GPU mining became a hot topic in 2017, shortly after Bitcoin soared past $20,000 USD. On April 13th, 2021, Bitcoin hit an all time high of $63,729.50 USD, further incentivizing the GPU mining community. On May 4th, 2021, Ethereum hit its all time high of $3,456.57, making it even more rewarding for people to use their personal computers to mine cryptocurrency to earn passive income. However, on May 12th, 2021, Elon Musk — CEO of Tesla Motors, made the following tweet, which contributed in putting both Etheruem and Bitcoin into a nose dive:
“Tesla has suspended vehicle purchases using Bitcoin. We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.
Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment.
Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy. We are also looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction.”
More importantly, Etheruem 2.0 is on the horizon, despite experiencing years of delay. The goal with Etheruem 2.0 is to move from a Proof-of-Work to a Proof-of-Stake methodology. Once complete, this may effectively destroy GPU mining for Ethereum. But will it make GPU mining obsolete? Will we see the Facebook Marketplace filled with hundreds, if not thousands of GPUs for sale soon? Possibly. Or, perhaps not.
Many GPU miners utilize the software Nicehash to mine “Bitcoin.” However, one doesn’t actually mine “Bitcoin” while using Nicehash. Instead, Nicehash is a platform to connect buyers and sellers to purchase and rent the hashing — computing — power. Effectively, Nicehash is a broker of hash power, which is a computational resource that describes the power that your computer or hardware uses to run and solve different cryptocurrency Proof-of-Work hashing algorithms.
For example, imagine there is only 1 buyer and 1 seller that visit Nicehash. The seller puts their GPU on the market available for rent, and the buyer pays to use the GPU within the Nicehash market. The seller may prefer to obtain Ether from the sellers computing power and they pay the going rate in the form of Bitcoin to Nicehash, in turn, relaying it to the seller minus the fees Nicehash takes to broker the transaction. The reason one would choose to “mine” cryptocurrency through Nicehash is the ease of use. Nicehash algorithm mines the most profitable coin based on your system. The user does not need to think about the most efficient way to set it up. It is literally plug and play. Computers on Nicehash may mine Ethereum, but the get paid out in Bitcoin. Mining Bitcoin directly using GPU is not profitable and impractical due to the complexity of the algorithm that needs to be solved. The GPU power is simply not enough to mine Bitcoin directly. Hence, it makes Nicehash a platform of choice by many, especially beginner miners.
From my experience, I have found the following six factors that affect ones profitability using Nicehash to “mine” cryptocurrency:
- Bitcoin relative to USD — BTCUSD
- USD relative to the Fiat Currency of your choice (i.e., CAD, EUR, etc.)
- Bitcoin relative to the price of Ethereum
- Supply and Demand
- Electricity / system maintenance cost / fees
- GPU
It’s important to understand the various levers involved in the actual mining initiative before one can make any informed decision on what the future may hold and what next step makes the most sense to take to each own individual situation. There are two components that the six levers described above control. The current mining profitability and the accumulated profit of ones digital wallet.
All else equal, if Bitcoin appreciates relative to USD, your daily mining profit will increase in terms of Fiat currency, but may decrease in terms of Bitcoin or Satoshi’s (portion of a Bitcoin). This is because, the more people mine, the more difficult the mathematical equations get, the more hash power one must provide to get the same pay out as before. Presuming, of course, the more Bitcoin appreciates, the more miners it attracts. At the same time, what has already been accumulated in the digital wallet grows because of Bitcoin’s appreciation in value relative to the USD. The same is true if Ethereum increases relative to Bitcoin. This is because, at the time of this writing, Ethereum is the most profitable coin to mine. Therefore, if you mine Ethereum, and get paid out in Bitcoin. The buyer must pay more in Bitcoin for them to obtain 1 Ethereum if the price of Ethereum raises relative to Bitcoin. Thus, if Bitcoin continues to rise at a later point, your payout will be worth more in your digital wallet since you accumulated more Bitcoin from selling Ethereum when Bitcoin was lower relative to Etheterum. This trend was seen in Mid-April to Mid-May 2021. All else equal, if there are less miners (low supply) and more buyers of hash power, the daily mining profitability will grow. As you can see, each of these factors play a unique role to determine the daily profit one can expect. One factor can neutralize another, while all factors can play for or against you at any time.
Many wonder why the daily profit increases when Bitcoin and Ethereum take a nose dive. One explanation is because of the volatility the market experiences. The more volatile the market, irrelevant of its direction, the more volume of trades occur, in turn the more transaction fees. Thus, the more transaction fees in the system, the rewards for each block size increase for miners. Therefore, a strong sell-off as happened on May 12th, 2021 isn’t that bad for miners. Yes, the digital wallet will decrease in value, however, the daily profits will increase for miners. Provided that Bitcoin and Ehtereum rebounds at a later point, your earnings will become that much larger overall. Lastly, the type of GPU you have, electricity costs and maintaining your computer system such as replacing fans (cooling) that break, or fixing/replacing graphics cards that burn out, etc, also play an important role in your net profits. And, don’t forget taxes!
There are many pieces to the puzzle. To simply answer the question on whether a GPU sell off will take place is a difficult one. If Ethereum 2.0 becomes a reality, and Etherum GPU mining becomes obsolete, it would depend on alternative coins and whether they are profitable to mine, whether there is a way to make GPU mining on Ethereum 2.0 possible, and whether Nicehash will create an algorithm that will make it worthwhile for GPU miners to stay on the platform. After considering all of these factors, the answer is not so simple.
If a GPU sell-off does happen in the near future, there will be ones who still believe in the cyrpto space and buy up these GPUs for a steep discount relative to current prices. There will be a shift, perhaps, a correction of sorts. However, I don’t believe GPU mining will be obsolete with Ethereum 2.0 alone. I do agree that there should be a better, more efficient, environmentally friendlier way to mine cryptocurrency. However, this space is unpredictable and I am interested to see what comes next.
What do you think? Is a GPU sell off coming? Are you a believer or packing up and exiting the space?
