TLDR
- Cloud mining services often promise very attractive numbers
- Challenging to quantify the projected returns and comparing with the costs incurred
- Proposed to compare cloud mining packages by the cost to generate 1 BTC. A formula is presented with an accompanying calculator
- Cloud mining providers compared: Bitdeer, Binance & Bitfufu
- Observations & conclusions
What is Cloud mining?
Cloud mining is a mechanism to mine bitcoin, using rented cloud computing power. Users will not need to install and directly run the hardware and related software and leave it all to the cloud mining providers.
Cloud mining firms allow people to open an account and remotely participate in the process of cryptocurrency mining for a basic cost, making mining of Bitcoin more accessible to a wider number of people across the world.
Users who participate in cloud mining usually become part of a mining pool, where users purchase a certain amount of “hash power.” Each participant earns a pro-rata share of the profits in proportion to the amount of hashing power rented.
Challenges with comparing cloud mining packages
Cloud miners often publish very nice returns and it can be difficult to ascertain profitability of the cloud mining package at the time of starting the plan. Profitability is often subject to a range of factors like network difficulty, uptime and the price of BTC etc. Additionally there is an element of time when it comes to mining; returns will only be obtained over the period committed.
It is thus difficult to judge if one should buy BTC from the open market immediately or participate in cloud mining programmes to mine the BTC over time.
Solution
In light of the challenges above, this article proposes to use the cost per BTC as a measure to compare the profitability of cloud mining packages.
To calculate the cost of mining 1 BTC, you will need to know the following:
- The Hashrate/hosting fee charged by the cloud mining platform
- The Service fee charged by the cloud mining platform
- The proposed/estimated revenue for the period of cloud mining
These figures are easily obtained from the cloud mining platforms.
Since the cost of cloud mining packages vary by the processing hashrates and the length of mining offered, we will be dividing the package costs down to a $/TH/D (i.e. cost per terahash per day) and the projected returns to BTC/TH/D (i.e. Bitcoin earned per terahash per day).
The final step would be to divide the revenue by 1 BTC and multiply the figure by the total costs to arrive at the cost to product 1 BTC.
The formula is as follows:
Comparing cloud mining packages
The table below is a comparison of the cost and expected returns of the cloud mining packages from Bitdeer, Binance & Bitfufu. The price of BTC is $36,500 as of the time of writing.
I’ve developed a calculator to find the Cost per BTC. Feel free to use it to follow along the detailed calculations below.
Bitdeer
Background
Bitdeer is a public company listed on NASDAQ (NASDAQ: BTDR). They have 6 mining data centres around the world, with a total hash rate of 21.2 EH/s. Bitdeer was founded by a co-founder of Bitmain Jihan before he broke off to form his own company. In terms of technical capability, you can trust that they would have the networks and expertise to maintain and optimise their miners. They have mining farms deployed across Europe and North America which generally have stable political policies with regards to Bitcoin mining.
Plan details
From the screen grab, the plan is a classic cloud plan based off the performance characteristics of a S19pro for 180 days.
Pricing
Bringing it to our unit costs would give a hashrate fee of $0.0194/TH/D and electricity fee of $0.0439/TH/D. They did not explicitly mention a service fee but these are probably part of the hashrate fee. No mention is made of the cost of the machine as well. Presumably the costs are parked into the hash rate fee. The advantage of this is (1) you don’t need to fork out an upfront fee and can spread your CAPEX over the term. Disadvantage is that you never really own the machine but that also means you dont have to deal with the maintenance costs etc. Adding the 2 figures, we arrive at a total cost of $0.0633/TH/D
Cost per BTC
Bitdeer projects a payback period of 140 days. Static output (estimated of course) is $0.0723/T/D. Which looks great on first glance, having a 14% daily profit.
Let’s take a closer look however at the cost per BTC
Putting the numbers into our calculator, we get a cost per BTC of $36,348~ 0.42% discount from current BTC prices). Not a significant amount given that there is no guarantee of the returns as it would be subject to network difficulty and uptime of the machines.
Binance
Background
Binance needs no introduction being the world’s largest crypto exchange. Did you know that besides being an exchange they also offer cloud mining?
Plan details:
From the screen grab, you can see that its a 90 day plan. Binance does not specify the underlying machine performance the plan is based on so we can’t really compare.
One thing to note is that the plan doesn’t start immediately but rather from 17 January which is 2 months from the time of writing this article. That is a considerable wait given that your money is already sunk into it (a lot can happen in crypto for 2 months!)
Pricing
Binance makes it easy for us by already displaying the total cost per Terahash over the 90 day period.. However we will need to bring it down to the cost per day for comparison. Dividing by the min duration of 90 days, we get a Hashrate fee of $0.04/TH/D & Electricity fee of $0.0531/TH/D. Similar to most of the other platforms, the cost of the machine is incorporated into the hashrate fee which means you spread out the costs of the machine although you never really own it.
We arrive at a total cost of $0.0931/TH/D
Cost per BTC
Binance estimates a payout of 0.00000209 BTC per day over the 90 day period.
Doing the same calculations we arrive at a cost per BTC of $44,545 which is 22.04% higher than the market price of BTC.
Bitfufu
Background
Bit Fufu is the leading manufacturer of Bitmain’s arm. BitFuFu has a hosting capacity of 300 MW and provides a One-click cloud mining service. They assert that compared to buying BTC, the cost of mining (with them presumably) to obtain coins is lower. Facilities are based all over the world. Bitmain partners with existing mining farms as part of their industrial cooperation programme. With the backing of Bitmain’s repair expertise you can be assured of machine reliability
Plan details
From the screen grab, you can see that the plan is based off the performance characteristics of a S19XP for 180 days. It is 1 generation older but it is still one of the more efficient machines in the market.
Pricing
Bringing the published figures down to our unit costs, we get a hashrate fee of $0.0194/TH/D & Electricity fee of $0.0439/TH/D. They did not explicitly mention a service fee but these are probably part of the hashrate fee. Adding the two together, we get a total cost of $0.0633/TH/D.
Cost per BTC
They project a payback of 0.2259 BTC over a period of 180 days which comes up to a cost per BTC of $25,219.12. (~31% discount from market price)
Conclusion
It might look like Bitfufu is the clear winner here but there are 3 things to note with regards to cloud mining platforms:
- The figures promised by Cloud mining platforms may not always be that attractive. Looking at Binance’s, it would have made more sense to buy it off the market, enjoy holding an upside of the BTC now than pay the premium
- In some cases the discount is not worth the risks and uncertainty. Bitdeer only offers a 0.42% discount from the market BTC prices. Such a small discount compared to the uncertainty of the BTC generated might not make the plan sensible to be adopted
- With its highly efficient S19XP miner, Bitfufu seems to lead with this calculation. Despite the seemingly attractive discount from the market price of BTC,, there are few inherent risks with all cloud mining platforms that should be considered which has not be dealt with
a. Cost of mining pool fees:~ 2.5–4% depending on the pool used
b. Downtime of machines: Typical downtime is at 95% which the plans commit to but there could be higher downtimes in reality
c. Network difficulty increase (the biggest uncertainty): The Bitcoin network has seen a 75.86% increase in the past 1 year. What this means is that your revenue drops by 0.2% every day assuming a straight line increase. The published revenue does not account for this drop
d. Halvening in April 2024: The halvening cycle is happening in 150 days as of time of writing. What this means is that your revenue will be reduced by 50% after 150 days
This is just an initial analysis and I hope to add on as more data is obtained.
I hope that this article has given you more insights into cloud mining platforms. It is important to DYODD, analyze the figures and not blindly trust the published numbers.
Should you wish to work out the cost of BTC I have provided a calculator here for you. Feel free to use it for you own analysis.
Leave a comment below if you wish to add on any other platforms for analysis
