Hashflare SHA-256 Contract Profitability

As originally intended and proposed within the 2008 Nakamoto whitepaper, Bitcoin mining has been around since the advent of the blockchain distributed ledger. For a long time, earning a passive income in this manner has either been too technical or not particularly cost affective in the absence of cheap electricity, however, thanks to the recent appreciation in bitcoin pricing, this has changed somewhat of late. In the following article, we introduce you to the Hashflare cloud-mining platform and address the various factors which should be taken into account when assessing the future profitability of contracts purchased in this manner.

DISCLAIMER: The information provided is for general information only and should not be taken as constituting or provision of professional advice. The author is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. The author does not accept responsibility for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly by this website. Investing, and investment in Bitcoin or other alternate Cryptocurrencies is risky and potentially speculative, and to be done at one's own risk, therefore do not invest more than can be afforded under the circumstances of a complete and irrevocable loss.

Introduction

Launched at the beginning of 2015, Hashflare is a cloud-service product provided by Hashcoins, which is a crypto-mining hardware manufacturer established in 2013. Some time ago, Hashcoins used an emphasis on cloud-mining as a basis to pivot from the Hashcoins original business focus of supplying hardware to businesses and consumers. This move has been a huge success, to the extent that Hashflare is reportedly adding up to 4,000 new customers per day, sometimes exceeding 100,000 NEW customers per month.

In a nutshell, Hashflare sells contracts for computing power (Hashrate). These contracts last for 12 months, and entitle the purchaser to earnings from crypto-mining, for the life of the contract. Maintenance fees (for electricity etc..) are deducted from the gross earnings, and a daily revenue in the form of BTC is emitted to the user's account. These earnings can either be withdrawn or reinvested by purchasing additional contracts, every day if desired.

However, the issue remains when it comes to making investment decisions in cloud mining, insomuch as there are a number of non-trivial variables that together contribute and influence the profitability of each contract, and so the goal of this article is to investigate a number of different reinvestment schedules as a kind of sensitivity analysis. I have developed a web app that permits many variables to be controlled by the user, returning plots and data. This calculator can be found HERE and is specific for the SHA-256 mining (for bitcoin) algorithm. Moving forward, if I get sometime later down the path, I’ll extend this calculator to Ether, Litecoin and any other cryptos that Hashflare has on offer.

Variables

- Price of BTC – This is a speculative component, up to you to make your best assessment or where it will be in the future. My personal perspective is in alignment with John McAfee and a few others that are generally bullish.

- Difficulty – Historically BTC difficulty has increased at something like 4% per fortnight.

- Return per TH – This changes with difficulty, and to a lesser degree, the combination of pools selected (Hashflare lets you pick up to three, in any bias), at the moment I am getting around 0.000125BTC per TH of capacity for 100% F2 pool.

- Maintenance Fee – At the moment, it is charged at 0.0035 USD per every 10 GH/s of SHA-256. Note the maintenance fee is measured in USD, whereas the earnings are measured in BTC. The overall profitability, therefore, depends on the BTC/USD rate.

- Contact Cost – US$220 per TH, recently increased from $150. Bad luck to those who missed out at $150 (now 40% higher).

- Reinvestment Schedule – This is something that you have the most control over. Reinvest none, Reinvest some, reinvest none then some, reinvest some than none, so many possibilities.

So let assume the following in our model:

- We commence with a 10TH/s investment.

- Difficulty will change at the same rate per fortnight as it has historically (~4%/fortnight), serving to diminish the daily return as time progresses.

- Contracts cost the same as the recently increased price, the initial investment is, therefore, US$2200.

- Maintenance fee remains the same.

- We vary the price of bitcoin, growing at a conservative (by BTC standards) 0.25% per day, starting at US$16,000 per BTC.

- We consider a number of different reinvestment schedules, outlined below.

In order to perform the comparison, we use the web app mentioned above to perform the calculations. Results will be compared directly with a Buy-and-hold strategy, that is to say, an equivalent amount as the initial investment is invested in BTC at the start to see if investing in Hashflare can deliver superior returns over and above the effortless buy-and-hold strategy.

Reinvestment Schedules

We will model the following four (4) scenarios in terms of planned re-investment.

- No reinvestment at all.
- 0% reinvestment in the second year
- Reinvest 50% of the revenue for the first year, 0% reinvestment in the second year
- Reinvest Nothing for 120 Days, then reinvest 100% for the remainder of the first year, 25% reinvestment in the second year

Results – Scenario 1, 730×0%

In this scenario, the initial investment is returned after 115.4 days, and the buy-and-hold strategy is exceeded in performance, at day 164. By the end of the 2 years, the Hashflare strategy has exceeded the buy and hold strategy US$21.3 vs US$11.4k net return. Note that since there is no reinvestment strategy, the initial contract expires after the first 12 months, and so all gains from that point forward parallel that of the buy and hold, achieved from the appreciation of the BTC’s generated in the first year.

Results – Scenario 2, 365×25% + 365×0%

In this second example, 25% of the revenue is reinvested from the very beginning, this means that 75% of the revenue is retained (vs 100% in the previous example), leading to a slightly delayed breakeven point (134 days). The buy and hold strategy is exceeded at day 192, and with the compounding effect of the reinvestment, this would yield a larger return at the end of the period, US$26.3K, about US$5k better than the previous scenario. At day 366, the initial 10TH contract expires, resulting in a drop in the account capacity, which continues throughout the 2nd year, as all the contracts purchased through the reinvestment process wind down.

Results – Scenario 3, 365×50% + 365×0%

This scenario is a more extreme version of the previous, where 50% of the revenue from the first year is reinvested. At the end of the two year period, this has the effect of increasing the net profit by almost an additional $10k, to US$34.7k. At the midpoint, the peak hashrate grows to ~35TH/s. Once again, because the reinvestment runs only in the first year, in the second year revenue is withdrawn, which diminishes over time until the final contracts have expired.

Results – Scenario 4, 120×0% + (365-120)x100% + 365×25%

In this final scenario, which is more complex again, the first 120 days is a period where the initial investment can be recouped. After the first 120 days, an extended (initially aggressive) and continuous reinvestment schedule is planned, which includes 100% reinvestment to start with, followed by 25% reinvestment throughout the 2nd year. This has a $5k benefit to the bottom line when compared to the previous scenario, where we can expect approximately US$39k net profit after 2yr term. Really not bad for an initial US$2,200 initial investment.

Recommended article: Beginners Guide To The World of Cloud Mining

Final Remarks

So in the above, a series of reinvestment schemes have been demonstrated to leverage and magnify an otherwise buy-and-hold strategy with bitcoin, using a cloud mining platform. The advantage of such a platform is that one doesn’t need to understand the intricacies of building and maintaining mining rigs, computer-hardware, or having premises with suitable electricity supply. Some of the ASIC based miners are also difficult (ie like the Antminer S9) to find in stock, so this worry is somewhat removed. The revenue is basically shared, since the mining fee accounts for ~20% of the gross revenue, depending on the current BTC price.

On the other hand, this is not completely risk-free, in the beginning, you are ‘spending’ your money in exchange for an asset which is a certain amount of computing power. If you want to start your own mining I prefer to start with Zec miner which z11 antminer you can find a guide at Thecryptomining. Furthermore, since you are essentially assigning the responsibility of managing these devices to a 3rd party non-regulated.