Over the last few weeks, and of course, because of the latest frenzy on bitcoins due to its price, I decided to try to get into it a bit. People will comment it's a bubble, other it's not, but the fact is that it has a very good momentum that's likely to continue for quite a while. Of course nobody knows what will happen, that's the only sure fact, but I rather have some and lose some money that not have any and missed a good opportunity to earn some more.
Of course, I kind of knew that although buying bitcoins at around $1000 might not be the best idea at that point (although it reached $1200 later on but it's now around $650), the first thing I started to look into was bitcoin mining. I won't go into details of what that is or how it works because that's not what I was planning on writing.
I looked for mining rigs, its setup, its configuration, etc. and because I am not based in the US, purchasing and bringing those equipments here to make it profitable was not an option. From there I resolved to look for people offering hosted solutions, and of course, I found one: Cloudhashing.com. They were offering, last November, a platinum contract of 20GH/s for two years for $950. Without thinking much about it I gave it a try. Of course bitcoin mining is not a sure deal but they point you to an estimator that supposedly gives you a good estimate of what you might get. See below what it says now for 20GH/s:
So this says, that at the current difficulty you can get around 0.0085BTC per day. So in two years:
\(0.0085 * 365 * 2 = 6.205\)
After trying the first 20GH/s and seeing that I was getting to around that estimate (it was more back in November), I decided to purchase an additional one, so I am now with 40GH/s for two years.
Cloudhashing.com also takes a 10% management fee and, depending on how you have it configured some more for a reinvestment program I am not currently using, so following that estimate I would get:
\(6.205 * 0.9 = 5.5845\)
So that's about 5.5BTC for $950 per contract, not so bad! Although.... read below!
So what does "the current difficulty" means?
In a nutshell, the difficulty is a parameter set by the bitcoin network that makes it more (or less) difficult to mine bitcoins. The bigger this value is, the less amount of bitcoins you will get for the same amount of GH/s
I researched a bit on how the difficulty was increased in the past few months:
This image is a bit scary. It makes sense though, that as bitcoins reached an all extreme high of over $1000 a lot of people (like me) wanted to get a piece of it and started mining, increasing the bitcoin difficulty exponentially.
By looking at the past few months, you can see that on average you got an increase of roughly 50% monthly, that's a lot!
You can also check BlockChain's nice difficulty interactive chart.
Now let's look at another estimate, from cex.io, which takes into the estimate difficulty increases:
This picture, shows your approximate earnings over one year assuming that the difficulty increases in average 50% per month. Although this is a lot, is at least what's been happening the past few months.
So with this estimate, it says that you will earn approximately 0.73BTC in 1 year, and although the estimate is for one year, you will see that the last months of the estimation you hardly gain any bitcoin, so it's likely that the rest of the two years contract the 20GH/s will be rendered useless.
My conclusions
At the current prices of the contracts, with the current average monthly difficulty increase, purchasing any of the available contracts I found below is really a bad investment, and bear in mind, as I said, I have two contracts of 20GH/S for two years! You are better off just purchasing BTCs at the current price, simpler, easier and your only risk is its value, at least you don't have to worry on the difficulty.
Below is a small review of the services I checked and their current prices for cloud mining. Don't take my word for it, just do the math, I think mine are pretty accurate though, and also, again, these are all based on estimates.
This was my first find and the one I purchased. One good thing about this one is that you are allowed to pay with credit card. They recently revamped their homepage and update their prices scheme, as the time of writing this a 50GH/s/year contract costs $3999. They also charge a 10% management fee taken out from your BTC payments. Running the cex.io estimator mentioned above with the 50% monthly increase of difficulty it gives an approximate earning of 1.8BTC over one year. The current USD/BTC price is around $650. With $3999 you currently buy 6.15BTC.
I found this one recently, their prices schemes are in BTC, so it's even easier to do the maths. They are currently selling 10GH/s at 0.5 BTC for life, with 4 years guaranteed. Don't be too excited about the timeless contract, after 1 year and for sure after 2, with the current increases of difficulty, those GH/s will be close to having nothing. They charge 8% fee for the first year and 5% for the rest of the years. Running the cex.io estimator mentioned above with the 50% monthly it gives an approximate earning of 0.37 BTC over one year. So you are basically are probably going to get less than what you are paying to mine.
This one is a bit different, is more of an exchange site. You can both buy and sell GH/s that you own, and while you are owning them, they work for you as they mine the same as above. The only difference is that if the price of the GH/s goes up, you might make a profit of it. If you think about it for a sec, although this will be more driven by offer and demand, the fact that the GH/s gets more useless as difficulty increases, it's likely that they will loose price as well. Now, without considering any profit of the price fluctuation of the GH/s you purchased and just taking into account the mining power of it, the current price for 1GH/s is 0.069BTC. Say you bought 10 for 0.69BTC. Their current management fee is around 3.95%, so running their own estimator mentioned above with these values for 10GH/s I will get 0.34BTC, again, not a great investment.
This is probably the "Apple Inc." of bitcoin mining. They sell different equipments for running your own mining hardware and they are preparing a hosted solution at $10.83 per GH/s/year. I said preparing, so this is on pre-order. Their mentioned schedule is that this will launch towards the end of this year and they will take each order on a first ordered first serve basis, so you might have to wait until you get it if you buy it right now. Also, the price might change once they lunch it publicly. So for 10GH/s you will pay $108.30. They don't say anything of any management fee as of now, so I will assume 0%. I am going to estimate the values with the current price and as if you would start mining immediately. Running those values on the same estimator as the others you will approximately get 0.35BTC after one year. At todays price of $650BTC that's $227.50, so at least here we are able to see some profit from what would have been purchasing those BTC right now.
One final note, I am not saying mining bitcoins is not profitable, purchasing your own equimentment at a good price, running it properly with good maintenance, cheap bandwidth and OK electricity, it is probably profitable. But if you, like me, are unable to do that because of where you live, money or time, then you are better off purchasing BTC directly assuming you want to invest on it or wait until any of these services have a more reasonable price