Josh Metnick, the CEO of Random Crypto, a company offering a new tool for calculating the profitability of crypto mining, says that similar calculators are failing to show the truth about mining proof-of-work cryptocoins like Bitcoin: that doing so is usually only profitable for very large firms.
Metnick told Coindesk, who broke the story:
“As of the writing of this email, and price of bitcoin, there is not a single manufacturer selling an ROI [return on investment] positive machine at the retail level. Take a moment to pause on that.”
Metnick, a crypto miner since 2013, told Coindesk he created the tool after being repeatedly ripped off:
“This calculator is born of many years of getting screwed in numerous ways by mining companies…I spent a good portion of my life – years, really, many years – trying to chase down Butterfly Labs, Advanced Miner, and KnCMiner for the millions of dollars I sent them before they absconded with my life savings.”
Today, numerous crypto coins like Bitcoin are generated in a process called “proof-of-work.”
In proof-of-work systems like Bitcoin, “miners” in the network download the Bitcoin software to participate.
They then use their computers to process encrypted transaction data into blocks before competing, more or less, in a computing-intensive contest to guess a long random number set by the software.
The targeted number, once guessed, is then used to cryptographically seal the block, and the computer that guessed the number wins a “block reward” of 12.5 bitcoins (currently worth around $10 000).
Naturally, the more computing power one can direct at the “work,” the more chance one has of winning the block reward.
The realm of proof-of-work coin mining has become increasingly competitive as companies like state-supported companies like Bitmain have established dominance over both mining and the manufacture of “mining rigs.”
Equipment manufacturers nonetheless continue to sell machines to small players without necessarily disclosing market realities.
Metnick claims that providers of popular mining calculators like CryptoCompare and CoinWarz have been worsening the situation by giving an inaccurate picture of the true potential of mining certain popular coins:
“What we have found, over several years now of observations, is that all of the major bitcoin mining calculators out there show bitcoin mining output as ‘profit,’ instead of what it really is: output.”
In other words, a mining system may be winning block rewards, but if the current price of bitcoins is down, that could easily mean mining at a loss.
A CEO of a mining pool in Vietnam is accused of having recently taken off with $35 million dollars of investor money. The CEO says he did so because of unprofitability in crypto markets, which have been contracting for most of 2018.
Metnick says that mining calculator sites have also been failing to accurately represent “difficulty” in mining networks, a feature of the Bitcoin mining software designed to regulate coin supplies and ensure that the last bitcoin of 21 million is mined some time in 2140.
According to Metnick:
“Mining difficulty has been growing exponentially since the advent of bitcoin. To deny this, or not incorporate this fact, this reality, into a mining calculator, should be illegal.”
Metnick promises the Random Crypto calculator will more accurately measure difficulty and the nature of mining in general:
“Our goal is not to show mining as profitable or unprofitable – our goal is to bring more truth, accuracy and transparency to [proof-of-work] mining. Sometimes mining is profitable, and sometimes it isn’t. The bigger picture is to create tools and reporting systems to keep the hardware manufacturers honest.”
Bitcoin experts like Jimmy Song and Rodolfo Novak have advised that miners have to be prepared to operate at a prolonged loss until they can sell their coins when markets are up.
Bitcoin miners have also been advised to take advantage of Bitcoin futures to help hedge against price fluctuations.
