Making Money With Cloud Mining? Examining Genesis Mining's sha256 Contract

I see a lot of wrong information and simply bad math being spread about Genesis Mining’s cloud mining contracts and the potential return on investment people might get from buying one of those. So let’s have a closer look at one of their current contracts and do the math. The most important nugget of information first: you probably won’t get rich, at least not quickly.

Genesis Mining's Marco Streng in front of some hefty mining rigs

Genesis Mining currently offers a sha256 contract that will cost you roughly 190 US$/TH, plus 0.4US$ of maintenance costs per TH per day. The contract is said to last a „lifetime“, meaning that it will run for as long as it is profitable. As far as I know, the contract will be cancelled after 20 days of unprofitable mining.

Here’s how my first few days of mining looked:

You will immediately notice the steep drop in revenue after 2016-07-10. What happened there? If you know Bitcoin a bit, you will probably guess that this was the HALVENING: the reduction of BTC rewards by newly generated block from 25BTC to 12.5BTC.

Why is the revenue on 2016-07-11 only a third and not half of 2016-07-10’s revenue? That’s because of the maintenance costs:

Let’s assume that on the 10th, the 3.5TH miner was making roughly 0.08BTC, so about 5.47$. Minus the maintenance costs of 1.4$, that’s about 4.07$ of net revenue remaining, or roughly 0.06BTC. 

A day later, the miner was making half of this, so 2.74$, but the maintenance costs remained the same, resulting in a net revenue of about 1.3$, so about 0.02BTC. 

Because the maintenance costs always stay the same, the reduction in revenue when the blockchain difficulty increases (or the rewards get cut in half) seems out of proportion and many keep posting online that Genesis Mining is cheating by artificially reducing payouts. Simple math would help them understand what’s going on.

So let’s do some rough return on investment math for my contract right now:

• 3.5TH = 665$
• Revenue per day after halving: 1.3$
• Time to break even: 511 days

Is it going to work out like that? Probably not. In the past, Bitcoin has seen a stunning increase in mining difficulty due to the addition of ever more powerful ASIC miners. Difficulty increases will further bring down mining revenue in the future while the maintenance costs stay the same, eventually leading to the dreaded situation where my account will be cancelled because it is no longer profitable. 

What could come to my rescue? The difficulty could stop increasing at such an enormous pace because incentives for mining went down with the halving, and, of course, the value of Bitcoin could further rise and thus make the maintenance costs less and less important. 

Will I even break even with this contract? Likely not, it’s an exciting speculation like so many others in the emergent world of cryptocurrencies, but simply buying BTC would be the safer way to go.

Why did I do it anyway? I have been lightly involved with Bitcoin since 2011 and I happen to believe that cryptocurrencies are the greatest innovation since the invention of the Internet. To celebrate the halving, I wanted to go back to the roots, get my hands dirty and do some mining. What a ride it has been. 

Is Genesis Mining cheating? Very likely not, simply by using a mining profitability calculator you can verify that their payouts are roughly on par with expectations. 

Are other cloud mining providers cheating? There are probably many of those, so be warned.

Is cloud mining a good deal? It’s about as bad a deal as individual ASIC mining. Take a look at current Antminer prices and you will see that even now, a month after Genesis Mining’s contracts went online, a newest generation Antminer is not much cheaper per TH than my cloud mining contract (be sure to calculate shipping costs, shipping time, device failure etc.). Electricity (the biggest part of the maintenance costs) is definitely cheap with Genesis Mining. Unless you steal your electricity, you might have a hard time to find a location where you can operate your Antminer profitably. 

The conclusion? Bitcoin mining has become something for the pros or for crypto nostalgics like me. The same applies to the most common altcoins and none of the other contracts currently offered by Genesis Mining stand a realistic chance of breaking even.

Do it for the fun of it or stay clear. For quite some time, this will continue to apply to all things crypto.