Passive income strategies for financial freedom

How to earn passive income from crypto mining

05th Feb 2019
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In this article, we will cover how to make passive income from mining Bitcoin and Altcoins. There is a lot some ground to cover, and we wanted to give you one comprehensive look at this particular type of passive income opportunity.

What is it Cryptocurrency mining?

Mining is the process of processing blocks on a blockchain, there are various systems, but Proof Of Work is the one which has had the most money thrown at it. This is because of its potential to generate passive income. The system works like this

  1. Hook computers to a (preferably) cheap power source
  2. Set them to process a special algorithm which determines the next Bitcoin or Ethereum block
  3. If a specific computer gets the result right then, it is awarded a reward.

Some important terms

Mining Algorithm –  The type of software which performs the “analysis” or “computing” needed to mine the coin. A mining algorithm is best run on specific hardware or a mining rig.

Mining Rig – The software doing the mining needs a home, and its home is the mining rig. Some mining algorithms are best to run on a GPU, others on an Asics and others on video graphic cards. Some mining rigs can mine more than one algorithm.

Cryptocurrency Block – Mining Bitcoin or any other cryptocurrency means finding blocks, these blocks contain the passive income in the form of a block reward.

Halving – Block rewards tend to halve. For Bitcoin, this is around once every four years

HashRate – How much competition is there to find the next block, the higher the HashRate  the lower the income per Hashrate you invest

Asic Resistance –  Efforts by cryptocurrencies to make reduce the advantages of mining with ASIC computers

Mining Pool – Some cryptocurrencies have such a high hash rate that the likelihood of discovering a block is small. Mining pools coordinate the mining of several miners to share the passive income block reward to all those who contribute to the pool.

Automated Profit Switching Support – Software that automatically switching mining from one blockchain to another to increase the passive income potential.

What are the benefits of Crypto mining?

  • Earning passive income
  • Supporting a cryptocurrency which in turn supports your values and ideals
  • Supporting a currency network that you need to use anyway
  • Learning about blockchains and crypto mining.
  • Escaping the inflation of your local FIAT

What are the risks of crypto mining?

  • Not making a profit, this can happen when costs are larger than profits. This happens when there is a sudden drop in prices in the space. Any business plans assuming some high price of crypto will stop working when that crypto goes down 50%.
  • Choosing the wrong coin to mine. Check out Coinwarz calculator
  • Losing your coins because of your own mistakes, hackings, lack of security, etc
  • The cryptocurrency you are mining, for which you have bought specialized mining hardware shifts to another mining algorithm. Example: Monero forks.
  • The hashrate increases suddenly which reduces your earnings.
  • Forks, these events will make you choose between mining one coin or another, increasing the risk of choosing the wrong one.
  • Hoarding your cryptocurrency mined for too long, or not selling at the peak.
  • Not Considering the tax implications of mining
  • Proof of work has been made illegal in some jurisdictions and housing setups LINK
  • Proof of work, might be replaced with other more decentralization friendly and environmentally friendly systems such as dPOS or Proof of stake.
  • The mining pool you have joined is not acting fairly or transparently or has too high fees.
  • The cutting edge mining hardware ordered is delivered late and others have started using it before you. The first days of using new miners on the market are the most profitable.
  • Miscalculating when other miners will capitulate. In a bear market, miners will become insolvent, and eventually have to stop mining. The more miners stop the quicker mining will become profitable again, mining for a few more days can make the difference between defeat and success. Also, a bull market could always be around the corner… or maybe not!
How to earn passive income from crypto mining
As price goes up so does mining difficulty. This means that mining passive income will decrease.

What are the options to mine crypto?

Cloud Mining

Cloud mining: crypto mining as a service. Mining contracts can be bought for a specific amount of mining power, for a particular cryptocurrency and for a specific amount of time. Some of these contracts are indefinite, that is as long as the profits from the mining can pay off the maintenance bills of the mining equipment these mining contracts will keep running.

In theory, the mining earnings should pay off the bills. In practice, the hashrate tends to climb, as mining equipment becomes more efficient. This makes mining with old equipment less profitable, there will be an inevitable point where the contract cannot pay for itself and is terminated.

When this happens users will get a notice such as the one below.

There have been 100s of scams using cloud mining as their stated business model, but in actual fact, most of them were pyramid schemes. Extra care has to be taken when investing in Cloud mining.

The three mining services have a long history of being online.

  • Genesis Mining. (Using this link will give you a 3% discount) One of the longest could mining services, during the bear markets when contracts were no longer profitable they had offered clients to pay the maintenance fees upfront.
  • HashFlare. At one point HashFlare changed their lifetime contracts into two-year contracts because they could no longer support their original claims.
  • BitCoin.com

One Caveat on cloud mining is that you could be making a profit but not receiving a reward because the cloud mining company could wait for your profit distribution to be higher than the fees paid for the transfer.

Buying into a revenue stream of a Mining company

The idea here is to invest in a company which mines for the cryptocurrency, then as a shareholder or stakeholder with profit rights,  earn a passive income through a share of the profits made. Finding a winner in this section is not easy.

Gigawatt was a crypto mining company offering cloud mining and mining hosting services. In Nov 2018 Gigawatt filed for bankruptcy.

4new was launched as an ICO; the business model presented was to buy entire power stations in the UK and elsewhere, then use the electric power to mine cryptocurrencies and share the profits with the token holders. As of 30 Jan ‘19, the last tweet was on the 13th Nov 18, and there have been no posts on their FB or their Twitter accounts either. There have been rumours that there are serious issues with this operation.

Ambit mining, a project based in Georgia was launched with an ICO. Many users on their telegram are complaining that their first mining profit share was supposed to be issued in August ‘18. They still have not received as of Jan ‘19. This is YouTube Video the last update I could find from the team

Envion was a project with the promise of containers being mobile bitcoin mining farms. Their website now read “The Swiss Cantonal Court of Zug has dissolved Envion AG and ordered its liquidation. Official information about liquidation proceedings can be found on the liquidator’s website: www.envion-konkurs.ch”

Ice rock mining launched as an ICO. The idea is to turn an ice cold mine and use it to mine crypto. The combination of the cold environment and the cheap electricity would make this operation a successful one. The profits from this project are split as 50% dividend share to the token holders, 20% reinvestment in new mining equipment and 30% for operations and management. As of January  ‘19, the project was installing 1500 Asics. The future will only tell about the profitability of this project.

Investing in mining chip companies

Canaan, EbangAMD, Nvidia, Samsung and TSMC Taiwan Semiconductor Manufacturing Co.are public companies involved in (or will be) the production of Crypto Mining equipment, part of their profit and dividends are a reflection of the crypto mining market profitability. The companies supply graphics cards and chips that are used directly to mine or in ASIC miners. The bear market of late 2018 and 2019 has seen some of the share prices for the companies to drop. An alternative to investing in BTC miners is, Neptune Dash a company which mines Dash

Solo Mining using 3rd party software

Minergate is a crypto mining software which runs in the background of your computer. It will mine GPU based mining algos and share with you part of the mined tokens.   WinMiner was an alternative to MinerGate but it has shut down in December ‘18

CryptoTab: ‘earn bitcoins while using Google Chrome web browser’. This is a plugin extension for chrome which mines coins in the background.

The passive income from this type of mining is very small.

Solo Mining using your own miner

  1. This project needs a mining rig (depending on the currency you would like to mine) , a power source, your skills, time and patience.How to earn passive income from crypto mining
  2. Choose a miner. Calculate the inputs and outputs and see if there is a chance to profit.
  3. Make sure the delivery times on those miners are reasonable, as the most profit is done in the first days of mining with new generation hardware.
  4. Having the right cooling, ventilation, according to fire regulation, etc..
  5. Set up the miner
  6. Mine!
  7. Monitor, learn, adjust, fine tune and follow the crypto space.

Pooling your resources between a group of trusted friends can help in sharing the burden of running this operation.

Electricity is a big part of mining cost. This is a list of the cheapest electricity by country to mine 1 bitcoin, this gives you an idea of what you are up against! To estimate the electrical cost you need to (watts consumed by unit x hours in use) / 1000 = watthour.

One of the key decision you have to make is if you would like to have an Application-Specific Integrated Circuit(ASIC) or a Graphics processing units (GPUs). There are some key differences between the two GPUs can mine a larger variety of coins and tend to have higher resale value.

For GPU mining one has the option to build their own mining GPU rig, buy a pre-built mining rig or choose from the specific miner list below. For ASIC mining Bitmain, Innosilicon and Halong provide ASIC crypto miners.

Mining Rigs to consider:

MinerPowerElectricityCoins that can be mined
Antminer T1523.TH/S0.067 W/GH10+
Antminer S913.5TH/S0.098W/GH10+
Antminer L3/L3+ Scrypt Miner580MH/s561W/GH1
Shark Mini120MH/S400W-600W / 5A10+
Shark Extreme 2 (8 GPU)120MH/S400W-600W / 5A10+
Monero Miner 5000 H/s120MH/S400W-600W / 5A1
INNOSILICON TERMINATOR343TH/s48.83W/TH10+

Mining Pools

Critical factors in choosing a mining pool

Fees, Reliability and payout structure: Pay-Per-Share or Pay-Per-Last-N-Shares basis, read more about the pros and cons of the two systems.

Solo Mining by hiring hash power

Instead of buying a miner, a passive income investor can hire other people’s mining power. This could be a good way in taking advantage of short term crypto mining opportunities, usually present, during the first days of a crypto mining launch. A recent one has been Beam. There are several hashrate marketplaces such as NiceHash. REFFF LINK

CoLocation Mining

Solo crypto mining requires a lot of space and time. CoLocation allows miners to host their equipment in a data centre. Such data centres have economies of scale which allow them to have the IT professionals, cooling systems, cheaper electricity, maintenance costs for a cheaper price than any home miner can have. Examples include Miningcolocation.com and Bitcoinasichosting.com. You can Review of ming co-location.

Hiring your hash power to others

This is the inverse of the above strategy. Hiring hash power to others is a picks and shovels strategy. Instead of mining for blocks, the hash rate renters earn a passive income by leasing out their mining rigs for a specific time period. The downside of Hashrate marketplaces is that malicious miners can use them to attack other blockchains.

Private Crypto mining farms

Private equity firms are building crypto mining farms. Private Equity funds would also like to create multiple streams of passive income. Such funds are taking the opportunity in the bear market of 18 / 19 in mining hardware to build their farm on a shoestring budget. If the price of crypto goes up again these farms will be very profitable. Such opportunities are limited to those in the right circles and with the right net worth.

Website mining

This is controversial, and we do not practice it here at NodesOfValue.com. This type of mining uses the resources of website visitors when visiting a site. These websites have scripts embedded in pages which mine crypto on the user’s computer. Here is a detailed analysis of mining on websites.

How to choose which crypto to mine for passive income

These sites can tell you which is the most profitable coin to mine: WhatToMine,CoinWarz and CoinCalculators. However, this does change every minute!

This depends on your Skill Set, Time and Liquidity of the coin. If you would like a hands-off option then cloud mining or investing in mining chip companies is the way to go. If you would like some more hands-on mining then you can either start off with a CPU or GPU based miner to get a feel for the operation and then move onto a dedicated miner. making the right miner choice is important as they vary in price, algorithms the process and efficiency.

For example, Miners can process one or more of the following algorithms: Blake(2b), CryptoNight, Equihash, Ethas, SHA-256, Scrypt, X11. Each of these algorithms allows you to mine only specific coins. For example, a miner that can process SHA-256 is able to mine Bitcoin, BitcoinCash, DigiByte, and Peercoin.  A miner that can process the Scrypt algo can mine for Litecoin, Dogecoin, DigiByte, and GameCredits.

There are several options apart from Bitcoin Mining to consider for crypto mining

How to earn passive income from crypto mining
Best mineable coins (2nd Feb 2019) from CoinWarz.com

Are there alternatives to making a passive income from crypto mining?

Yes!

Proof of stake This type of “crypto mining” is based on the stake held in one cryptocurrency rather than how much computing power can be addressed. In PoS mining you need a stake of crypto before being able to mine a currency. The big difference between PoW and PoS is that PoS requires much less electricity to mine.

Masternodes are a mix between staking and dPos model. A certain amount of coins needs to be committed, those with funds need to run a special VPS (virtual private server). A part of the block reward is earned by the MNs

Sia can be imagined as a decentralized Google drive. Sia has created software to coordinate the storage and retrieval of data for hard disk spread all over the globe. Anyone can become a Sia host by proving hard disk space to the network.SiaPulse.com offers a calculator to calculate the potential passive income from sharing your hard disk on the Sia network.

Storj is a data storage network similar to Sia coin, as of Jan it is in Private Alpha. There is a waiting list to rent your hard drive space.

Skycoin network is a wireless mesh network. This mesh network is created through the interconnection of Skyminers. Skyminers are specialised hardware that is bought and shipped to those interested. Running a sky miner can earn you Skycoin and coin hours.

Conclusion

Cryptocurrency mining has the potential for passive income. There are several ways to create a stream of income from crypto, some are more passive than others. Finding the right which is the right match between your financial resources and personal skills is the key to success. Profitability is dependent on three main things:

  • The time you buy your mining contract/ or mining rig during the bitcoin cycle
  • Total Price of your setup
  • Cashflow to maintain the setup
  • The price at which you sell your mined coins

Not investment advice. Not financial advice. Consult your financial advisor. Not a recommendation to buy, sell or hold. The staff of this site may own this digital asset/s mentioned on this page. Investing is risky and you may lose all your capital. See full disclaimer.

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