GRIN: Mine vs. Buy
Last month saw the launch of Grin and Beam, the first two implementations of long-awaited privacy protocol Mimblewimble. Mimblewimble offers a way to transact on-chain without publicly disclosing sending addresses, receiving addresses, or transaction amounts. Unlike traditional blockchains, they actually remove the concept of a public address entirely, differentiating from existing privacy coins such as Zcash and Monero. This adds to the learning curve no doubt, but it also opens up some promising opportunities for truly anonymous payments. Check out a typical Grin block for an example of this. Of the two, Grin better reflects the cypherpunk origins of cryptocurrency with no ICO/pre-mine, a distributed and pseudonymous team, and fully open-source project development. Beam on the other hand is venture-backed and takes a 20% founder’s reward, which is earmarked for development and marketing.
The launches of Grin and Beam were accompanied by a tidal wave of hype, complete with rumors of $100M investments in Grin mining and its very own ASICs on the way. What’s really interesting about the early-stage economics of these currencies is their emission schedules. These both reflect the high early inflation of Bitcoin (Beam follows Bitcoin’s emission curve exactly, by design, while Grin has a constant 1 GRIN/second emission in perpetuity) and so offer us a fascinating window into Bitcoin’s first days — with the obvious difference that this time around there are 100s of millions of dollars chasing these new units of GRIN and BEAM.
Was that $100M in mining investment a wise move, or should those investors simply buy on the open market?
Now that ASICs have mostly crowded out crypto mining for the average person, one of the sources of Grin/Beam’s appeal is that users can effectively mine with GPUs (at least for now; the ASIC-resistance of both will fade after 12–18 months). Let’s focus on the economics of GRIN, since mining data seems to be more readily available.
Assuming $0.075/kwh power and a GTX 1080ti earning about 1/6 of a GRIN per day at current difficulty (source), miners should break even on electricity costs when GRIN is priced at $2.35. So at the current price of $4.88, they are earning a decent spread. But they also have to amortize the cost of that 1080ti which sells for no less than $589. If GRIN stays around $4.88, it would take almost 4 years to recoup their investment in the 1080ti! To get to a more reasonable 365-day payback period GRIN a miner needs to sell GRIN at an average price of $12.05. Of course a well-funded miner could be sitting on their mined GRIN until the emission curve flattens and reduces the downward pressure on the price, but the conventional wisdom is that most miners are operating on thin margins and need to sell to cover their costs. What does that constant selling pressure look like with Grin’s emission schedule?
Around 2,592,000 new GRIN are produced each month. That means at least ~$13M in GRIN needs to be purchased each month just to maintain the current price of $4.88. Monthly inflation will be in the double digits for all of 2019 — for context, the monthly inflation rate is 0.33% for BTC, 0.58% for ETH, and 0.72% for LTC. It seems likely this will be a buyer’s market for at least the remainder of 2019 unless speculators drive the price of GRIN above $12 for an extended period of time.
The verdict: If you have some high-end GPUs laying around and it’s no longer profitable to mine ETH or XMR, switching to GRIN looks like the right move (at least at the current difficulty level). But if you add in amortization cost of new mining hardware, it’s probably more cost-effective to simply buy GRIN from the market. With that said, buyers beware too: GRIN’s monthly inflation rate can also be thought of as the $ amount that GRIN’s market cap needs to grow each month just to maintain the current price. GRIN’s sub-$7M market cap might look undervalued, but from now until the end of March 2019, the market cap would need to increase by 460% just to remain at the current price of $4.88.
If you do decide to either mine or purchase GRIN and manage to come out ahead, I’d ask that you do the right thing and give back to the Grin development team. Unlike Beam, or most other high-profile blockchain projects, the Grin team are strictly community funded. Let’s not forgot those doing their part to drive innovation in the blockchain space.
