Profits Are Drying Up For Ethereum Miners

Updated, 03/19/2018, 11:30am PT: Orriginal article incorrectly attributed NAND price as a factor for GPU pricing.

As the price of Ethereum continued to drop week over week, the mining difficulty continued to rise. At this pace, mining profits are quickly thinning out.

Last year, the price of Ethereum took off like a rocket and headed for the moon. At the beginning of the year, Ether coins traded for less than $10, and by the end of December, people were willing to shell out close to $1,000 per coin. The stratospheric rise in value also attracted a massive influx of cryptocurrency miners hoping to make a quick buck.

Last summer, we conducted an Ethereum mining experiment that involved the creation of a “profitable” mining rig out of older parts that had piled up and started collecting dust. In that article, we explored the possibility of earning profits from an inefficient mining system. We looked at the mining difficulty rating and how it would affect our income. We also touched on how much the cost of electricity would limit our profits. At the time of our experiment, our mining rig proved to be profitable in most cities, but if the price of Ether dipped by 25%, you would be losing money in markets with expensive electricity. (Something miners capitalized on by setting up shop in cities with cheap power like Plattsburgh, New York.)

For most of 2017, Ethereum miners were doing well, but 2018 hasn't been quite as lucrative. The coin traded for around $200 when we started our Ethereum mining experiment in July 2017, and throughout the fall, its value slowly crept up past the $300 and $400 marks. By mid-December the cryptocurrency craze was in full swing, and Ethereum's value reached $800. Then, in the first week of January 2018, it rose again.

On January 13, Ethereum peaked at more the $1,400 per coin, which translated to more than $14 per day from our 94Mh/s miner, but in early February Ethereum’s value was back to the $800 region, and it continued to slide through March. Over the weekend, Ethereum dropped to below $500 for the first time since early December.

In December, $500 Ethereum was like a dream come true for anyone with an established mining machine. However, $500 Ethereum today is a nightmare. In the same period that Ethereum’s value went from $500 to $1,400, and back down to $500, the mining difficulty doubled, and it hasn’t stopped climbing.

Back when we started our mining project, the Ethereum difficulty rating had just peaked at an all-time high of 1.2THash. In December, when the value jumped to $800 for the first time, the network difficulty had increased marginally to 1.5THash. Today, Ethereum mining difficulty is close to 3.3THash, and that rise in mining difficulty is eating away at the profits cryptocurrency miners are used to making from their operations. 

Even when you take the price of Ether out of the equation, mining profits for long-term holders are way down. Because of the difficulty increase, mining machines are now pulling in half the amount of Ethereum per hour than they were late last year. The table below illustrates the dramatic drop in our weekly gains between December and today.

At the current difficulty rating, our mining pool estimates that our 94MH/s mining system would earn 0.04385 in time for our next weekly payout. At today’s value, that’s roughly $24 for the week. Our system burns about $10 per week in electricity, so it’s still profitable. But in a market with expensive utilities, such as San Francisco, which can pay up to $0.25 per kWh, you’d be losing money at today’s rate.

Don’t Expect GPU Prices To Drop

The profitability for Ethereum mining is drying up, but don’t expect to see graphics cards drop in price any time soon. Ethereum isn’t the only GPU-mineable coin, and most miners will switch to something more profitable instead of selling their rigs. Even if miners stopped buying graphics cards in massive quantities--which they won’t--it will take a while for supply chains to stabilize.

It's also important to remember that cryptocurrency markets fluctuate all the time and this is not the first time that profits have contracted. In July 2017, things were starting to look bad for miners but the market turned around about as quickly as we could report on it. We wouldn't be surprised to see that happen again.