The price of digital money has significantly decreased, and the complexity of the network, on the contrary, increased. Cryptocurrency mining has become less profitable, but you can still earn money on it.
The total capitalization of the cryptocurrency market over the past ten months has dropped almost fourfold: if in January it exceeded $ 830 billion, in early November the industry costs $ 200 billion. Most of the largest digital money also fell: the price of Bitcoin, for example, fell by 68%, from $ 20 thousand to $ 6.5 thousand, and the rate of Ethereum completely failed by 85%, from $ 1.4 thousand to $ 200.
Entrepreneurs have ceased to be interested in the extraction of coins, since its profitability has become much less. Ready-made mining farms began to sell off, and their value dropped by 40% during 2018. In the late August, representatives of the company Nvidia said that they received five times less profit from the sale of video cards for the extraction of digital money than they expected.
In July, the head of the Vietnamese mining company Sky Mining Le Min on Facebook reported a drop in business profitability, apologized to customers, and then disappeared with $ 35 million. The equipment of the company was taken out by unknown people, and its office was closed. The leaders of the startup promised to take measures and try to pay damages to the victims, and also reported that they had already contacted the police, where they proved their innocence.
Other companies are also experiencing serious problems due to reduced mining profitability. In mid-August, the Icelandic firm Genesis Mining began to force customers to switch to five-year premium contracts, since other options were no longer profitable. Contracts that bring less than their daily service were closed in October.
Another large mining pool — BitPico — closed in the summer — its leaders wrote in Twitter, that they are gonna sell all the equipment and mined bitcoins, as the business stopped produce a profit. At the same time, representatives of the Japanese GMO Internet said that the company will pay less attention to the extraction of digital money and will focus on selling ASIC devices, and Hashflare has completely suspended
Also, let’s not forget that cloud mining services can also be
attacked by hackers. And all the funds that you did not have time to withdraw — will be in the hands of scammers I highly recommend you bypass services with too much period of return of funds or conditions that impede immediately transfer assets to your account. None of the major cryptocurrency companies escaped hacker attacks, and the platforms for cloud mining are no exception, they were losing tens of millions of dollars belonging to customers. The largest mining firm Nicehash lost $ 78 million in December 2017, after that it had to suspend work, and by September of this year, users got back only 60% of their coins.
Taking into account the current situation on the market, buying video cards or ready-made farms is not the most profitable occupation: even the best devices with cheap electricity will pay for themselves at least six months later. To do this, you need to find a special place with certain conditions, because the equipment produces a lot of noise and requires special temperature conditions, as well as compliance with all security requirements and the uninterrupted Internet.
Large companies can receive special conditions for renting premises, purchasing equipment, and paying for electricity. For them, the extraction of digital money can be more profitable and have a certain capital, they can afford not to sell the extracted cryptocurrency to cover costs, but to keep assets in anticipation of their value growth or hedge risks in every way. But private miners are forced to get rid of the mined coins in order to pay for electricity and rent.
Therefore, mining companies began to produce or acquire equipment for the extraction of digital money, and then sell it to customers, this is called cloud mining, said co-founder of the EXMO cryptocurrency platform, Edward Bark. There are more than 1.5 thousand of such firms in the world. They take over the maintenance of equipment, its configuration, the cost of electricity and internet connection. But, as in the case of the classic, cloud mining is also becoming less profitable, he added.
This method, despite the obvious advantages, such as the absence of the need to purchase equipment, etc., has its drawbacks. Bark warned that the company may turn out to be unfair, as with the growing popularity of cloud mining, the number of scammers who sell non-existent facilities, receive money from customers and do not fulfill their obligations to them has increased.
“That is why I recommend using only proven services with numerous recommendations and not falling for the promises of crazy interest. If you are offered an income of 400% per year, then most likely it will turn out to be a fraud’’, the co-founder of the EXMO platform is sure.
Crowding private miners
The situation in the digital money market has led to the institutionalization of mining.
It is not profitable for entrepreneurs to work in this industry, therefore they are crowded out large companies. Companies benefit from economies of scale; in mining, this advantage becomes decisive. Half the hash capacity on the Bitcoin network is now controlled Chinese mining giant Bitmain.
Individual miners are forced to work together, one of ways are mining pools in which equipment owners combine their hashing capacities to increase efficiency. Another way is cloud mining that allows participants to buy some of the capacity in an already established farm without the need to immerse yourself in technical subtleties. Cloud mining has become fertile ground for scammers — on the one hand, full lack of government regulation in this area, on the other — a large the number of people who do not have extensive knowledge in the field of cryptocurrency and mining in particular, but very afraid to miss the opportunity to make money in this market. This phenomenon is described by the term FOMA (Fear of Missing Out) — fear of missing benefits when investors and users buy a particular asset exclusively
in order to make money on the growth of its price. Many experts explain this a sharp and not objective increase in the value of digital money in 2017. Cryptocurrencies bought for quick money, and when their value declined, they sharply sold out, which caused a further drop in price.
Such moods at all times were on hand to scammers. One of the manifestations fraudulent actions are often the usual financial pyramids, within which you actually receive funds from the contributions of new members, and not for income account from mining. There is also a risk of financial loss due to non-attentive acquaintance with the contract that does not protect the rights of the investor.
Is it still profitable?
Mining today is an occupation that requires serious investments in equipment, access to cheap electricity and considerable knowledge in cryptocurrency areas.
There was a period when the cost of cryptocurrency production was significantly lower than its market price.
Actually, a similar dynamic of the discrepancy between cost and market
course is observed very often in other markets. For example, in 2011 the average cost of gold was approximately $ 850–950 per troy ounce, and its price at this time, rising to $ 1800- $ 1900. When there is such a profit, many new “producers” are starting to enter profit margins, in our
case, in the cryptocurrency market — miners.
So there comes a time when the market price of an asset stops growing, and the number of manufacturers continues to increase due to inertia. At one moment there comes “market saturation” — the course begins to level off with cost price. The industry is becoming very unstable for manufacturers, because that at the slightest decrease in prices the most unprofitable producers go bankrupt.
This is exactly what happened in the first half of 2018 in the blockchain industry: cryptocurrency rates began to fall and many of the managers were ruined. Slowly, the cryptocurrency market is starting to return to its normal state functioning. Cryptocurrency prices are already less volatile and new miners it’s easier to figure out whether to start work now. Get rich only on mining is already quite difficult. Therefore, for an investor, it is better to compare the profitability of mining with other investment projects and make a conclusion for yourself redirect money to mining.
With the right approach, you can earn on mining, however, the margin is already significantly lower than that in 2016 and 2017.
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