Thursday, January 18, 2018

Calculating A Hashflare Contract Rate of Return

As I've mentioned previously here, I recently began purchasing Hashflare Bitcoin mining contracts to get in on that side of the market. I'm enjoying having those as an option for participating in the Bitcoin marketplace because of their low cost, ease of purchase, and nice potential returns as the price of Bitcoin recovers.

I'd also like to say thanks to all who have signed up for it through my affiliate link. I really appreciate it!

That last point, the potential returns, that's what I wanted to talk about this morning. Right now at Bitcoin's current price as printed on Gemini, my contracts are showing a potential annual rate of return of 197.47%. What I'd like to do here is detail how I'm coming up with that figure. There's two ways to do it, and there's one result that I tend to stick to, the reason why I'll explain.

Right on the Hashflare dashboard there is a breakdown of your holdings showing your total hashing power, which mining pools its being applied to, daily revenue per terrahash, and a revenue forecast. It looks like this:

Right there you have an annual revenue forecast based on the total hashing power you own (I think it needs one payout cycle to update, however, so contracts you've just purchased may not be reflected in the total). You can take the cost basis of your contracts and divide the forecasted annual return by it to come up with a rate of return. As an example, my contracts that I've purchased thus far have cost me $136.32 (I have a few more in the total thanks to referrals, but I haven't included those in this figure as I consider them part of my return on investment). When I divide this figure by the annual forecast, I get 223.85%, as things are presently.

The other method I've been using to calculate my returns, a more conservative method that I tend to stick with, has a few more steps involved.

There's a Bitcoin mining calculator at CoinWarz that you can use to calculate the rate of return of a mining rig setup also taking into account power consumption, mining difficulty, the fee a mining pool charges, the current Bitcoin block reward, the current BTC-to-USD rate, and the cost of your equipment. These are all of the variables that are relevant to determining if owning and operating your own mining hardware is worthwhile.

To use this calculator to work up the numbers for your Hashflare contracts, you have to change several variables.

First, change the Hash Rate to reflect the total gigahash your contracts represent. In my case, right now that's 750.

Then change "Power" and "Power Cost" to zero. "Pool Fees" and "Hardware Costs" should already be zero (and that is one of the reasons I prefer these contracts over buying hardware, even though I live in a hydropower state and our electricity is even cheaper than the .10 cents/kilowatt hour that's autofilled on this calculator).

The "Bitcoin Difficulty field" and the "Block Reward" are autofilled and should be left as-is.

Finally, I change the "Bitcoin to Dollar (USD)" field to the current price printed on Gemini. I just prefer it because that's the exchange I use the most, but you can input the price from any source, such as, or another exchange like Coinbase. As I type this, the price that's printed for Bitcoin at Gemini is $11804.82, so I'll use that.

This gives me a current daily mining revenue figure of $1 USD.

Now, from this you must subtract Hashflare's maintenance fee. This is a fixed USD amount that they take in Bitcoin from your daily revenue. This is where the costs of power, hardware, and pool fees went. It's currently .0035 cents per contract, with each contract representing 10 gigahash each.

You'll have to do a little calculation yourself for this part. I have 750 gigahash right now, therefore I have 75 contracts. So I fire up my desktop calculator and plug those numbers in, .0035 multiplied by 75, and I get .2625 cents. This is the daily maintenance cost of my contracts.

Subtracting .2625 cents from $1.00 gets me a sum of .7375 cents per day of net revenue.

Multiplying this by 365 days, the result is $269.19 (rounded up to the nearest whole penny).

Dividing this by the cost basis of my contracts, $136.32, I get 197.47%.

So as you can see, using the CoinWarz calculator and adjusting it for the current price of Bitcoin, then subtracting out the maintenance cost, gets me a lower projected return than what the Hashflare dashboard shows. This could be because Hashflare may have more up-to-date mining difficulty figures, and/or they could be using a future projected value of Bitcoin rather then the current value to come up with those figures. I prefer to use the current value, but my projection then assumes the price of Bitcoin will neither increase nor decrease for an entire year. Either method of calculating the future value of your contracts' payouts are fine, they're both just educated guesses anyway; I just prefer a more conservative estimate so that maybe I'll have some surprise to the upside in the future (there could be surprise to the downside, too, but I don't prefer that!).

So that's how this all works, and where my numbers come from. Note that in the time it has taken me to type this up and get to the end of this post, all of the numbers have changed. If you try this out yourself, you'll get a different result, so consider this all to be an explanation of the process with the specific numbers here as a snapshot in time only.

Again, thanks to those of you who have signed up through my Hashflare referral link, and to all, happy hashing!

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