What is crypto mining cost and how to mitigate it? Most average miners think that the cost of mining involves only monetary expenses on two specific components such as the cost of the mining rig and the recurring electricity bills, and there is no particular way in which these costs can be mitigated.
Well, sadly, these people are utterly wrong in both the aspects. This means that the cost of crypto mining involves much more than just the cost of the mining equipment and energy bills.
There are some other invisible costs as well, the ones you do not pay directly in real money, but still exist and add to expenses of mining indirectly.
As such, if you consider only the amount of energy required to mine a crypto coin you will find that it is much more complicated than you thought or do now.
You will be surprised to know that the amount of energy used by the crypto mining rigs to run a Bitcoin network is equal to the annual electricity consumption of any medium-sized country.
Therefore, you can very well imagine what other costs you have to pay for mining Bitcoin.
It is quite natural and possible that you too do not know about these costs and may not take these into account when you make a calculation of your profits from crypto mining, which, needless to say, is wrong.
Well, you do not need to worry anymore because this article will let you know about them all as well as the ways in which you can mitigate the costs by a considerable extent.
Just spend some time reading this article to its entirety so that you do not miss out on any important aspect that you should consider while calculating your mining profits.
What is Crypto Mining Cost and How to Mitigate It?
How much cost is involved in crypto mining is a subject for debate because different people have different perspectives and consider the elements of costs differently.
This may create a lot of variance when you follow a particular method with the ones that are calculated by following another method.
Therefore, you will need to know a few other related aspects before you get down to calculating the cost of mining crypto right away.
Most people simply restrict their calculation to the cost of mining rigs plus the costs of electricity they need to pay in order to keep the systems running.
But what about the investments on the cooling systems, cost of running them, rent for the space, and other overheads?
Here are some of those important components of cost of mining that are often overlooked and discussed for you to know and help you to make an accurate calculation for the cost of crypto mining as well as the profit you may make from your efforts.
Along with the ever-rising cost of energy involved in crypto mining, the environmental cost is also rising at an equally fast pace, if not more.
And there are other aspects of it as well, which makes the entire process of calculating crypto mining cost and profit very complicated for any average person.
Yes, it is true that the power cost makes up the major portion of the cost of mining and is also the one that eats away the profits quickly but seldom is it calculated in the right way (more about it later).
Then comes the cost of the mining rigs. Previously it was enough to have and use a home desktop computer to mine Bitcoin, but that was when crypto mining was considered to be the hobby of the wealthy people.
Over time the crypto mining rigs evolved.
First it was the CPU miners that were good but eventually failed to keep up with the growing demands and the pace of crypto mining making way for the more efficient GPU miners.
These specialized mining rigs use multiple graphics cards instead of one card as is used in a standard computer.
These computers need higher power supplies with high wattage and also cost a lot more than an ordinary desktop computer or a CPU miner.
However, over time and increased awareness of the prospects and potential of crypto and specially Bitcoin and as the prices of it started to rise exorbitantly, more and more people got involved in it, even the nouveau riche.
They started to use more sophisticated and powerful computers to crunch the algorithms which made crypto mining much more competitive and difficult.
This has resulted in the need of specialized mining rigs such as the Antminer S9 and the Application Specific Integrated Circuits that are commonly known as ASICs.
These dedicated mining rigs do not only weigh more than 13 pounds but also come with a very heavy price tag.
This has significantly increased the cost of mining today.
Then there is the environmental cost which is primarily due to the huge energy consumption by the crypto mining rigs.
This energy comes from burning fossil fuels such as coal and others that leave a huge carbon footprint and waste which adds to the growing environment crisis.
People who are concerned about the environment do not support this.
For example, Elon Musk showed his concerns over the climate issues and closed the doors to crypto.
This resulted in the fall in price of Bitcoin and other crypto coins.
Reasons and Estimates
One of the most significant reasons that the mining rigs use such a high amount of energy is that they work for 24 hours a day since the crypto market never sleeps.
It needs to browse the internet every second of the day which needs a lot of energy.
Typically, if you use a mining rig with as little as three GPUs it will need nothing less than a thousand watts of power or more to run continuously.
This is equal to a medium-sized window air conditioning unit in terms of power consumption.
Mind you, you will have to calculate the power in kilowatt and kilowatt-hour to find out the actual cost of power.
As such, to be competitive and make profits from crypto mining you will need to increase your chances to make profits in the first place, especially if you want to do it on a commercial scale.
And, for that you will need to use a large number of these powerful mining rigs either with GPUs or ASICs in one particular location.
For example, a crypto mining firm in Kazakhstan has 50,000 powerful mining rigs running continuously and simultaneously!
Therefore, you can very well imagine the high amount of energy that it consumes.
You will also need to consider the heat issues while calculating your cost and profit from crypto mining because your mining rig will generate a lot of heat during operation.
The more the number of mining rigs, the more will be the amount of heat generated and make the space like a furnace.
This may damage your mining rigs temporarily and even permanently thereby affecting and slowing down your mining activities and returns.
Therefore, if you do not want your mining rigs to melt like icecreams in summer, you will need to invest in some powerful and efficient external cooling system, liquid or otherwise, and not rely only on the cooling fans integrated into the mining rigs.
This will add to your cost of mining in terms of initial investments as well as recurring energy costs.
Now, talking about the estimates, it is nearly impossible to say exactly how much energy is used by the mining rigs that you are using as of now.
However, you can use one of the different tracking sites such as Digiconomist to get a nearly-perfect estimate.
However, based on the Bitcoin Energy Consumption Index, typically a network of computers, commonly known as nodes, draws about 3.4 Giga Watts (GW) of energy to verify a Bitcoin transaction.
If you are interested in math here it is:
One watt is measured as one Joule per second and one ordinary laptop uses about 60 watts of power probably.
Therefore, 3.4 GW of power will add up to 30.1 Terra-watt hours of power consumed in one year.
This is approximately equal to the total amount of energy used by the entire country of Morocco in one year.
However, these are not absolute values and there are a few people who dispute this figure and suggest some other figures, though fervently.
Still, whatever is the figure it is significantly high as compared to any given standards.
Typically, even if you consider all the different estimates with varied amounts the average will be somewhere between 100 Megawatts to 3.4 Gig Watts depending on the type of the mining rig used.
And, the power consumed is much, much more when you use multiple specialized computers such as the ASICs, though these are designed specifically for crypto mining and are supposed to be more energy efficient.
Now you may ask why there is such a difference in values of different estimates.
Well, it is all about the methodology and timing, and partially due to individual bias.
Timing can specifically affect your estimation because the Bitcoin network changes frequently.
There is more processing power and activity on the network but it is balanced a little bit by the more efficient hardware used.
However, you should not worry about the difference in numbers because when it comes to Bitcoin, the difference in magnitude is not really different.
It is actually the same and it all depends on the specific type of mining hardware in question.
Cost of Mining
Now, knowing all these things, typically, you can calculate the cost of mining by using a comparatively simple formula which is:
Cost of mining = peak power consumption while mining x time spent in mining.
You may balance the cost of electricity needed to mine against the actual value of mining to calculate the power, but the idea will be the same.
Using this equation, if you find that the cost of mining is less than the income you are generating you can continue to mine crypto coins to your heart’s content.
However, keep a check on the peak power consumption component at all times because it is here where stuff starts to get murky.
On the other hand, if you find that your cost of mining is more than the income you have generated for that particular time for which the cost is calculated, you are running at a loss.
In such a situation there are two things that you can do: either you give up your mining endeavor, which is unwise after having invested so much money in your mining rig, space, cooling system and energy cost for at least a month, or go for an upgrade.
Assuming that you cannot relocate yourself, which is not only tedious and cumbersome but will also add to your mining cost eventually, you may consider upgrading your mining rig.
Add to that, you can also try out some of the tips mentioned below to mitigate some of the factors that may be causing some hindrances to your crypto earning efforts via mining.
Cost of Power
When it comes to calculating the cost of power which is an important part of the methodology you will first need to be aware of a few specific facts and information such as:
- How difficult is to solve the Proof of Work or PoW
- How much energy is used by the different hardware
- How much energy is consumed for mining crypto by the entire world to use it as a top line figure and
- How much revenue you can probably make as a miner.
These are all important pieces that you will need to solve the major portion of the puzzle and follow the steps mentioned here to complete the rest.
Ideally, when you use an ASIC hardware, the amount of power consumed by your rig may be to the tune of 45 MegaWatts.
However, if you use any standard CPU miner, the amount of power consumed by the rig to mine the same amount of coins would be much higher than that.
However, there is no need to be unrealistic when you calculate the amount of power consumed by your mining rig.
You should ignore exorbitant amounts suggested by other people such as 450 Megawatts for multiple CPU miners.
This is an entirely unrealistic estimate because the amount of electricity consumed by the entire world in a year as of now is about 2.3 Terra Watts.
And, mind you that Bitcoin is surely very popular but it has not taken on the whole world, yet.
Remember, the cost of power will vary depending on the type of hardware you use, as said earlier, but it is always quite high because in most of the cases professional grade hardware is used due to its higher efficiency.
A system with a higher efficiency significantly reduces the level of difficulty in mining.
You must also remember that when prices increase you may need to upgrade your mining equipment from a standard desktop computer to GPUs and then eventually to the ASIC machines that are specifically designed for mining.
By doing so, you are not only adding on to your operational cost but also on the amount of energy consumed.
The basic idea behind it is that you will need to add more hash power if you want to make profits from crypto mining.
Typically, the cost of electricity is a lifetime cost and comprises 60% of the total cost. However, this does not mean it will be 60% all the time.
It practically depends on the performance of the machine. Fiddle, tweak, or correct it otherwise and the result will change.
At this point it is good to take a look at the GPU machines since there are a lot of misconceptions regarding it.
Ideally, a machine with 6 GPUs running for 24 hours will consume at least one kW of power constantly.
Based on the standard domestic energy rates in your area you can calculate the cost of power every day.
However, there is one really interesting aspect of these machines.
The technology involved in the GPU machines allows you to cut down on the energy consumption a bit as the software augments depending on the type of coin you are mining.
With the technology developing continually, these machines will be further efficient to reduce power consumption to the extent when energy bills will no longer be an issue!
Until then you can consider one kilowatt of energy as the standard consumption by a powerful machine at the most optimum settings, working for 24 hours a day, but do not consider it to be written on stone.
Therefore, in the end, it can be said that according to the Bitcoin Energy Consumption Index the approximate energy consumption for completing a Bitcoin transaction is 1,544 kWh.
This is equal to the energy consumed by any average US household for about 53 days.
In terms of money, if you consider the average energy cost per kWh in the US within 12 to 13 cents, you will need to pay anywhere from 180 to 200 dollars in energy bills to mine one Bitcoin.
Cost of Cash
Crypto, especially Bitcoin, is now considered as an alternative mode of payment, and it has all the merits to make people rich as well through mining.
However, the cost of cash with respect to all other conventional payment systems including cash, credit cards or gold, is much more.
And, it is all due to its energy consumption that makes Bitcoin much more expensive.
However, it can be a cheaper alternative as well. It all depends on how you choose your data.
If you want to put things figuratively and make a comparison then here it is.
If you make a payment through Visa payment systems, to make 350 million transactions it will consume energy equal to that of 50,000 US households.
On the other hand, to make about 350,000 Bitcoin transactions the energy used, that too on a good day, would be equal to that of 2.8 million US households.
This means that Visa can do more by consuming less amount of energy.
Therefore, the figure indicates that Bitcoin is surely an increasingly popular tool for the rich but everyone in the world is paying the price for a system that uses nearly 20,000 times more energy as compared to any other traditional payment systems, give or take, to complete one transaction.
Looking at it from another perspective and comparing Bitcoin cost of cash with others, it is quite low due to the fact that it is a much, much smaller system in comparison to traditional banking systems, cash payments and even gold transactions.
Cost of Environment
There is no denying of the impact Bitcoin mining is having on the climate, once again due to its high energy consumption.
Therefore, this environmental cost should also be considered while calculating your cost and profit of mining.
The environmental consequences do not include only the power that is needed to run the network but also the amount of waste that is generated due to the mining process.
These are in the form of:
All the specialized machines used for crypto or Bitcoin mining are designed for this specific task and therefore cannot be remodeled to do other tasks when you have to replace one machine with a more advanced one.
Therefore, the computer hardware that turns on the landfill generates huge amounts of electronic waste.
According to an estimate of 2021, one single block of Bitcoin mined can produce as much as 77.8 grams of electronic waste which is equal to the weight of 1.72 golf balls.
The carbon footprint left by a single block of Bitcoin is something that is most worrying and perhaps the most significant cost of mining.
According to a 2021 estimate, roughly 816 kilograms of Carbon Dioxide was emitted by Bitcoin mining.
This is approximately equal to the carbon footprint produced by 1,808,913 Visa payments or watching 136,028 hours of YouTube videos.
Typically, the carbon footprint of the Bitcoin network is equal to 64.18 metric tons of Carbon Dioxide annually.
Choices to Make
Given that the Bitcoin mining process relies on the Proof of Work or PoW mechanism which makes it so energy intensive that impacts the environment, people are looking for greener alternatives.
There are other crypto coins available that consume less energy such as XRP, Cardano, ETH, and Stellar.
This is because these coins use a different consensus protocol known as Proof of Stake or PoS.
A few coins also use some other special protocols such as the SCP or Stellar Consensus Protocol.
All these protocols are specially designed to use less energy but helps in making faster transactions.
If you want to stick to Bitcoin mining however, you will need to cut down on the energy bills and one of the best ways to do so is to look for an alternative, green, and renewable energy.
It can be achieved by using wind power or solar energy, or even simply by upgrading your setting with more efficient hardware.
Another useful option to choose is joining a mining pool to combine computational power and distribute the energy cost among other members of the pool.
This is one of the most popular options today because this significantly raises your profit making chances through crypto mining.
Though the amount of rewards will be shared, the increased frequency of winning the rewards will compensate for it.
However, making the right choice is not easy because it depends on several factors.
You will need to choose and use a machine that is efficient and profitable but other variables that will make things more complicated are the ever-changing electricity rates and prices of crypto coins.
Therefore, to make sure that you make the best choice you will first need to find answers to some relevant questions such as:
- What is the type of coin you wish to mine if it is not Bitcoin?
- What is the cost of energy in the area?
- How efficient and powerful is the mining equipment you wish to use?
- Do you wish to mine during the peak hours or after that?
- Do you have the drivers updated and optimized?
All these answers, when known, will be of much help to determine the cost of mining as well as gauge the profit you can make from it with respect to the energy consumed for the process.
Mitigating the Costs
Finally, here are some useful ways in which you can mitigate the cost of mining and increase your profits in the process.
You may be aware that new crypto coins may increase in value but can also sink very soon.
You may also know that the other costs of mining are more or less reliable. Therefore, you may want to cash on it just as all other miners would.
This will increase the competition level and the network difficulty may also explode.
And, since everything happens so instantly and continuously it is pretty difficult to suggest ways to mitigate mining costs because it may become outdated as soon as it hits the page.
Still, here are a few most common and perhaps the most effective ways to mitigate the cost of mining.
As you can see clearly from above, power consumption is the primary factor that makes up the major part of the total mining cost and determines the amount of profit you can make from it eventually.
Therefore, first you should know the way in which you can reduce the amount of power consumed by your mining rig to some extent.
You will be much better off if you always choose a powerful and efficient power supply and ensure that it is fully functional.
This will not only ensure that your mining rig runs stably and continuously but will also increase its efficiency apart from reducing the amount of energy consumed for the process.
Also, according to the rules of thumb, you must ensure that you mine at the optimal times so that you can maximize the efficiency of your hardware.
In addition to that, here are some other useful tips to maximize your profits from crypto mining and minimize the cost of it:
- Make sure that you always use updated drivers and software and upgrade them on a regular basis
- Make sure that the hardware installed in your mining rig is most energy efficient
- Make sure that you follow a proper plan to mine the coins preferably during off-peak hours and
- Make sure that you research a lot and continuously to find a reliable renewable energy source to use on your grid.
You will also be better off if you check the electricity rates and plan your use accordingly and ensure that you maintain your mining rig in the best way possible.
This will reduce energy consumption or waste and therefore reduce the cost of mining crypto.
Also, find the most reliable and profitable mining pool to join and share the cost, power, and rewards.
You should also consider the network difficulties as well as the specs of your mining hardware before you choose a coin to mine.
All these will ensure better returns, lower the cost of mining reasonably, and level up your game irrespective of the volatility of cryptocurrencies.
Calculating the cost of mining crypto and the eventual profits you can make from it is not easy because it consists of a lot of other factors apart from electricity and equipment costs.
Now that you know about them from this article, it will not be anymore.
I have special interest in crypto and intend to help common people to gain knowledge about the digital asset as well as its potential. Follow Me at Linkedin.