Should you buy or mine bitcoins?

What is mining?

In traditional currencies, there is always a central bank backing up the currency and validating all the transactions. Bitcoin is a revolutionary decentralized currency system where some persons validate the transactions made by other persons and make sure no fraud is taking place.

In order to do so, when a group of transactions take place in a certain period of time, these transactions are grouped in a block. The block needs to be appended to the already validated blocks in order to form what is called a blockchain. However, for the block to be added to the blockchain, it needs to be trusted: the miners role is to make sure that all the transactions in a block are valid and that no previously validated block in the blockchain was tempered with.

This happens using computation algorithms that do the trick. As an incentive for miners to put their computing power to work, when a miner (or more realistically a pool of miners) discovers a block and validates it, he/she is rewarded in bitcoins.

What factors affect mining payouts?

Mining rewards depend on multiple factors. The main ones are:

• The bitcoin value: since the miners are rewarded in bitcoins, the more the value of bitcoin is, the more the reward is eventually bigger in terms of FIAT money. Since all the traders predictions tend to place the bitcoin price at a minimum of 60000$ USD in 2018, mining rewards equivalent will be bigger. As for the reward in term of bitcoins, it is updated almost every 4 years: next update is expected to occur in 2020.
• The mining difficulty: each new block is set to be mined in a constant time. When the average block validation is taking more time, the difficulty decreases, otherwise if the average block time in smaller, the difficulty increases. The more miners there are, the more likely it will be to mine a block faster, making the difficulty increase. The difficulty is updated every 2016 blocks.
• The price of electricity and hardware: in order to mine, someone needs to purchase a hardware. In addition to the hardware price, maintenance and electricity costs should be deducted from the earnings in order to compute the net profit.

What is cloud mining?

In order to save the hustle of maintenance and allow practically anyone (even non-tech addicts) mine for bitcoins, some companies buy the hardware themselves, maintain it and make sure they have cost-effective electricity that yields in better profit for everyone. This is called cloud mining: instead of buying and maintaining your own hardware, you can simply  purchase SHA-256 contracts in a cloud mining company and your mining starts immediately. You can pay using your credit card, bank transfer, ... or even using bitcoins. This solution is excellent for non-tech people or for those who live in countries where the electricity cost is high.

What cloud mining company?

There are many cloud mining companies but most of them turned out to be fraud companies and many lost their money.

Based on my experience, and as a personal preference, there 2 big cloud mining providers:

• Genesis Mining: this is a great company, but there are practically always out of stock of SHA-256 contracts. Even when they allow buying new contracts, the contracts start date is always 6 months in the future; in the world of crypto currencies, 6 months is a very long period.
• Hashflare: this is the best cloud mining company in my opinion. I have bought my contracts there and I have already made back all what I had paid in around 3 months. Each Th/s currently costs 220$ for one year with a maintenance fee of 0.35$ per day, directly deduced from your daily earnings. The only drawback is their customer service: they take around a week to reply.

Cloud mining vs. direct bitcoin buying?

At the moment of writing this article, the bitcoin price is around 15,000$ making the cloud mining more profitable than other options. I will compare below the direct buying of a bitcoin vs. local mining vs. cloud mining breakdowned by various prices of bitcoin as predicted by many well known traders. For the local mining, I will rely on the best bitcoin miner in the market now, the Antminer S9, which costs around 6,900$ on Amazon (It is out of stock elsewhere). I will take this amount as the reference amount:

• Direct buying: At 15,000$ per Bitcoin, 6,900$ would currently buy you 0.46 BTC. For direct bitcoin buying, i recommend Coinbase (for US and Europe only) and BitStamp.
• Cloud Mining: With 6,900$, you can currently buy around 31 Th/s of hash power for 1 year. Based on my personal payments, each Th/s is now returning 0.00012676 BTC minus the maintenance fee of 0.35$ per Th/s. I will breakdown the return in one year based on multiple bitcoin prices and I will even deduce 30% of the total amount to compensate for the difficulty increase over time. For Hashflare cloud mining, you can register here.
• Bitcoin price 10,000$: ROI is 365 days in a year * 31 Th/s * (0.00012676 - 0.35 / 10000) = 1.04 BTC. In the worst case scenario, 1.04 minus 30% would yield 0.73 BTC.
• Bitcoin price 15,000$: ROI is 365 days in a year * 31 Th/s * (0.00012676 - 0.35 / 15000) = 1.17 BTC. In the worst case scenario, 1.17 minus 30% would yield 0.82 BTC.
• Bitcoin price 25,000$: ROI is 365 days in a year * 31 Th/s * (0.00012676 - 0.35 / 25000) = 1.28 BTC. In the worst case scenario, 1.28 minus 30% would yield 0.89 BTC.
• Bitcoin price 40,000$: ROI is 365 days in a year * 31 Th/s * (0.00012676 - 0.35 / 40000) = 1.34 BTC. In the worst case scenario, 1.34 minus 30% would yield 0.93 BTC.
• Bitcoin price 55,000$: ROI is 365 days in a year * 31 Th/s * (0.00012676 - 0.35 / 55000) = 1.36 BTC. In the worst case scenario, 1.36 minus 30% would yield 0.95 BTC.
• Local mining: 6,900$ would buy you one Antminer S9 with an average of 13 Th/s. At this price, and based on the same difficulty and daily payout of the cloud mining, this would result in 58% less bitcoins generated than the cloud mining. Not mention that you would probably pay the electricity more than the cloud companies do. For Antminer S9, it can be bought on Amazon.

Clearly, with the current bitcoin price and factors, mining is the option to go for and it is way better to cloud mine in my humble opinion since the ROI is more than the double compared to other options and it is hustle free. You can open a Hashflare account here and get started in a few minutes. Only email verification is needed.

Conclusion

I am very bullish on bitcoin and crypto-currencies in general. I believe they will be disruptive and change the way we see money in the near future. Always diversify your portfolio, I personally own some bitcoins, alt coins and mining contracts. I recently used some of my bitcoins to buy additional mining contracts since I am a hodler and this seems currently to be the option to go for.

I am not advising anyone to directly buy bitcoins or to buy cloud mining instead. I was sharing my personal experience because I know there are people confused right now and looking for personal experiences just like I was a year ago. Always keep in mind that the Crypto world is a risky one, but that is what makes it very tempting and rewarding. Never invest more than what you are willing to lose.