21.07.2024

Mining in 2021: profitability, equipment shortages, prospects, taxation

As soon as the price of bitcoin falls, prophecies begin to be heard that the mining industry is dying and miners are about to massively turn off equipment and begin to capitulate. This was the case in March last year, when the crypto market experienced one of the most powerful crashes in history, and more recently, when the price of bitcoin dropped below $ 44,000.

However, after bitcoin and ether hit price highs, no one turned off the mining equipment – on the contrary, it has risen in price several times, but even with inflated prices, it is still not enough for everyone.

We figured out how much mining BTC, ETH and popular altcoins is now bringing and what players in this sector can expect in 2021.

How did mining develop in 2020?

On May 11, 2020, a halving took place on the network, during which the reward for the found block was halved – from 12.5 BTC to 6.25 BTC. This event occurs every 210,000 blocks mined or repeats every 4 years. Thus, the creator of Bitcoin Satoshi Nakamoto laid in the network protocol a mechanism for curbing inflation and controlling the emission of new coins.

Once the reward goes down, miners try to compensate for the losses: they upgrade their equipment to more energy efficient and powerful ones and do not sell the mined coins in anticipation of an increase in their rate. So, for example, a year after the halvings of 2012 and 2016, bitcoin grew in price several times and reached its then records.

We are now also seeing impressive growth in the value of the first cryptocurrency and the altcoin market. Over the year, BTC grew by 300%, ETH – by 500%, most of the top coins also added a few X’s. All this had a positive effect on the profitability of mining and the profit of miners who maintain the performance of these blockchain networks.

Bitcoin annual hashrate chart

Bitcoin annual hashrate chart. The indicator increased by 34% and reached its record values ​​of 150–160 TH / s. This suggests that new miners are joining the Bitcoin network.

Due to the panic around COVID-19 in March last year, the crypto market collapsed, and the cost of bitcoin lost about 55% in a matter of days. However, the restoration took only a few months, due to which the miners almost did not work at a loss. And the slow growth of the crypto market in the spring and summer of 2020 brought profit even to small miners with old equipment.

It is noteworthy that miners from Russia were also helped by the depreciation of the ruble – coins are sold mainly for dollars. In the fall, a rapid rise in cryptocurrency prices began, and with it the profitability of mining.

Bitcoin mining profitability chart for the year

A graph of the profitability of mining in the Bitcoin network for the year.

At the same time, the decline in Bitcoin reward was more than offset by a gradual increase in fees in this network: from $ 0.3– $ 1.3 in March and April to $ 15– $ 30 in February. At the same time, if in the spring of last year the payback of most miners in the Bitcoin network was 1.5-2 years, then by the fall this figure had already dropped to 6 months.

In total, last year, bitcoin miners earned about $ 5 billion, and in the first two months of 2021 – over $ 2.4 billion.

“In fact, in 2018, mining pools became unprofitable, and many turned off their equipment. In 2019–2021, the industry is gradually recovering, including through the release of more energy efficient equipment. Nevertheless, the main risks affecting the return on investment are the lack of legal regulation, high transaction costs, and strong currency volatility , ”said Oksana Belyanskaya, CEO of Rocket PR.

Bitcoin transaction fee change chart.

Bitcoin transaction fee change chart.

Lack of mining equipment

Since the fall of last year, even outdated ASIC devices, like the Antminer S9 and Antminer L3 +, began to work in a plus and bring in several thousand rubles a month. As a result, their price increased from 3,000 rubles to 15,000 rubles (and even up to 35,000 rubles). The prices of top-end devices (for example, Antminer S19) have increased several times. As a result, there is a shortage of equipment on the market.

Thus, in the field of mining, there is now a separate problem with a shortage of equipment and a lack of inexpensive miners. Indeed, in the light of the growth in profitability and the reduction in payback periods, many devices began to be in increased demand and were sold out last year even at prices that were many times higher than market ones.

Prices for miners of the Antminer series

The cost of the same devices at different sites can reach hundreds of thousands of rubles. Here are examples of prices for miners of the popular Antminer series from one of the suppliers.

Bitmain Antminer Miner Prices

Danatar Atajanov, brand manager of the Oxly platform, said that many miners  began to connect old devices, especially since it became very problematic to acquire new ones .

“Chinese manufacturers of mining equipment at the beginning of the year reported that they would close sales until the end of the summer of 2021. There is information circulating in the market that sales have been contracted until the end of 2021. In conditions of a deficit, prices for iron increased by 2–3 times. Today, due to the shortage, the market is so hot that the price of devices located in China may be higher than the market price of availability in Moscow. For example, the cost of the Asic S19 Pro 95Th reaches 800,000 rubles, and the payback at the current rate will be about 12 months, taking into account electricity, « Atajanov said.

Sergey Arestov, co-founder of industrial mining operator BitCluster, said that customers who bought equipment before December 2020, that is, until the prices of miners jumped to the skies, have already recouped their investment, now making a net profit.

“In the summer, all buried S9s were sold practically by weight [approx. ed. – when the crypto market falls, old mining equipment is sometimes sold for the weight of the metal and the components from which it is made]. However, now even they are making money. We have clients who have been expecting a bargain price for these devices and have bought them in the thousands, ” Arestov said.

In December, after a sharp jump in the bitcoin rate, according to Sergei Arestov, the demand for the purchase and installation of equipment for the extraction of cryptocurrencies increased tenfold. The expert expects a similar increase in demand in 2021 2022:

“In 2 months, the high water season will begin in China, and a huge number of devices will start plugging in [ed. – the flood season is considered a particularly lucrative period for Chinese miners as they can buy electricity at lower prices from hydroelectric power plants]. Then the difficulty of mining in the Bitcoin network will increase greatly, and, as a result, the profitability of mining will fall. The cost of electricity will again be the main indicator of efficiency, and the flow of miners from all over the world will rush to Russia for a favorable tariff, ” Arestov said.

At the same time, a huge amount of mining equipment is bought by American companies and funds. For example, the Marathon Patent Group alone bought 70,000 Antminer S19 miners from Bitmain. To only accommodate all this equipment, a capacity of 250 MW is required.

“All hosting companies strive to increase their capacity. We plan to commission at least 60 MW in 2021, ” Sergei Arestov shared his plans.

Evgeny Chertok, head of the IT department at Reksoft (a software developer), said that almost all video cards for computers either have risen in price several times, or have completely disappeared from sale, for example, like the GeForce RTX 30.

A number of factors led to the shortage of equipment :

  1. The low volume of production of  modern video cards influenced the fact that the supply of equipment from abroad decreased on the market.
  2. Lack of import substitution . So far, Russia does not have its own production facilities in this area.
  3. Lowering the threshold for entering cryptocurrency mining.  The growth in the rate of many cryptocurrencies made their mining profitable again and allowed to start home mining on powerful computer video cards in a domestic environment.
  4. Not decreasing demand  for video cards among gamers of modern video games.

Evgeny Chertok suggests that the shortage of video cards in Russia will last as long as cryptocurrency mining is profitable. In other words, as long as the cost of a package of mined cryptocurrencies is higher than the cost of electricity and depreciation of iron, we will observe a shortage of equipment on the market.

The profitability of mining bitcoin in Russia 

We found out from BitCluster at what indicators miners in Russia will be profitable. With the current level of hashrate and the complexity of mining in the Bitcoin network, bitcoin mining in Russia is profitable when the price of a coin is over $ 6,000 and the cost of electricity is up to 3 ₽ / kWh.

Thus, if military-technical cooperation costs less than $ 6,000, it will have to be mined at a loss. But if the bullish trend continues, miners won’t have to worry about profits for a long time.

True, the break-even point strongly depends on the power of a particular device. For an illustrative example, let’s compare the indicators of 2 miners with opposite power:

  1. Antminer S19 pro  110 th / s  at a rate of 3.2 rubles / kWh: break-even point –  $ 5 800 ;
  2. Antminer S9  13 th / s  at a rate of 3.2 rubles / kWh: break-even point –  $ 19,700 .

In any case, miners have a solid margin of safety.

Here is the profitability of mining several top-end devices at a BTC rate of $ 8,764, taking into account electricity costs of 3.2 rubles / kWh:

  • Antminer S19 pro  110 th / s –  61 835 ₽  per month;
  • Whatsminer M30S +++  112th / s  –  63 109 ₽  per month;
  • Antminer S9  13.5 th / s  –  5,000 ₽  per month.

With such a profitability of mining, the payback period of the devices is from six months.

The profitability of mining on popular devices in BTC and dollars.

Ethereum mining prospects 

Consider the second largest cryptocurrency in terms of capitalization that can still be mined – the transition of Ethereum 2.0 to the Proof-of-Stake consensus algorithm began at the end of last year and will take several years.

Over the past year, ether has risen in price by 7 times (at its peak – almost 9 times), while fees on the Ethereum network have grown 90 times (at the peak – 300 times). So, in February, the commission for a transaction on air averaged from $ 15 to $ 20. Transaction fees account for up to 40% of the profits of miners on the Ethereum network. Therefore, it is still profitable to mine this coin.

In 2019, ETH miners earned $ 0.7 billion, in 2020 – already $ 2.12 billion, and in the first two months of 2021 – over $ 2 billion.The rise in ether prices led to a sharp rise in the cost of video cards and, again, to their deficit.

Ethereum commission growth chart for the last year.

Over the year, the  hashrate of the Ethereum network, that is, an indicator of the required power of equipment for mining, has grown from 187 TH / s to 440 TH / s. This means that new miners are connected to the Ethereum network.

There are several reasons for this growth in miners’ interest:

  • Bull market and the rise in the value of ETH.
  • Network congestion due to the growing popularity of Ethereum-based DeFi projects.
  • The growth of commissions in the network.
  • Interest in the ongoing upgrade of Ethereum to state 2.0, after which staking will replace mining.

Ethereum hash rate growth chart for the last year.

There is no need to be afraid that ether mining will die in 2021. The full implementation of the upgrade to the Ethereum 2.0 state will take up to two years, and if something goes wrong, this process can be significantly delayed. During this time, you can manage to recoup your investment in mining equipment.

After switching to PoS, miners of the Ethereum network will have to choose: go into staking or switch to mining other coins. Most likely, most of the current ETH miners will switch to other projects, otherwise they will have to get rid of expensive equipment. But new players – those who have not invested in equipment – will switch to staking.

It is difficult to predict which coins the former ether miners will switch to. Perhaps most of them will turn their attention to Ethereum Classic (ETC). The coin works on the same algorithm as ether, and the project team is not going to transfer it to PoS. However, do not try to guess – we will not guess anyway.

What altcoins to mine in 2021?

Sergei Arestov believes that in the future, mining bitcoins will be more profitable than mining any other coins. The altcoin price is too volatile – prices can quickly rise and fall, and it is difficult to draw up a long-term strategy or predict when exactly the equipment will pay off.

Therefore, it should be borne in mind that altcoin mining is a lottery. But if you are ready to play it, Sergey Arestov recommends mining only the first 20 coins by capitalization, for example, the same Ethereum Classic, Monero, Litecoin, Zcash, DASH, Bitcoin Gold, and Dogecoin. By the way, mining Litecoin will also be profitable on old hardware like the Antminer L3 from Bitmain, released back in 2017.

Top coins in terms of capitalization are assets from time-tested projects that will not suddenly disappear, they have liquidity, and their rate is more stable than small coins.

Mein «nouneymy»  risky  – Today they seem new Bitcoins, and tomorrow will not be worthless and will not give you a return on investment.

Old equipment is still profitable

At the same time, the bullish trend of the crypto market and price records still allow mining Bitcoin even on devices of previous generations, especially when it comes to industrial mining. For example, on miners such as Antminer S9, Bitfury B8 and Bitmain S9.

But within a year, these devices are likely to no longer be profitable. Therefore, for those who want to make money on mining and further, it is high time to think about upgrading the equipment.

“Mining is now profitable on almost all devices and at almost any cost of electricity. But as new generation devices enter the market and the complexity of the network grows, the profitability of mining will decrease, and we advise you to pay attention to devices with a capacity of 80 Th / s and higher and with an electricity consumption of no more than 2.5 kW , ”recommends Sergey Arestov.

If the bullish trend continues, the corrections are not too strong, and the complexity of the network does not fly into space, then this configuration will most likely last until the next halving.

Danatar Atajanov noted that due to the inevitable increase in the complexity of the network, modern productive devices will bring significantly more revenue. In this situation, it will be difficult for private miners to compete with modern data centers equipped with the latest generations of equipment and receiving electricity on special terms. Because of this, the demand for cloud mining has grown.

“We have felt an increase in demand for ourselves. Making money on cloud mining in the current situation is much easier: bypassing the cost of equipment, its configuration and support, you get access to modern equipment in optimal conditions for mining. All our computing power has been sold out, and new applicants have to be put on the waiting list, ” Atajanov said.

Mining is still in a gray zone in Russia 

However, it is worth noting that the mining industry in Russia is still not regulated, and this carries certain risks.

Since January 1 of this year  , the Law «On Digital Financial Assets» (the Law on Digital Financial Assets) has been in effect in Russia. We have already examined in detail its main provisions, regulation of digital assets in the Russian Federation and their legal status. Let’s just note the main thing: cryptocurrencies are recognized as property, they can be traded, but you cannot pay for goods and services on the territory of the country.

There is no definition of mining in the CFA Law, it only says that the regulation of the turnover of cryptocurrencies will be considered in a separate bill. There is no mention of mining in the bill No. 1065710-7 «On Amendments to Parts One and Two of the Tax Code of the Russian Federation», which provides for the declaration of income from cryptocurrencies (for details on how to pay taxes for cryptocurrencies, read our article).

All this puts mining in a strange position in a legal sense – cryptocurrencies are allowed, you have to pay taxes for them, but you cannot pay with them. Can mining be considered a payment for work or services? And will miners not be charged with illegal business if they declare their coins? So far, there are no answers to these questions, but the general logic of the legislators leaves little hope that the sector will receive support.

Until the regulation of mining is reflected in the law, this activity is formally in the gray zone. As a result, miners are forced to work mostly «in the gray» – the budget does not receive the taxes that it could well receive.

Danatar Atajanov believes that the state wants to limit the turnover of cryptocurrencies so much as to make it impossible for the normal development of mining and crypto business in general.  In such conditions, the mining business will have to look for legal development options, such as the export of hash rates – the sale of computing power to loyal jurisdictions with the receipt of fiat money instead of cryptocurrencies.

The lack of regulatory regulation of the sector negatively affects not only private miners, but also industrial mining. Russia has excellent conditions for this activity – inexpensive electricity and a cold climate. Therefore, the world’s largest mining farms and data centers are being built in the country, for example, a Bitriver farm in Siberia or a data center from Rosenergoatom near Tver.

If legislators were more loyal to the sector, this could attract foreign miners to Russia. According to the estimates of the Russian Association of Cryptocurrencies and Blockchain (RACIB), this would bring several billion dollars to the country’s budget annually.

Mining will have a good year

The bull market is a huge hit for the mining sector of the crypto industry .

Until recently, the equipment paid off in a year and a half, now – in a few months, and even outdated devices bring profit. Sergei Arestov expects the bitcoin price to rise to $ 80,000 this year – with such prices, miners have nothing to fear. If the trend continues, the sector will face strong development, new jobs and investors will appear.

However, before you buy miners with your last money, remember that there is always a recession behind any rally. Despite the bull market, mining cannot be viewed as a simple and quick way to make money. This is a full-fledged business with all the attendant risks.

In the event of the onset of a new «crypto winter», mining can even bring a loss and you will have to either work for the future, or turn off the equipment. Such situations also need to be calculated.

Leave a Reply

Your email address will not be published. Required fields are marked *