A first question I always get from newcomers to cryptocurrency world is - "Should I invest or start mining?" The answer itself is not so simple, because environment is changing fast. What was profitable a week ago might be a loss today.
SETUP.
In order to answer this question we have to evaluate how much would it cost for us to build a mining rig and what will be it's ROI? For this thought experiment we are going to mine Ethereum using our rig's GPU power.
We will need:
6 x GPU - Radeon RX 570 4GB which will cost 290$ each
Motherboard to fit all GPUs - ASUS LGA1151 for 120$
SSD - SATA III 60GB SSD for 30$
RAM - 4GB DDR3 for 29$
2x Power Suppliers - Apevia ATX-JP 800W for 55$ each
Extension cables - PCI-E 1x to 16x Powered USB 3.0 (6 pack) for 46$
Case for all our components- 55$
All costs combined we have 2.124$ for a Ethereum mining rig with a hash power of 162 MH/s and 918 W consumption per hour.
ASSUMPTIONS.
In order to make logical prediction model we have to establish few assumptions:
- Miner lives in US, Oklahoma, where average price of electricity is 9.51¢/kWh.
- Miner mines only Ethereum
- Mining rig's lifetime is 2.5 years (30 months)
MINING.
There are more than few dozen different mining profitability calculators, but most of them are very basic - they assume that mining difficulty stays the same and gives you false results.
Let's take a look at https://www.cryptocompare.com which states that I will profit 246$ per month and during first year have a profit of 2.999$ - 2.124$ = 875$ which is 41% ROI, an this is with constant Ethereum price.
While in fact it is not so easy, because mining difficulty is increasing pretty heavy.
For our prediction model we are going to use http://www.mycryptobuddy.com/EthereumMiningCalculator which evaluates mining diffculty change.
As we can see, during rig's lifetime. with current increase in difficulty. it will generate only 6.92 ETH. We can either hold it and hope that it's price will increase or we can sell it at the end of each month and pocket the profits.
SCENARIOS.
Let's analyse three different scenarios:
Ethereum price stays the same and don't increase all 30 months - 291$.
This means that after 10 months it becomes not profitable to keep mining ethereum and we are left with -1.500$. If we chose to invest - we are left with same amount as we started - no profit, no loss.
Ethereum price increases 3% every month.
After 18 months of mining it becomes unprofitable and we are left without profit. And it doesn't matter which strategy we chose - to sell every month or to hold. If we chose to invest - we would profit 1.385$ .
Ethereum price increases 5% every month.
If we chose to hold and to sell all ETH at the very end, then we are left with nice 198% ROI, otherwise we would be 708$ short of being profitable. If we chose to invest we woul profit - 6.618$.
As you can see, after analysing all three scenarios, most profitable was the one, where no mining rig was purchased and money was just invested into Ethereum.
All in all, please consider, that this is just a prediction model based on few assumptions and current rate of difficulty level increase, while not considering opportunity of switching to different crypto currency mining or change of difficulty level.