The mining market is currently stagnating as industry Application Specific Integrated Circuit (ASIC) leaders such as Bitmain are losing steam due to bad investments in various ventures. This has led to the ASIC market not developing as a whole, a problem that has been compounded by the sinking price of Bitcoin. This has also led to a drop in the mining difficulty of Bitcoin, as more and more miners leave the network.

In this time of reduced difficulty and a struggling ASIC market, the next question is obvious: Is it possible for cryptocurrency enthusiasts in India to begin a mining operation now and break even in a reasonable amount of time? In this article, we will take a deeper dive into the economics of cryptocurrency mining.

Cryptocurrency Mining And Its Role

‘Mining’ is a term used to denote the process of bringing about new units or coins on the blockchain as a reward for processing transactions. A lot of electrical and computing power is required for this process, as it functions on something known as Proof of Work. The Proof of Work algorithm is what keeps many ‘coins’ such as Bitcoin, Litecoin and ZCash functional, as these distributed ledgers cannot function without a party to organise transactions.

Mining on Proof Of Work cryptocurrencies requires the protocol to be functional in order to continue functioning as they do. While this not only ensures the relevancy of mining in the long term, there are also multiple fail-safes built into the protocol to ensure its continued operation. One of these is a variable mining ‘difficulty’, which makes it easier to mine new blocks if there are a lower amount of miners on the network.

Mining profitability is dependent upon many things, such as the mining difficulty of the coin, cost of electricity, heating, and components to provide the hashing power. This brings in a lot of variables into the mining setup, which has led to market dominance being asserted by application specific integrated circuits for mining. ASICs are currently dominating the market of cryptocurrency miners for popular cryptocurrencies such as Bitcoin, Ethereum, Litecoin and ZCash.

Mining Tools And The State Of ASICs

The time of mining on GPUs or even CPUs is gone. However, the miners buying multiple GPUs for mining will find it easier to cool and manage electricity costs for, and also have the ability to choose between which coin they wish to mine. While this doesn’t offer the mining power that the more advanced and specialised ASICs offer, it also does not lock the users into a single coin that they have to mine regardless of the price.

A sizeable setup of upwards of 6 GPUs in one PC will be able to deliver a simultaneous hashrate pool, thus allowing for directly scalable mining. While this echoes the Lego-like modularity of the ASICs, those can be scaled to a much larger operation, albeit with a significant rise in expenses. An enthusiast or someone looking to get into mining should look into building a setup that can scale and also offers good choices between various cryptocurrencies.

There is also the alternative of getting into a mining pool, which significantly increases your chances of “finding a block” or being one of the individuals rewarded with the new currencies. However, mining pools have percentage charges they levy on customers for managing the funds and also facilitating the large scale of their operations.

Mining pools present one of the most interesting conundrums in terms of cryptocurrencies, as they represent centralised hubs of control which also create a point of failure for the system. Currently, the world’s biggest mining pools are concentrated in China and Russia, mainly owing to their cheap electricity and cool climate. There is also a large amount of unofficial government support for mining in these countries, with miners in China even taking additional power off the grid from their vast hydroelectric facilities.

Today, being an individual miner will result in a very low turnout, whereas a pool can give customers a set amount of money, depending on profitability. However, at times of hashrate being used to make decisions on changes to the network, pools might skew the result in one direction owing to the miners on the pool being treated as one entity.

Moreover, many mining pools not only offer an adaptive algorithm for mining depending on profitability but also give users the option to enter into a cloud mining contract, wherein they buy a certain amount of hashpower which is then used to mine various cryptocurrencies. Services for this include NiceHash, which utilises a proprietary algorithm to determine which cryptocurrency is more profitable to mine.

The Profitability Argument

GPUs at the cutting edge, such as the GTX 2080 and the Radeon VII, offer a good amount of hashing power for use with smaller currencies. However, these cannot enter established mining communities such as those of Bitcoin or Ethereum, as the difficulty on these is way too high to make a profit ever. Added to this is the low price of Bitcoin, which leads to the coin being sold at a lower price, generally bringing down the profitability of self-built rigs.

As mentioned previously, the ASIC market is highly stagnant, and GPUs simply do not have the compute to be profitable. This leaves us with the conclusion that Indian consumers cannot be profitable while mining cryptocurrencies.