Litecoin mining profitability
With the recent price spike of Bitcoin and Litecoin, the digital currencies are moving out of the nerdy shadows and onto the pages of Forbes and Vice. If you are not familiar with Litecoin yet, it is a decentralized digital peer-to-peer currency used over internet based off the concepts of the ever growing Bitcoin. It is better known as crypto-currency because it uses cryptography to secure transactions.
Litecoin uses a scrypt based algorithm, unlike Bitcoin’s SHA-256.The scrypt algorithm is more reliant on memory, not processing efficiency. That is the reason those specialized hardwares developed for Bitcoin mining will not work with Litecoin and making GPU mining more effective. So the question that many people are asking, is mining still profitable? Or how soon can one expect to break even after investing on a new mining rig?
Since i can’t predict the future or what the future holds with regard to Litecoin valuation, there are far too many variables and unanswered questions to be able to give a fair answer. However, I will share some personal observations that i have made over the past few years.
The most obvious question would revolve around rough ROI (return-on-investment) based on the current conditions. These are investors that want to know whether it is sensible to invest in a mining rig for around $1000 when they expect the break even point for their investment would be above 6 months. Compare it to any other investment, making back your initial investment in only 6 months is actually very good. But with the volatility of the prices, whatever ROI figures that you run today will be completely different in the next month.
The second type of individual who is already mining would be questioning whether the good times of mining are over and isn’t as profitable as before because the algorithm is designed to make Litecoins more difficult to create as more and more miners try to find them. Or that it isn’t as profitable as the ROI estimates that they ran in the past. Or the returns are barely enough to cover running costs like electricity. The current price mentality seems to be the main deciding factor for most investors. But i personally feel that the realistic future price is the proper way to decide on your ROI situation.
For instance, I believe that few years from now, Litecoin will be worth far more than it is worth today, or it will be completely worthless. I’m hoping it’s not the latter but either is possible. The only unlikely scenario to me is one where Litecoin stays relatively flat in value, or only moved slightly up or down. Therefore, I don’t really think about the fact that mining a single coin at today’s current value of around $38 cost me anywhere near half that much in electricity or that if Litecoin value falls, I may not even be able to break even.
Instead, i’m just throwing in what i can afford, that is my mining rig plus electricity, and that’s all i’m going to lose or it’s going to be tremendously profitable. There won’t be any “ifs” or in between, because I believe that a future Litecoin value of $50+ is not impossible if there is room for more than one crypto-currency. So I look at spending $2 in electricity to mine a single Litecoin today as either $48+ in future profit, or $2 wasted on a highly-speculative investment that didn’t work out.
I’m not even necessarily recommending that you get into mining. But I do think that everyone should consider approaching mining ROI from a potential future value standpoint versus an absurdly volatile present day one, especially if you never intended to sell coins immediately as they were mined. It is difficult to turn a profit that way unless you have access to free electricity.
The minor mining craze we are witnessing today due to the upward price spike will likely unfold the same way that all of the previous ones have. Mining will look good on paper for a few weeks, so there will be a gold rush as people learn about it. This will continue until all of the new miners raise the mining difficulty enough to compensate for the price increase. As profitability goes down, miners will start to question what they are doing as their ROI calculations from several weeks ago are no longer valid. Then many will exit mining in the following months. The cycle will repeat whenever the next major price increase occurs.
And for any investment, remember that there are no guarantees. Any money that you put into crypto-currency should be money that you can afford to lose. Mining or investing in crypto-currency is extremely speculative.