Matt: How much did you invest in your first mining rig to start mining cryptocurrency?
Joe: our first rig was a 6 GPUs system which I think cost around 4K. We’ve made a number of changes since our first go, so now it costs roughly 6-7K per 12 gpu rig.
Matt: What month did you start and why?
Joe: We made the decision to switch from active crypto investor to miner in mid-January. The decision made mathematical sense more than anything because we were both fortunate to be up nearby 30K since we started in December. By switching to mining versus trading we figured one of two things would happen...
1) crypto continues to go up and takes off in value —- If this happens, then switching to mining is the ideal strategy since it cost us roughly 60 ether to build our full setup. This means we would have 100% of our ether balance recouped in 12 months (which actually is closer to 14-16 months when you adjust for variables like mining difficulty increasing). We knew this wasn’t guaranteed (especially since neither of us had any mining experience), but the opportunity to get 80+% ROI seemed like a good risk considering it was funded with other crypto earnings.
2) crypto crashes, never comes back up and we wasted our time/money —— this is obviously the other possibility. Obviously if we didn’t feel crypto (and specifically smart contracts) would change the way the world does things we would not have wasted our time. That said, by choosing to incorporate our business, this seemed like it better protected us because all business expenses would be a tax write off regardless for next year (business expenses have always been an irs safe haven whereas crypto tax policy didn’t look as optimistic). Also the way we figured it if the market truly crashed, we would never have been able to guess the timing of it, so we likely would have lost all of our invested funds regardless.
Matt: Was it difficult to learn all the applications to make sure you're maximizing your profit and avoiding downtime?
Joe: It was very similar to learning a programming language. Nothing was especially difficult, but if you have zero experience with the new language then the only way to learn is through trial and error. It took us roughly 2 months to really figure it out, so while we did lose profitability to downtime it won’t really change the big picture.
Matt: How long would it take you to break even if the price of Ethereum was $800 always? Would that time frame go up or down much if you, for example, invested $50,000 worth of equipment compared to just $5,000?
Joe: each rig costs just under 7K. It produces .7-.77 ether per month at current difficulty rates. If everything held as you mentioned then it would take roughly 8.5 ether to break even, which would take roughly 12 months to achieve. This is a simplified example that isn’t really possible assuming difficulty continues to increase, but shouldn’t be more than 14 months at that price. Since the productivity/cost of each rig is relatively fixed, that estimate would be linear if you invested x amount of capital (so 50,000 and 7,000 would yield the same ROI, it’s just a matter of how many systems you can manage given heat/power consumption).
Matt: Since you two went 50/50, how do you decide when to cash out?
Joe: pascal and I agreed at the beginning it really only made sense to hold until we at least make our money back. One converse example would be if we chose to liquidate monthly. If you look at the math behind this model, however, it would be more profitable to have never invested in the miners in the first place and instead have simple kept all 70K invested in the market. The only way for our strategy to be more profitable we need all 60 ether we invested to be make back, then we’re truly playing with (crypto) house money. It would be easy for either of us to change this strategy (since we can easily pay our either investor their owed share of the pot anytime) but for now we both think this makes the most sense for our long term goals.
Matt: In real estate, I never did many 50/50 deals because one person would get stuck with the management, which directly relates to long-term profitability. Do you take turns managing the mining rigs?
Joe: No, we’re both pretty busy so we just try to help whenever we can. Fortunately the only management comes in the form of downtime. Our downtime now is minimal so there really is not a lot of work involved (one the reasons we love crypto mining in the first place!)
Pascal: in addition to what Joe mentioned, we somewhat split the responsibilities. Joe took lead on building the rigs and understanding how to increase efficiency and decrease down time (it doesn’t sound time intensive but it really is). I’ve been in charge of accounting, acquiring equipment (buying/selling on eBay), and taking lead on potential spaces we could move the rigs into.
Matt: Wow this all gets so complicated since the price of Ethereum is always moving so much. So if you were to resell all the equipment you bought what percent of your total investment would you lose, if any? And if you sold Ethereum that you're holding today (the price right now is $738 before any fees).
Pascal: I’m not entirely sure but if I were to guess, we’d likely be able to sell the equipment (today), for 1/3 or 1/4 of our original purchase price. It really depends on how well the crypto market is performing and the upswing for demand in mining equipment. Should there be another huge spike in Crypto price, we’d likely be able to sell them for more than we bought them for. If there’s a crash or a switch for Ether to Proof of Stake, it would not be worth the hassle of selling.