Buy or Mine Cryptocurrency?

Majority of people get into cryptocurrency by asking the question “what is cryptocurrency and how to own some?” You will find that buying cryptocurrency is the fastest and easiest way to own cryptocurrency. You will also learn that mining is another means of earning cryptocurrency.

Miners and buyers will always wonder, “what is the most profitable way to earn cryptocurrency?”. Should you buy cryptocurrency or invest that money on a mining rig? There are many factors you need to consider if you are to decide which is most profitable. Some of these factors include the price of the cryptocurrency, the initial cost of the mining rig, estimated mining rewards, electricity & maintenance cost, the longevity of the mining rig, resale value of the rig, among many other factors.

Most people mine cryptocurrency because it can earn the most, compared to buying, in the long run. Although this is generally true, it is not always. Cryptocurrency is very volatile and there can be many unexpected events. Mining and buying have their own advantages and disadvantages. In this article, I will try to answer which is most profitable.

To answer this question, I have to create a hypothetical scenario. If you had 6000 USD, would it be better to buy a mining rig and mine cryptocurrency or invest that money into cryptocurrency?

Buying Cryptocurrency with 6000 USD

As of now, 1 Bitcoin is priced 5560 USD. So, with $6000, you can buy 1.08 BTC. For this hypothetical scenario, I will invest all this money into Bitcoin. So, the question is, if I buy a mining rig with $6000 and mine bitcoin, can I earn more than 1.08 BTC.

Buying a Mining Rig with 6000 USD

Selecting the best mining rig for the price is a very important step of mining. The price of mining rigs fluctuates with the price of Bitcoin. As of now, Bitmain’s Antminer S17 Pro goes for $2033.00. For this example, I will buy this miner. After adding in the cost of PSU and shipping fees, you get a total cost of USD 2231.

If you deduct this amount from USD 6000, you are left with USD 3769. Now you have to account in electricity cost. To calculate the estimated earnings and electricity cost, I will use a mining calculator. Antminer S17 Pro is capable of hashing at 53 TH/s.

Under normal conditions, Antminer S17 Pro consumes 2094 Watts. For electricity cost, I entered a rate of 13.31 cents per KWh. It is the average price a resident in the USA pays for electricity. And for pool fees, entered a rate of 1%. These are the estimated earnings:

After deducting power cost and pool fees, you will profit $1,740.14 per year. The total cost of Antminer S17 Pro was USD 2231. So, it means you are going to breakeven in 1 year, 3 months and 13 days. Now, for this example, say you are going to mine for 2 years. So, in 2 years, after deducting power cost and pool fees, you are going to mine 1.4516 BTC.

Comparing Mining with Buying Bitcoin

Now, we are going to compare buying Bitcoin with $6000 vs. buying a mining rig and mining with it. In this hypothetical scenario, you are going to mine for 2 years with Antminer S17 Pro. Antminer S17 Pro is going to cost you $2231. So, you are left with $3769 of the initial $6000. This is the result in 2 years:

If you look at the table above, you will see that in 2 years time, you will have earned more by mining, than if you had bought Bitcoin. But, do not let this table fool you. We are assuming a lot of factors here. This estimation does not take Bitcoin difficulty increase into account. As of now, the hash rate of the network is 47,976,732,843 GH/s. Hash rate can vary when new miners join or leave the network. When it changes, your mining rewards also change.

Also, I did not take bitcoin block reward halving into account. The next halving is estimated to be on 23 May 2020. When this happens, mining rewards will decrease from 12.5 to 6.25 BTC. So, as a result, your payout also decreases.

At the moment of writing, 1 BTC is valued at USD 5560. When Bitcoin price changes, your potential earnings also change.

But, if we fix the Bitcoin price at $5560, the block reward at 12.5 BTC and the network hash rate remained constant, mining is the clear winner.

With mining, your potential reward comes only after 2 years. During those 2 years, there could be many unexpected events. What if your mining rig brakes down? What if the cost of electricity increases in your area? You may incur additional costs for such events and your earnings can significantly change.

Risks and Benefits of Mining

So, if you look at mining as a long term investment, then perhaps you could say mining generates more coins. However, mining is not without potential risks. These are the things you need to consider if you decide to mine:

Risks:

Bitcoin price changes – If the price of Bitcoin increases, there will be more miners joining the network. As a result, bitcoin difficulty increases, earning you less.

Bitcoin block reward halving – Bitcoin block reward halves every 210,000 blocks. Your earnings can significantly change when it happens.

The longevity of the mining rig – The mining rig can break down during those 2 years. You may have to replace parts. This can incur additional costs.

Mining can make you a loss: If the difficulty of Bitcoin increases drastically within a short amount of time or if the price of Bitcoin drops, your reward can be lower than the electricity cost. This is the worst-case scenario and if this happens, you are going to make the biggest loss.

Benefits:

Mining bitcoin has its unique advantages as well. Sometimes mining can be a far better option than buying. Here are the advantages of mining:

Alternate between mining different cryptocurrencies – As opposed to buying, if the cryptocurrency you mine becomes less profitable or a different cryptocurrency has higher rewards, you can always switch to that coin.

Profiting even when the price of cryptocurrency decreases – If the price of the cryptocurrency you are mining stays flat, you will continue to make some return on investment. If the price of cryptocurrency decreases, you can still make a profit. Yes! the profit will be lowered but nonetheless, it is still profit. Mining lowers your risk in a sense when compared with buying.

Selling your mining rig – After you have earned the maximum from your mining rig, you can always resell it. You can list the mining rig on eBay or sell individual parts. However, if you are listing your rig on eBay, make sure your rig is still capable of mining at a profitable rate.

Conclusion

When you compare mining with buying cryptocurrencies, it is clear that mining can generate the most amount of coins. However, for this to be true, you need to have luck on your side. By mining, you are essentially betting on the price of bitcoin, the difficulty of the network and unexpected events. As of today, 5th May 2019, mining with Antminer S17 Pro can earn you more than buying Bitcoin. This could change any moment with the changes in the cryptocurrency market.

Cloud mining is an alternative to buying and mining cryptocurrencies. Check out the article “How Much Can I Earn from Cloud Mining?“.