 12 threads (11 for mining), the best one can get per month is roughly between USD 9.90 to 13.20, either just breakeven or the profit is just so thin that basically wasting time only. Not to mention one might run the risk of toasting the CPU due to the constant high temperature the CPU is being put into. Note, mining with GPU also means working the GPU under higher temperature throughout but that could be lower down with proper fans around in. Nowadays, notebook and laptop usage is very common and popular, though it can be used to do mining with the CPU and even if it is profitable, please don't do it as notebook and laptop lack the ventilation a desktop PC has and toasting the CPU is a higher probability than a desktop PC.
4. HDD Farming
This is probably the newest mining (farming) method and also the one that cost the least and most environmental friendly (drawing less electricity power). ASIC, GPU and CPU mining are called Proof of Work algorithm, HDD mining is known as Proof of Space (or Capacity or Storage). Though it is all the same to solve a puzzle to verify, confirm and consensus a transaction and discover of new coins, the underlying mechanism is different. ASIC, GPU and CPU use computational power to solve the puzzle, the higher the hashrate, the faster it can solve the puzzle. Proof of Space on the other hand depends on how much storage is being used to determine how fast it can solve the puzzle. It doesn't involve any computational power, it just requires how many plots one has inside the HDD. One of the crypto coins that adopts this algorithm is Chia. The Chia blockchain will come out its own random number and the one that comes nearest to it from the plots in the HDD will win the puzzle solving and get rewarded. Hence, the more plots one has, the higher probability it will come close to the random number and winning the competition. A k32 plot roughly takes up 109 GB of storage space or to be exact 101.4 GiB. As such, a 1TB HDD can contain 9 plots while a 16TB HDD can have a maximum of 146 plots. It might sound easy to get into Chia farming but the difficult part of Chia farming is plotting those plots. It consumes times to plot a k32 plot and to certain extend also costly. HDD nowadays can be divided into the traditional mechanical HDD (usually found in those 3.5" and older 2.5"), SSD (those 2.5" hdd) and NVMe SSD (those require PCIe connection). For Chia farming, that is storage of the plots use for farming, the traditional 3.5" mechanical HDD is all one need. These are cheaper to have, last longer than SSD and able to have bigger capacity that SSD. However, for plotting, it is different story. The traditional mechanical HDD has a lower write speed (typically between 200 to 300 MB/s) compared to SSD (typically 500 to 550 MB/s) and NVMe SSD (typically 3000 MB/s). The much lower write speed taking it as long as 20 to 24 hours just to create one Chia k32 plot. On the other hand, SSD takes about 9 to 12 hours while NVMe SSD can do it in under 5 hours. As the process of creating a plot involves a lot of writing operations into the HDD, a total of 1.8TiB has to be written into the HDD and that put the SSD in danger of damage as HDDs lifespan is specified by the number of write operations. In a nutshell, the mechanical HDD is more write resilience in creating plot before wear off but it also the slowest to complete one plot. The NVMe SSD is the fastest to complete one plot but also the fastest to get wear off due to those intense amount of write operations. In addition, price of SSD in particular NVMe SSD is much much expensive than the traditional mechanical HDD.
There is minimum requirement in term of HDD capacity that one use to create plot. A k32 plot needs a temporary storage space of 239 GiB or about 256 GB despite the final plot size is only 101.4 GiB. On a safe side one needs at least 320GB capacity of HDD as temporary storage during plot creating. If one has a larger capacity HDD use as temporary storage during plot creating, plots can be done in parallel to save time. For the cost efficient method, one can get two 320 GB mechanical HDD, configure them as RAID0 and use it for parallel plotting or staggered plotting. A 2nd hand 320 GB mechanical HDD costs between S$15 to S$25, very much lower cost than a SSD or a NVMe SSD. A brand new 256GB SSD costs between S$40+ to S$50+ and that price can easily buy 2 2nd hand 320 GB mechanical HDD for plotting, 1 plot at a time for the SSD and 2 plots at the same time for the mechanical HDD.
Other computer resources like CPU threads and RAM capacity also affect the plotting time but those only in need during certain phases of the plotting. A plot need to go through 4 phases and these resources usually needed in the first and second phase. Thus, it is only good to have a powerful PC but not necessary in plot creating.
So how profitable is Chia farming ? As of now, Chia farming can roughly earn between USD 2 to 3 cents/TB/day and in good times, that might move up to USD 4 cents. Thus, a 1 TB HDD can only get at somewhere between USD 60 to 90 cents per month while a 16 TB HDD can get between USD 9.60 to 14.40 per month. While the power consumption is not as high as GPU or even CPU mining, that amount of money afraid still insufficient to cover the overall electricity cost if one doesn't have large enough capacity. Moreover, so far no Crypto Exchange can trade Chia meaning one can't cash out farmed Chia. However, one can still farm Chia and exchange to other form of cryptocurrency. If non profitable, why still do Chia farming ? The cost of Chia farming relative to GPU and CPU mining is lower and easier for entry. Farming Chia is hold for the future and not going for day in day out profit.
Apart from having a low cost than GPU and CPU mining, Chia farming also can be expandable easily. One just need to add more HDDs to hold more plots to get higher reward. GPU mining can be expandable with extra PCIe slots but cost of the GPU is not cheap. For CPU mining, unfortunately, one motherboard can only house one CPU.
Nothing is perfect in this world, crypto mining will also have its pros and cons. The following details the plus and minus of it.
Pros of Hardware Mining
1. The cost of owning crypto coins through mining is rather fixation at the cost of the hardware plus the monthly electricity cost as the quantity of holding increase over the times. Meaning the downside is pretty much protected as compared to direct purchase which is tied to the price of the coins.
2. While non-mineable coins like those Proof of Stake type can't be mined directly but they can be "mined" indirectly. Some of the mining pools are able to say mine Ethereum but choose to payout in other crypto coins. This provides a good channel to acquire these coins without digging into the pocket to do direct purchase.
3. Price of crypto coins is very volatile, like for the past 24 hours (at this time of writing), most of the cryptocurrencies have fallen by at least 20%. Direct mining in certain aspect is not directly affected by it as the quantity of mined coins is fixed by the amount of reward which is independent on the price of the coins.
4. In a bull run crypto market, mining can give surprise upside. Take the case of Solana (indirectly mined), price was around USD 30+ in Aug 2021 and one can easily "mined" 1 SOL within a month. Price almost hit USD 260 in Nov 2021 meaning should one cash out it will be 8x gain within 3 to 4 months period.
5. Mining can provide a constant source to staking which in the previous session mentioned as one of the method to increase the holding over long period of time.
Cons of Hardware Mining
1. Cost of hardware be it ASIC, GPU or CPU can easily range from 4-figures to 5-figures and couple with monthly electricity cost could take several months to few years to breakeven
2. One needs to constantly search for profitable mineable coins and where to mine them
3. In need of hardware and software knowledge to configure for mining to achieve optimal performance
4. Accumulation of crypto coins will be slow as compared to direct purchase. Take the case of a Nvidia GTX 1660 GPU, it can achieve somewhere between USD 30 to 40 per month meaning one can only get a quantity of the coins which is equivalent to that dollar value
5. Indirect mining can be affected by the underlying price of the coins. Take the case of Solana, in the month of Aug 2021, one can easily indirectly mined 1 SOL within 30 days but given present price, with the same piece of hardware, one could need at least 100 days just to get 1 SOL.
Final Thought on Hardware Mining
Hardware mining might be tempting but it is not as easy as just purchase the equipment, press a button, let it autopilot and reap in the reward at the end of the day. There is no free lunch in this world, one need the know-how and research to mine. What to mine, where to mine, how to configure the hardware and which software to use to get optimal result. Another aspect is how to strategize such that one can mine for long term holding and at the same time get some daily or monthly profit to recover the cost of the equipment plus the monthly electricity bills.
Hardware mining needs patience, determination, perseverance and responsibility. Accumulation through mining shall be slow which require the patience, the determination and perseverance. This is especially so when doing indirectly mined as the quantity will be affected by the underlying price of the crypto coins. People might say hardware mining is not environmental friendly as it consume quite fair amount of electricity. By the way, the amount of electricity consumed even if mines 24/7 still less than turning on an air-con 24/7. To be responsible for the electricity usage, the PC machine that is used for mining can at the same time use for other purposes like word processing, internet surfing, programming, watching movie or playing game (for those with an iGPU in the CPU). Meaning one is doing something productive at the same time while mining for crypto coins.
Should anyone wish to get into hardware mining, combination of mining plus staking or combination of mining for profit plus holding for long term should be the only valid reason to get into. Any mined coins should be directed to non-custodian or cold wallet and not those custodian wallet by the exchange. The main reason is in non-custodian and cold wallet, you hold the private key and that is the most important assets to ensure one's coins is not lost in the blockchain network.
For those who wish to engage in mining with the objective of combination of mining plus staking, one of the better mining pool is unmineable as it offers quite a wide range of coins and tokens with very reasonable payout threshold. One can also use own referral code to lower the pool fee from 1% to 0.75% and that amount is return to the miner in term of mined coins quantity. Mine from there and send it to non-custodian wallet for staking. The only downside is it only offers 4 mining algorithm -- ethash, etchash, kawpow and randomX at the moment
For those who wish to engage in mining with the objective of combination of mining for profit plus holding for long term can use Prohashing mining pool. The biggest advantage or feature for this pool is the ability to payout multiple coins at the same time (as long as the minimum threshold is met). The payout is done every 24 hours so miner won't scare they will lose their mined coins. In order to activate multiple coins payout, one just need to proportionate how many of mined rewards go into each coins. Example one can put 50% on Coin A and 50% on Coin B with one of the coin being used for daily profit and the other for long term holding. One can even have 4 coins with each allocate 25% for more diversification. Some of the coins have a minimum threshold of just USD 1 and these coins are best chosen as profit payout by directing it to the custodian wallet of the exchange to cash out. Another advantage is this mining pool has teamed up with Coinbase such that those coins/tokens available in Coinbase do not require any minimum threshold and will get payout to Coinbase every 24 hours. Anyone wish to sign up with Prohashing could use this referral code. In addition, as of now, Prohashing is probably the only mining pool able to farm Chia and payout in other coins/tokens. As such, Chia farming in Prohashing (able to farm Chia and payout in other coins/tokens of choice) probably the better choice for those who wanted to enter crypto mining and at the same time wary of the high cost that needed to fork out.
