Is Genesis Mining Worth it? A Genesis Mining Profitability Calculator You’ll Actually Use

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Date: 21.02.2018

BitPay is on pace to process over $1B annually in bitcoin payment acceptance and payouts, and has already grown their payments dollar volume 328% year-over-year, according to a recent blog post on the BitPay website.

The very nature of cryptocurrencies requires transactions to be verified by miners. What does this mean?

  1. Cryptocurrency transactions are verified by a network of nodes, then recorded in a publicly distributed ledger known as a “blockchain”, which authenticates the coins as monetary units of measurement — or money.
  2. Cryptocurrency miningrefers to coins created as a reward in which the users of the network verify and record transactions on this very blockchain. Users who are able to successfully verify the transactions receive fees and rewards in the form of brand new coins.

And Genesis Mining stands as the largest cryptocurrency cloud mining company in the world.

A user can rent “hashing power” in the form of a two-year contract from Genesis for a one-time, upfront fee.

In turn, they receive daily payouts of whatever specific cryptocurrency they purchased the contract for.

THE PROBLEM

While Genesis Mining has done a great job breaking down a complex problem into an easy-to-understand business model, users consistently have one big question:

“How profitable is {x} contract?”Everybody, ever

While the user is able to see the upfront cost, they are unable to get an idea of how many coins they will receive by the end of the contract.

WHY THE PROBLEM EXISTS

The problem exists, because of two major uncertainties surrounding cryptocurrencies:

  1. Where the price of the currency will fluctuate over time
  2. Where the network hashrate (aka, the mining power of the entire network) will fluctuate over time

Both of these inputs are extremely volatile, and have a huge degree of uncertainty in the near and distant future.

What I will attempt to do in this exercise, is build a profitability calculator for Ethereum, Monero, and Zcash. Each of these cryptocurrencies is currently available on the website as of 11/7/2017.

Each cryptocurrency has three contracts, and I will formulate 4 different scenarios to try and capture a profitability “range”.

Note: Do not take any of the words in this post as financial advice or recommendations. These are merely simulations that have their own issues and pitfalls, and are not to be used as the end-all, be-all decision.

THE ASSUMPTIONS

Due to the difficulty in forecasting both price and nethash, I was forced into a few assumptions:

  1. The forecasted price method is a Monte Carlo simulation using a geometric Brownian Motion ran 1,000 timesI covered the full methodology in a prior blog post
  2. The base network hashrate follows along very closely with the movements in price. This assumption I am the least confident about, as network hash has been shown to deviate at certain times
  3. I attempt to cover the shortfall in network hash rate with two different scenarios (shown below).
  4. I assume we hold all coins until the end of the contract, and assign a value to the portfolio based on $USD
  5. I do not run any scenarios of converting a currency into another currency
  6. I do not account for any significant changes to the underlying algorithm, such as the “Casper” Ethereum update (see ‘THE DIFFICULTY BOMB’ below)

Obviously any slight change could drastically alter these assumptions, but let’s take a look at the different scenarios.

Instead of calculating just a base scenario (which every other calculator on the web does) I wanted to come up with different scenarios to get an idea of what could be.

  1. Base — Assume no change in price or network hashrate for the duration of the contract
  2. Median — Run a full 1,000 trial simulation of prices and network hash rate, and use the median values for each
  3. Conservative — The same as Median, but instead use a price forecast that is 1 standard deviation belowthe median price

Aggressive — The same as Median, but instead use a price forecast that is 1 standard deviation above the median price

https://medium.com/spreadstreet/is-genesis-mining-worth-it-a-genesis-mining-profitability-calculator-youll-actually-use-a06d916bf7bc

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