Mining: strategies of a cryptourrency miner
Mining: strategies of a cryptourrency miner

Mining: strategies of a cryptourrency miner

By Emanuele Pagliari - 1 Jun 2019

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Despite the advent of new consensus mechanisms, including Proof of Stake, the DPoS (delegated PoS) variant, and many others, the classic Proof of Work continues to be used by hundreds of cryptocurrencies, thus making mining possible.

To the delight of the miners, over the years several mining algorithms have also been developed to be used for the execution of the Proof of Work of the various coins. There has also been a real evolution of the hardware used for mining.

On some coins, especially bitcoin, we have switched from CPUs to GPUs, then to FPGAs and finally to ASICs. This process also involved other currencies. In the last 12-18 months, 1 have also arrived on other algorithms, some considered ASIC Proof, such as monero’s CryptoNight, ethereum’s Ethash and, last but not least, zcash’s Equihash.

Is there a complete guide to cryptocurrency mining?

To date, there is no such thing as a complete “turnkey” guide to cryptocurrency mining, and it is likely that there will never be a single guide. Why is that? Because there are so many aspects to be assessed on a case-by-case basis.

There are miners who have free electricity, those who have a limited budget for equipment, those who want to mine a certain currency, those who mine because they believe in the long-term project and those who mine only to make a profit in the short term. These are just some of the characteristics or constraints of the sector. There are also many other reasons, but it is difficult to list them all.

However, it is possible to select some of the strategies/approaches adopted by some cryptocurrency miners. Some are intended to maximise profits, others are intended for those who believe in projects and look to the future. Still others aimed at those who do not have electricity costs and want to have a steady income.

The strategies of a cryptocurrency miner

Believe in the project and accumulate, even at a loss

The first strategy that concerns most of the miners belonging to the main communities of the homonymous cryptocurrencies. Often they are active enthusiasts in the field who follow with interest the main projects, the roadmaps of the teams of the various coins, news, etc. …

For example, those who follow with interest and passion monero, ethereum, zcash and many other currencies, often use their domestic mining rig to mine coins and accumulate to then sell/use them in the distant future. Or simply accumulate and use these coins to make payments etc…

It follows that the objective of such an approach to mining is to mine the greatest amount of cryptocurrencies, without too much regard to current income, since the vision is shifted to true long-term profit.

Precisely for this reason, even during times when the markets are in “deep red”, they often continue to mine, even if the daily income barely allows recovering the costs of the electricity. This is done not only because they look to the future, but also to contribute to the network.

Obviously, the costs for a mining rig and for electricity must be recovered, but the classic domestic miners who may use one or more rigs assembled at home, will still wait for better times to sell (if desired/necessary). In a way, it is possible to make a parallelism with the holders, even if the method used to obtain the coins changes.

Maximising the efficiency of mining rigs

Usually, those who opt for this approach have to pay for the electricity and, in part, for the assembly of their own rig. These are often domestic miners/enthusiasts, who will therefore incur in some electricity costs. Obviously there are also those who have their own photovoltaic system or those who have some advantageous contract as far as bills are concerned. The point is that everyone has to deal with their own costs.

mining strategies cryptourrency miner

Given the constraints, an attempt is made to maximise the efficiency of the mining rig, finding the right compromise between hashrate and consumption. A few tens of MHz less, a few milliVolts of undervoltage, more efficient power supplies, highly optimised mining tools, BIOS modding of video cards and much more. These are just some of the procedures for maximising the hashrate per watt ratio.

For example, instead of trying to push the hashrate to the maximum, one will try to find the best Hash/Watt ratio, usually not too much lower than the peak computational power. Then, according to the needs, it is possible to choose the appropriate energy-efficient models, based also on the initial investment budget for the construction of the rig.

Obviously, those who have minimal or no costs for electricity can push the hardware to the maximum, squeezing it to the very last hash.

Betting on the latest Altcoin/Shitcoin

Also among domestic miners, there are those who literally try to gamble their computing power in order to maximise their profits. Mining ethereum, monero and other major coins can sometimes result in limited revenue if you don’t have high-performance hardware.

Or sometimes it happens to have limited gains if compared to the initial investment. Therefore, those who want to make money by selling their mined coins each month do not always find it worthwhile, since, after deducting the costs, little remains.

For this reason, some miners (usually those with low performance rigs) browse the main communities (mainly BitcoinTalk and Reddit) for the latest coins, assessing the interest of the people, the spread and then, in essence, the popularity. These are therefore real Altcoins, some of which are also valid on the technical front (for example, those that use proprietary ASIC Proof algorithms, including Raven), while others are real “shitcoins”, which are however supported by a large community.

Those who have plenty of time and want to place a real bet, will usually mine one of these new coins for a few days or at most weeks practically from the start, so as to maximise the extraction of coins without necessarily possessing a high hashrate.

At the beginning, in fact, the overall hashrate of the network will be very low, and therefore the prizes for the individual miners will be more consistent. It is also possible to try solo-mining, i.e. without relying on a pool. Subsequently, once these coins are mined, one waits for the listing on a decent exchange where they will be sold at the first pump (often at the very beginning).

Those who have mined since the beginning will find themselves with a good amount of coins produced in a few days and from which, if the choice has proved to be right, good profits can be made compared to the classic mining of the most famous currencies. There’s obviously also a risk of it going wrong.

A very difficult bet

This is a real bet, sometimes it can be good and sometimes bad. The main challenge is in choosing the currency to mine. Secondly, in order to make a good profit it is necessary to be practically the first to arrive, no later than a few days after the start of the mining of the currency.

Finally, a combination of luck is needed, both for the creation of a small community of the currency, and for the listing on an exchange. Both crucial to achieve success.

This approach is usually used occasionally during periods in which markets do not allow proper profits to be made on the main altcoins. Miners will then bet on one of these coins for a few days or weeks and try their luck.

Moreover, with this strategy, even those who do not have the latest hardware can still make a profit, provided they arrive on time.

Low costs for regular revenue

Most of the large-scale investors who enter this sector do so – and rightly so – in order to generate economic revenue over time. It follows, therefore, that an effective evaluation will be carried out on the equipment to be bought, on the location, on the profits, on which currency to mine, the costs and so on.

Places with very low electricity costs are often chosen, many of them in other countries. They range from North-East Europe, Iceland, South America, China and many other locations where electricity costs are much lower than those in Western Europe.

mining strategies cryptourrency miner

It is not always necessary to move to these places, there are companies focused on mining also in Western Europe, even in areas where there are a large number of renewable and low-cost energy sources to be exploited. Then it’s a matter of finding the right hardware suppliers (from GPUs to ASICs) to get the right components in the right amount and at the correct time.

Investors in mining

In this case, of course, they are not small domestic miners with 2, 3 or 5 thousand euros to invest in equipment for domestic mining, but real investors who decide to devote significant amounts (from 30-50K euros and up) in this sector.

It is clear that in the face of such an investment, ideals and passion leave some room for the need to recover the amount invested and thus obtain a steady income to achieve ROI and increase computing capacity with new ad-hoc hardware.

Some miners sell the mined coins once a month for example. Others only sell a portion and keep the rest in cryptocurrency. And there are others who follow market trends to sell at the best of times. Everyone has their own strategies, but in this case a certain attention is given to the entrepreneurial side, looking to recover the amount invested as soon as possible in order to make further investments.

This approach by the average investor in mining can be summed up as follows:

  • minimise costs for electricity, cooling, etc;
  • choice of suitable and safe locations;
  • purchase of wholesale hardware at the best price;
  • mining only the main currencies (monero, zcash, ethereum, bitcoin) and a few other properly evaluated currencies. No bets;
  • periodic recovery of the amount reinvested from the sale of the mined coins.

Hardware speculators

Another phenomenon that has occurred several times in the past is the purchase of ASICs at their debut or in advance.

Industry-conscious people often buy the first units (the first batch) of the new ASIC models, so as to anticipate the mass diffusion of these models and thus benefit from a minimum initial advantage.

These are then used for a few months and finally resold before the debut of new models, in order to minimise the losses due to devaluation. This is almost a real speculation on the hardware.

This strategy is now mainly limited to those who have very close contacts with dealers/producers and are sure to receive the ASICs in a very short time.

It is therefore not applicable to the small domestic miner and the newcomer who is often attracted by the revenues shown by websites such as AsicMinerValue on the day of the debut of the various ASICs, revenues that initially do not consider the increase in difficulty due to the sale and dissemination of new devices. This is an approach usually undertaken by the most experienced/attentive in the field.

As a result, those who are lucky enough to get their hands on the new high performance ASICs before mass distribution (at a decent price), get a decent initial advantage.

mining strategies cryptourrency miner

This also applies to video cards

The idea of being the first to get the latest high-performance, efficient hardware also includes the GPU market, not just the ASIC market.

However, the initial advantage of video cards is usually less in terms of computational power than with previous generations. The real advantage, however, is the price of the components.

Initially, in fact, the first cards are sold at the real listing prices (theoretically), and then quickly rise as happened close to 2017/2018 as a result of scarce supply.

Unlike ASICs, however, which are specific to an algorithm, video cards even if acquired at a high price can still be used to mine different coins (in some cases even simultaneously through Dual Miner) and can be easily resold, preferably before the generational changeover, so as to avoid a greater depreciation.

Cloud Mining

Cloud mining is the choice often made by those who do not have the skills to assemble a rig, to configure it or for those who pay too much for electricity.

In essence, using a cloud mining service, the user buys a certain hashrate for a given period of time that can be used to mine a determined cryptocurrency. The profit will be proportional to the computational power acquired minus some fees that will be retained by the service provider.

The money collected by the company is partly used for the continuous development and improvement, in addition to the maintenance of the mining farm.

The user, therefore, will not have to do anything, if not pay the initial amount. No problems with configuration, consumption, failures, etc. It could almost be considered a turnkey solution for mining, although in part it is perhaps in contrast to the idea of a truly distributed system.

There are several providers of cloud mining services, including Genesis Mining, Hashflare, NiceHash and many others, several of which have been active for many years now. The only problem, and the reason that people who have the opportunity decide to create their own domestic solutions, is the actual revenue and freedom offered, which is lower than an ad hoc solution created from scratch.

Emanuele Pagliari

Telecommunications engineer with a strong passion for technology. His adventure in the world of blogging started on in 2014 and then continued on and Emanuele is in the world of cryptocurrency as a miner since 2013 and today he follows the technical aspects related to blockchain, cryptography and dApp, also for applications in the Internet of Things.

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