[Progress thread] Building out a crypto mine, step-by-step - AMA

[GlobalWealth]

That's what I'd like to understand too. Honestly I've never understood the emphasis on power. It makes a difference, yes, but it's a relatively small factor. Definitely smaller than major infrastructure investments. One Z9 would make something around $400+/mo with my $0.12 power. If I had completely FREE power it would only add about 6% to the net, about $425. Which is good, but it doesn't look like a make-or-break difference. If I was looking at "mini-mine in my basement at $0.12 vs. setting up a facility next to a hydro dam for $0.04" or something like that, the setup costs would be much worse than the pricier power at home unless you go REAL big.


One Z9 mini consumes 300W. That's just 3 100W light bulbs. It would be about 300W/110V = 2.7 amps, so you could very comfortably run the 12 Z9's in your spreadsheet on two ordinary (US) household 110V/20A circuits, or presumably two 220V/10A Euro circuits. (And you'd have a 3600W heater in the basement.) I have some 30A runs in my basement, and I could very easily run 220V down there, so I'm not concerned about that.

And like I said, in the winter the power becomes nearly free. The Z9's become space heaters and just crank out profits as a bonus. [emoji2]


Dude. I'm 61. I hit the "too lazy" point a long time ago. LOL But I would love to have a farm of these little beasties spitting out coins.


Great charts! Where did you find these?

Actually the profitability chart IS the inverse of the difficulty chart -- IF you also factor in the price.

Over the last year the price has not had a trend move. In late July 2017 it was $200, and a year later it's still $200. So over that July-to-July period, the price doesn't contribute any net move.

The profitability chart looks just like the price chart -- except the profitability DOES trend. A year ago it was 6, now it's 2. (So profits dropped 3-fold in a year, ouch.)

And that 3-fold change is explained by the difficulty chart. A year ago it was 4M, now it's 12M. The job got 3x harder, the price stayed the same, and the profits are 1/3x.

It looks to me like, roughly, Profitability = Fudge * Price / Difficulty, where Fudge is about 0.12 and Difficulty is 2-12, not 2M-12M.

A bigger question, I think, is the ZCash viability / profitability. In the past year while ZCash went from $200 to $200, Bitcoin went from $2800 to $8100. Bitcoin is the Big Dog and tends to drag the other cryptos along with it, but BTC went up 2.9x while ZEC went nowhere. Might be fine to mine, not so great to hold?

One of the reasons we are getting rent so cheap is that the miners exhaust will heat the rest of the property. The landlord really wanted us there for this reason.

You are right on the power cost on a small scale. It's not huge.

But an extra $25 per machine times 400 machines is 10k per month. That's not insignificant in my book.



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[GlobalWealth]

Quick update.

We finalized all details with contractor and electricians.

The work on the space is underway and we should be ready to plug in miners in the facility by the end of August at the latest.

We also ordered 4 more A9's. This means by end of August or early September we should have 12 A9's and 12 Z9 minis running.

Based on this, we are planning to have around 50-70 miners running by January.

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[TKDTyler]

What kind of reject rate are you seeing on your A9?

I've heard that they are not performing up to spec and are sitting somewhere around 20-30% reject ratios. Pretty huge reduction in profits if true.

 

[GlobalWealth]

What kind of reject rate are you seeing on your A9?

I've heard that they are not performing up to spec and are sitting somewhere around 20-30% reject ratios. Pretty huge reduction in profits if true.

So far, zero


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[garyfritz]

But an extra $25 per machine times 400 machines is 10k per month. That's not insignificant in my book.

No, it's not. But given my example numbers, that would be an additional $10k on top of $160k per month. Would you really notice the extra $10k in that case? Would it be worth setting up in Estonia, especially if you didn't have a partner there? Maybe so, but by that point you'd be pretty comfortable either way.

I hope you get there.

 

[GlobalWealth]

Does anybody see a flaw in this logic? If I'm right, it really seems to tilt the risk/reward calculation in a less-attractive direction. I'm not sure the modest reward is worth the risk of hard forks or other things totally out of your control.

You are not wrong on calculating the difficulty increase. It is definitely an consideration.

The one point you are missing is increase in coin prices.

Of course I realize an increase in coin prices is just as likely as a decrease. But it's good to make calculations with a floor, but also consider the upside.

For example, Zcash is around $180 today. A few months ago it peaked at about $900.

If you do your calculations at Zcash bottoming at around $150, but a potential upside of $300, your numbers start to look much better.

In other words, you have a 10% risk and potential 100% upside (just using these numbers as a hypothetical example).

Crypto is a strange market. The difficulty increase definitely affects the investment return, but no one would invest in crypto with the hopes the prices stay flat.

It is a relatively risky investment, but with a potentially huge upside.

@MJ DeMarco discussed the idea behind expected value at the last annual meetup.

Simplified, if you invest 10% of your money in an investment with a 1000% potential and a 10% probability, you get a better return than investing 50% of your money in an investment with a 10% potential and a 80% probability. For example:

• $100k (10% of $1mm) x 1000% return = $1mm x 10% probability = $100k
• $500k (50% of $1mm) x 10% return = $50k x 80% probability = $40k

Of course this was a very simplified example, but the point is you will never hit the homerun without taking some risk.

I would not advocate investing 100% of your nest egg in crypto. That would be nuts (of course I know many people who have done that and are very happy).

I also would not advocate investing in crypto unless you understand what you are doing and the risks involved. Do your homework.

I've spent nearly a year researching building a mine, including visiting dozens of mining operations, talking to operators and investors, countless hours researching the various hardware manufacturers, running various financial models, etc.

Just like any business, it takes work.

 

[GlobalWealth]

Would you really notice the extra $10k in that case?

Statistically $10k is a 6% improvement in this case. However, it is still $10k. So yes, I'd notice...

Would it be worth setting up in Estonia, especially if you didn't have a partner there?

I was trying for the past several months to set up in Georgia, mainly because the power costs were around $.06/kwh, vs. about $.08/kwh in Estonia.

In the end, I went with Estonia for the various other reasons. We'll see as time goes if it was the right choice, but regardless it's the one I made.

I had a partner in Georgia also, but only because I spent a ton of time and effort finding one.

My partner in Estonia moved there because of this. He has an Estonian wife and they were looking for a good excuse to live there so I gave them one...lol

If he didn't live there, I still would have chose Estonia for the other reasons mentioned.

Since I don't know exactly what are your plans, I cannot answer specifically. But I can tell you that I personally would not start a new mining operation in the US right now based purely on the regulatory issues.

Of course if I were just going to plug in a few machines in my basement, no problem.

But no way in hell would I make plans to build out a facility with 400+ machines running in the US, even if the power cost was very low.

 

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[GlobalWealth]

Quick update.

For those of you interested in predicting future profitability based on the difficulty increasing, you might find this site useful (at least for the coins they cover).

My Crypto Buddy

You can plug in the basic details like power usage, hashrates, power cost, and pool costs. But you can also plug in hardware costs, difficulty increase, and selling coins to predict future profits.

 

[TKDTyler]

So far, zero


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That’s solid! Hopefully it can scale well.

I’ve been considering owning a masternode recently with the low prices of many masternode coins - are you interested in that space as well or are you sticking directly with mining?

 

[GlobalWealth]

That’s solid! Hopefully it can scale well.

I’ve been considering owning a masternode recently with the low prices of many masternode coins - are you interested in that space as well or are you sticking directly with mining?

I will build at least one master node once we have the construction of the building finished. We should move all the hardware into the building by the end of this month.

After that, I will start setting up a masternode.

 

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[garyfritz]

For those of you interested in predicting future profitability based on the difficulty increasing, you might find this site useful (at least for the coins they cover).
My Crypto Buddy

One of the fields in the Bitcoin Profitability Calculator shows the monthly increase in difficulty. For BTC it's set at 9.85% per month, which says my 9%/month estimate was about right -- if you assume @nitrousflame's charts were dominated by BTC, which is probably a safe bet.

But look at the ZEC calculator and they say the monthly increase in difficulty is ** 21.42% ** per month. (Hm. Every time I load that calculator, it pre-loads a different difficulty level. Looks like they calculate it based on current difficulty for the last 12 hours. But 21.42% is the LOWEST I've seen.) If that's right, the approximate calculator I knocked together suggests that your profits would decline to zero BEFORE you pay for the miner. Using the Crypto Buddy calculator with their preset values of difficulty growth &etc, the profits level off at about $1700 -- before you've paid off the $1999 Z9.

Even if you buy one of the $1300 late-August Z9's off ebay or similar, it will take you almost a year to break even, and most of the profit is gone by then. And that's just looking at the cost of the Z9 itself, before you consider infrastructure costs &etc.

I am **NOT** an expert on this, so I may be reading this wrong, but ...

 

[ZCP]

This thread alone is worth the price of an INSIDERS subscription. Big thank you to everyone!

@MJ DeMarco do we have a 'damn interesting' tag?

 

[GlobalWealth]

But look at the ZEC calculator and they say the monthly increase in difficulty is ** 21.42% ** per month.

I saw that too. I am getting conflicting information on difficulty increase on ZEC and ZEN.

Since I am friends with the ZEN guys we have discussed this and difficulty does increase, but nowhere near the 21% per month level. I need to confirm with them again.

Using the Crypto Buddy calculator with their preset values of difficulty growth &etc, the profits level off at about $1700 -- before you've paid off the $1999 Z9.

I paid $850 for the Z9 minis.

 

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[garyfritz]

Oho, yes that makes a big difference when you source your miners at less than half the supposed going price!

The Crypto Buddy site says they calculate their figure using the "current difficulty" and comparing to the difficulty a month ago. The difficulty can swing as much as 2:1 in a few hours, so that makes for a pretty noisy result. The value right now is over 38% increase per month!

Looking around a bit more... googling "zcash difficulty" turns up lots of sites. The first hit (coinwarz) says the difficulty has gone up 59.5% in the last 30 days! It says difficulty went up 100% in the last 90 days, which would be 26% per month.

Definitely something to understand... will be interesting to hear what your ZEN friends say.

 

[million$$$smile]

Similar to Moore's Law, hash rate is multiplying faster than we can currently quantify. One of the main reasons is the number of miners and hardware can't be calculated accurately.

That coupled with new and more powerful machines being introduced incrementally will only take mining to another level.

Check this out:
ASICminer Zeon 180K profitability | ASIC Miner Value

180 ksols/s with 2200w. Price point is high, and haven't checked out the company, but it just goes to show you how quickly things are changing.

I really am beginning to think the 'picks and shovels' analogy is where the real money is at.

Create a 'faster' mining rig - implement it into your own mining farm prior to 'pre-sell' - recoup R&D, build investment after selling to solo miners.

Now that's the business that I find REALLY interesting....

 

[GPM]

Similar to Moore's Law, hash rate is multiplying faster than we can currently quantify. One of the main reasons is the number of miners and hardware can't be calculated accurately.

Says the guy who claimed he couldn't work a computer at the meetup this year!

That's what the big smile was for the whole time. You continue to have us eating out of your palm with every word!

 

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[GlobalWealth]

Says the guy who claimed he couldn't work a computer at the meetup this year!

That's what the big smile was for the whole time. You continue to have us eating out of your palm with every word!

[emoji23][emoji23][emoji23]

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[GlobalWealth]

Update:

Yesterday my business partner and I met with our accountants in Estonia. We picked these guys because they are already involved in crypto personally and have a lot of clients also involved.

We wanted to confirm a few details with them and get them working on our filings.

In Estonia you need to do your income tax filing every month, even if the income is zero. You need to also do a VAT filing since (as noted earlier) VAT is a credit toward tax payments and if you owe no tax, you get a full refund of VAT.

The cool thing is that if we owe no tax, the VAT money is automatically transferred to our bank every month. That means each month we will pay our rent, power bill, internet, buy mining hardware, etc. and since we won't owe income tax, we will get credits refunded each month so we can use the euros to pay our other bills.

We also confirmed with our accountants that with an Estonian company there is no corporate tax. So if an Estonian company is mining crypto, the "earnings" come in crypto. But the company has zero tax on earnings, only a flat 20% on profit distributions to owners.

However, Estonia does not tax mining profits. We would only owe tax when we convert (or sell) our crypto to euros (or other fiat).

So as long as we don't pay ourselves a salary or profit distribution in euros, only crypto, we have no tax owed....completely legal.

 

[GlobalWealth]

Update:

So far, my business partner and I have personally invested approximately $102,412 (I had to convert from EUR and BTC on some investments).

This includes hardware orders, deposits with contractors and electricians, plus miscellaneous items.

As of today, we are running 4 Inno A9's all mining Zcash.

We have 2 more A9's that should show up next week, another 2 in about 2 weeks, and the remaining 4 during the first 2 weeks of September.

We also have 12 Bitmain Z9 minis that should arrive the end of August or early September.

The facility will be up and running within 2 weeks according to contractor so I can get these machines out of my apartment....lol

 

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[GlobalWealth]

Last update today:

Our new building does not have internet cable there yet. We knew this when we took the space, but chose it for other reasons despite this negative.

Our options for internet were a satellite or 4g.

Considering how the weather can be in Estonia in the winter months, I didn't want to risk satellite a they can be prone to weather related issues.

So this week, we tested using 4g routers.

From my research into mining, the biggest issue is latency. Any gamer knows how important this is. For miners, it's even more important as it makes a huge difference in mining efficiency.

So I've run a ton of tests and with 4g our ping speed is between 8-22ms, which is really quite good. I compared it to the ping speed connected to a cable, its it the same.

The great thing about Estonia is their internet infrastructure is built from the ground up for mobile. They have some of the fastest and most reliable internet in the world and the speeds are fantastic, even on 4g.

We may consider having the internet company run a hard cable out to the facility in the next couple of months, but for now we will be running 4g routers.

 

[GPM]

Thanks for the updates! As far as latency goes, I thought I would just chime in with something that I noticed on my own cards.

I have 5 different systems running right now, and all of them are wired into my router. I run anywhere from 0.2-1% stale shares on average. When I fire up torrents on my main PC my entire network bogs down and my stale shares jump up to 15-20%.

 

[GlobalWealth]

I thought this may interest those of you interested in the numbers with a visual reference. I took this screenshot a few minutes ago from the pool dashboard. Right now we are running 4 Inno A9's mining Zencash. As you can see Zencash is around $20 so profitability has fallen in USD terms, but our coin production has not dropped at all. If anything, it has gone up. I suspect this is due to people switching their miners over to other coins like Zcash.

I only just turned on the next 2 machines yesterday so the total coin production does not reflect 4 miners.

We are just getting started too....

 

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[Tom.V]

We also confirmed with our accountants that with an Estonian company there is no corporate tax. So if an Estonian company is mining crypto, the "earnings" come in crypto. But the company has zero tax on earnings, only a flat 20% on profit distributions to owners.

However, Estonia does not tax mining profits. We would only owe tax when we convert (or sell) our crypto to euros (or other fiat).

So as long as we don't pay ourselves a salary or profit distribution in euros, only crypto, we have no tax owed....completely legal.

This piece. So basically just pay yourselves in crypto and convert to fiat elsewhere. Love it!

 

[GlobalWealth]

Update:

Yesterday we had an interesting development inn the mine.

With crypto prices in such a dramatic decline, and especially ETH, we are rethinking the strategy to move some of our gpu rigs from the US to Estonia.

Not sure if I mentioned in earlier posts (too lazy to go back and reread my own posts...), but we have a mine operation running now in the US mining ETH.

My business partner and I invested with a friend of ours in an operation in the US early last year.

Now that ETH has been getting annihilated, the mine in the US is now significantly less profitable.

With energy costs around $.115/kwh in that area, the only ones making any money is the power company.

So we had a long call yesterday and it looks like we are going to ship hardware from the US to Estonia. The difference in power cost plus a much lower facilities cost will get it back into profitability. Of course shipping costs are going to eat into that, but we feel it's the right decision long term.

We aren't 100% decided on this, but we will finalize it by next week what we are going to do. Will keep you updated.

 

[Invictus]

Update:

Yesterday we had an interesting development inn the mine.

With crypto prices in such a dramatic decline, and especially ETH, we are rethinking the strategy to move some of our gpu rigs from the US to Estonia.

Not sure if I mentioned in earlier posts (too lazy to go back and reread my own posts...), but we have a mine operation running now in the US mining ETH.

My business partner and I invested with a friend of ours in an operation in the US early last year.

Now that ETH has been getting annihilated, the mine in the US is now significantly less profitable.

With energy costs around $.115/kwh in that area, the only ones making any money is the power company.

So we had a long call yesterday and it looks like we are going to ship hardware from the US to Estonia. The difference in power cost plus a much lower facilities cost will get it back into profitability. Of course shipping costs are going to eat into that, but we feel it's the right decision long term.

We aren't 100% decided on this, but we will finalize it by next week what we are going to do. Will keep you updated.

I have no idea if this is applicable to you, but I thought I would bring it up on the off chance it was. Sorry if I'm way off base.

Have you looked into solar power for the mine?

It's a bit of an upfront cost, but their lifespans are pretty solid (usually with 20-25 warranties and an 'expected lifespan' of another ten or so).

Depending on the state, there are sometimes additional incentives (that work alongside current federal credit you can take). Missouri and Illinois currently offer a rebate/cash incentive for individuals/businesses on specific utilities. Between credits, state incentives, and depreciation, I've seen ROIs that range from 12% per year to 25%. The highest was around 42%.

At one point in time, here in Louisiana, you could get a 50% refundable credit. Plus we have lots of sunshine (too much really).

 

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[GlobalWealth]

I have no idea if this is applicable to you, but I thought I would bring it up on the off chance it was. Sorry if I'm way off base.

Have you looked into solar power for the mine?

It's a bit of an upfront cost, but their lifespans are pretty solid (usually with 20-25 warranties and an 'expected lifespan' of another ten or so).

Depending on the state, there are sometimes additional incentives (that work alongside current federal credit you can take). Missouri and Illinois currently offer a rebate/cash incentive for individuals/businesses on specific utilities. Between credits, state incentives, and depreciation, I've seen ROIs that range from 12% per year to 25%. The highest was around 42%.

At one point in time, here in Louisiana, you could get a 50% refundable credit. Plus we have lots of sunshine (too much really).

We have zero interest in investing in any more mining operations in the US (see earlier posts on this topic).

With solar you need to make 10-20 year investment decisions.

With crypto you need to make 6-12 month investment decisions.

Therein lies the dichotomy.

If I could connect to an existing solar farm with a lower cost per kWh I would certainly do that.

But to invest in solar with a multi year roi for a business as volatile as crypto mining.... No thanks.

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[Hai]

Have you thought about hedging short against the price decline?

 

[GlobalWealth]

Have you thought about hedging short against the price decline?

Yes, but the market is not very mature at this point and not so easy short.

It's not nearly as easy as buying LEAP puts on stocks or eft's to hedge a portfolio.

 

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[GlobalWealth]

Have you thought about hedging short against the price decline?

However, if you know a solution, please post it here for me and others to see. I personally would like to know.

 

[Hai]

I´m not familiar as well. As a suggestion, Bitfinex is a platform that offers shorting. It may be good to research futures and CFDs, where you can take short positions.

In the book "Long-term secrets to short-term trading", it tells a story about farmers taking short positions in the futures market, when they believe that the "corn" commodity is going to decline to protect themselves. This is where I got this idea from.

Thinking it through, you would be able to short once to offset the price changes for a month. But the problem is the following month, where you wouldn´t be able to short again, since the price is already down.