Crypto Mining as an “Investment”

I have been talking to people about altcoin mining recently, and have noticed a lot of people are confused about setting up mining rigs as an investment. I’m being asked questions like “I read about zcash and think it’s under-valued. Could you help me set up a mining rig to get some?” The problem is, my friend is asking about 2 separate investments here.

1. An investment in an altcoin mining rig.
2. An investment in an altcoin.

Investing in a mining rig can be though of like this:

1. You are purchasing the hardware in your local currency
2. You are paying your power bills in your local currency.
3. You (hopefully) are only be mining is giving you a return that is greater than your power bill.

The initial goal here is to get a return on your investment for the hardware purchases in your local currency. After you have achieved this, you keep mining whatever coin is most profitable until the network difficulty and altcoin prices render your setup unprofitable. At this point, you can get a little more return by selling your graphics cards (if they’re in good enough condition) and you can simply re-purpose some of them.

Each time you receive a mining reward from a pool, you should consider the value of this return on your investment in hardware and electricity, in terms of your local currency. If you believe a particular coin is worth something; that it has potential and will go up in value, you’re much better off buying that coin on an exchange, as opposed to purchasing and setting up mining hardware.

So what my friend was asking about; mining a coin and keeping it, is 2 separate decisions:

1. To purchase a mining rig and hope for greater than a return on investment for the hardware purchase
2. Each time a mining reward is received, you have a separate decision if you want to invest it in the altcoin (in this case, by not selling for fiat), or to keep it in your local currency.

I’ll go one step further and say that you should always be mining whatever altcoin is the most profitable in terms of your local currency.
At the time of writing, it is more profitable to mine Ethereum than Zcash with my hardware. Even if I think Zcash has more potential than Ethereum, there is no financial reason for me to mine zcash right now. The logical choice is to mine Ethereum. After each mining reward makes it to my wallet, if I want to purchase Zcash with my mining reward, I can sell Ethereum and buy Zcash at a reliable exchange like bittrex.