Cryptocurrencies are getting smashed, and those involved in their mining are feeling the pinch. I suppose a lot of people must have bought mining equipment from Bitmain in the last few months, hoping for a quick profit. One machine that was heavily bought was Bitmain’s L3+ Litecoin miner, which can mine a variety of scrypt coins, including Litecoin, Dogecoin, and Verge. Plus a few exotics, such as Leafcoin, Lindacoin, and Sexcoin.
The L3+ Litecoin miner does around 504 megahashes a second, which in ordinary language is half a billion random numbers a second. Bitmain are currently selling it for $855, thought a couple of months ago the price was over $1500. You also have to pay for a power unit, which is over $100, not to mention shipping and customs. So the price you’re paying, right now, is around $1250. Not bad for a money machine. You plug it into your router, sign up to a mining pool like prohashing.com, and your sleepless machine is making you money 24 hours a day.
If only things were that simple. If you’re running a miner, there are three things to consider. Firstly, the cost of electricity, secondly the dollar price of the coins you’re mining, and thirdly, and most importantly, the coin’s difficulty. Electricity is easy to calculate. Where I am, in the State of Washington, electricity costs eight cents a kilowatt, which by global standards is cheap. If I run the 800W machine for a day, it will cost me $1.54, so if I am making less than this, the mining is no longer profitable, and I turn the machine off.
Mining Litecoin has become increasingly difficult, with difficulty being a metric of mining effort. It is currently measured in millions, with difficulty approaching 7 million:
The opposite of difficulty is earnings per day. As difficulty increases, you earn less and less. With an L3+, you were earning something like 0.07 Litecoins a day at the beginning of 2018. The figure now is just over half that, at around .037. The earnings graph paints a sorry picture:
We can now start thinking about what an L3+ should cost. Right now, the earnings graph of Litecoin is linear, and if we assign 1 to January 1, 91 to April 1, and so on, we can create a crude equation, with time (t) as the independent variable:
Daily earnings = .07052 – .0003562t
This equation is not entirely realistic, because earnings cannot fall below zero, and in reality we are talking about exponential decay. Put another way, as earnings approach zero, people will be turning their miners off, and difficulty will start to stabilize.
Nonetheless, the equation is saying that on the 197th day of 2018, Litecoin earnings will fall to zero. That’s the end of July. So one should not count on earning any Litecoin of any consequence from late July onwards. Using a bit of calculus, that means, in theory, that there are only 2.04 Litecoins left to earn. In practice it is more, because the machine will always be earning something, but at this rate the amounts will soon be nominal. Litecoin is currently $120.2, so that’s $245 earned by late July. We then have to take into account electricity. There are 106 days left of non-nominal earnings, which at $1.54 a day will cost $163.24. Subtract that from $245, and you get $81.76.
Actually, things aren’t quite that bad, if you turn your L3+ off the moment you’re not covering your electricity. Assuming $120 Litecoin, this is when the daily earnings drop to .0128 Litecoin, when is on day 162, or June 11. That will yield 1.808 Litcoin, or $217, assuming Litcoin is at $120. The electricity cost for those 71 days is $109.34, leaving you with $108.
This means that if you want to buy an L3+, you should pay no more than $108 – and that includes the shipping cost. The power supply is a different matter, because it can be used on other machines. But what if Litecoin goes up? It might. But it might also go down. Besides, if Litcoin does go up, you are almost certainly going to be better off buying it from an exchange.
If you do decide to buy the L3+ directly from China, for $855, and you ignore the other costs, then to make a profit you need Litcoin to be well over $400 by the end of July. Indeed much more than that, because the machine takes a week or two to ship, losing you valuable time at the profitable end of the earnings curve. But if Litcoin really gets to $450 by the end of July, you would be thousands of dollars better off if you had bought the Litecoin rather than the Litecoin miner.
All this emphasizes the point that right now anyone entering the Litcoin-mining sphere is playing a no-win game.
Finally, my analysis is probably worst-case, assuming that the Litcoin price doesn’t fall substantially below $120. As L3+ miners start getting turned off at the end of May and beginning of June, the difficulty profile of Litecoin may dramatically improve. We can then have another look at the economics of the situation.