Is it wiser to buy or mine crypto?

Of course, the network wouldn’t keep going without miners and we’ll be forever thankful to them, but speaking in terms of profit? Assuming ETH will have a 50% APY, in 5 years would I be richer if today I bought 20,000 USD worth of ETH tokens, or if I built a 20,000 USD mining rig and started mining ETH?

Buying tokens directly

Building the rig

I tried to simplify these calculations as much as I could’ve without making them too unrealistic, but they’re still quite complicated.

So, our first lesson learned: when deciding whether to mine or buy crypto, we also have to consider that mining is more complicated and requires more effort.

Buying the hardware at market price

Now, let’s assume we couldn’t get any of our hardware for MSRP and now our 20,000 USD mining rig does 2 GH/s worth of calculations consuming 5,6 kW/h.

Since we invested all our money into the rig, every month we would have to liquidate some of our earnings to pay the electricity bill, which in my country should be around 320 USD plus a yearly fee of about 140 USD. For simplicity, we’ll assume the yearly fee is also paid monthly, so the total monthly electricity bill should amount to 332 USD.

With this configuration, we would earn 3,000 USD worth of ETH every month, from which we would have to take 450 USD to pay the electricity bill assuming 26% capital gain taxes, with a profit of 2,550 USD pre-tax per month.

Approximately, the first month’s profit would yield 45,76% to the end of the year, the second month’s profit 41,6%, and so on.

Monthly Approximation

Payday	Payout	Gain until end of year	Value at end of year
End of Jan	$2,550.00	+45,76%	$3,617.00
End of Feb	$2,550.00	+41,6%	$3,611.00
End of Mar	$2,550.00	+37,44%	$3,505.00
End of Apr	$2,550.00	+33,28%	$3,400.00
End of May	$2,550.00	+29,12%	$3,293.00
End of Jun	$2,550.00	+24,96%	$3,186.00
End of Jul	$2,550.00	+20,8%	$3,080.00
End of Aug	$2,550.00	+16,64%	$2,974.00
End of Sep	$2,550.00	+12,48%	$2,868.00
End of Oct	$2,550.00	+8,32%	$2,762.00
End of Nov	$2,550.00	+4,16%	$2,656.00
End of Dec	$2,550.00	+0%	$2,550.00

SUM $37,502.00

So, every year we would have gained approximately USD 37,502 that would compound at a 50% APY rate for the remaining years.

Yearly Approximation

Payday	Payout	Gain until end of period	Value at end of period
End of 1st year	$37,502.00	+50% for 4 years	$189,854.00
End of 2nd year	$37,502.00	+50% for 3 years	$126,569.00
End of 3rd year	$37,502.00	+50% for 2 years	$84,380.00
End of 4th year	$37,502.00	+50% for 1 year	$56,253.00
End of 5th year	$37,502.00	+50% for 0 years	$37,502.00

SUM $494,558.00

Our initial 20,000 USD investment would be worth 494,588 USD now, more than 3 times the profit we would’ve done if we had just invested that money into ETH directly, and we could have earned even more if we had the luck to buy the hardware at MSRP (like many miners including my friend Jonathan usually find a way to do).

So, Is the effort worth it? Probably! Investing in a mining rig would be a way to diversify our portfolio even more, and considering the semiconductor shortage we’re experiencing right now, if we could get the hardware for MSRP, it could already be a slightly profitable investment itself since we could sell it for more than we paid it (but maybe not after 5 years).

Also, as I said at the beginning, there would be no distributed network if there were no contributors, and contributing to something you really believe in always feels good.