14 Sep '13

Using Future Bitcoin Exchange Rate To Calculate ASIC Profitability

Many bitcoin miners in the community are using the Bitcoinx Mining Profitability Calculator or the Mining Dashboard at The Genesis Block to calculate their potential return on investment in mining equipment.

The problem with these calculators is that there are several variables that dramatically affect the outcome, most notably the network difficulty and the bitcoin exchange rate.

What’s not hard to predict though, is that the network difficulty is skyrocketing, which will make mining a less efficient endeavor.

Not only that, but the block reward will halve sometime in 2017 to 12.5 bitcoins per block.

Predicting Future Bitcoin Exchange Rate

One variable that is harder to predict is the value of bitcoins in exchange for fiat currencies, ie the exchange rate.

Many pundits are putting the exchange rate to eventually top USD $10,000 per bitcoin, while others predict USD $1,000,000 per bitcoin (I cant wait to be so freakin’ rich!)

It’s all guesswork and wishful thinking, although there is sure to be upward price pressure. But how much?

The bitcoin community is filled with gamblers and betting on mining equipment turning a profit is just as much a gamble as visiting SatoshiDice.

So, the only way to keep your sanity when purchasing mining equipment is to hold onto your bitcoins for a long time and wait for their value to appreciate.

How long? I don’t know…

Calculating Profitability For Future Returns

Let’s use an example of 64GH/s ASIC miner, Fast-Hash One Silver Edition Bitcoin Mining Machine from VMC for $999.

If you had this in your hands right now, you’d be rewarded 0.2893 BTC per day (difficulty 86M).

Let’s say the difficult increased 10-fold. You’d get 0.029 BTC per day.

That doesn’t seem like much when the exchange rate is $130-$150 BTC/USD. That’s $4 a day if you’re lucky.

Or if the exchange rate is double, you’d still get a measly $8 a day. Triple, just $12.

In the not too distant future, perhaps just a few years from now, one bitcoin *could* be valued at USD $10,000 as predicted. What would the network difficulty be like by then? Huge, right? Off the freakin’ charts!

But those measly 0.029 BTC per day you were mining on your pissy 64GH/s ASIC would be worth USD$290/day if you had mined them in the future. In effect, your present-day $999 investment should pay for itself *in the future* based in the exchange rate alone.

Is mining still risky?

That depends how long you are willing to wait for the bitcoin exchange rate to increase, and at what point you’ll cash out.