As we purchase and use products, it prompts a decrease in their value, known as the principle of ‘depreciation’. Most products people own depreciate in value, likely without them even noticing or paying attention to this phenomena. Cars, boats, airplanes, and even Bitcoin mining equipment all depreciate over time; however, the process isn’t as linear as one may think.
Depreciation is commonly described as the decline in value of an asset over time, and it is especially apparent in assets that are constantly being changed and improved upon, making certain industries more prone to depreciation. Perishable goods for example, such as items like bread and vegetables you buy at the grocery store, will depreciate quickly and steeply - just in a matter of days the value of bread can go from full price to $0, as people only purchase fresh bread on the day it was baked. This demonstrates that depreciation in its essence is the absence of demand.
Most cars are depreciating assets that start losing value from the moment they’re driven out of the dealership. In the first three years alone, they can lose up to 50% of their value and then gradually continue to depreciate until they’re worth as much as scrap metal. However, exotic cars follow a very different trajectory when it comes to depreciation, and some models may actually appreciate in value instead of losing it over time.
Depreciation in Bitcoin Mining Equipment
Like all other assets, mining equipment depreciates in value over its lifetime, but depending on where Bitcoin is trading, it can actually end up being worth more than what you originally paid for it. There are many factors that affect how fast a mining machine may lose its value. When we consider the depreciation of mining equipment, we must consider the initial price investment of the machine and the expected profit of a machine per day. The expected profit per day can be broken down further by looking at several factors:
- Cost of electricity - This will determine how much money is being spent daily to keep the miner running, affecting your bottom line. Wattum’s hosting services offer competitive electricity rates starting at just $0.08/kWh. The higher the electricity prices, the more susceptible mining equipment will be to depreciation.
- Power efficiency - Power efficiency relates to the output of the machine compared to the energy it consumes. More efficient machines consume less energy per hashrate produced. More efficient machines also have longer depreciation lifespans.
- Bitcoin price & current block reward - Miners create value by earning you Bitcoin, so if the price of Bitcoin is high it also means that you can sell it for more. The block reward is a predetermined amount of Bitcoin that is given to miners when they successfully create (or unearth) a new block.
- Hashpower & mining difficulty - Hashpower can be compared to the strength of a mining machine, or the number of calculations it can perform to solve for the block reward. Mining difficulty refers to the worldwide hashpower that each individual miner has to work against. The lower the difficulty, the higher your mining yield will become.
Newer miners are generally expected to remain profitable for up to 5 years, however experts have advised that proper care and maintenance can extend this lifetime to up to 10 years of good working condition.
Miners are often evaluated based on their potential ROI (return on investment) and their Payback Period, which is the amount of time it takes to make back your money after the initial investment. However, this changes based on worldwide mining difficulty and the current price of Bitcoin. As mining difficulty increases, miners need a high enough hashrate to remain profitable. As such, the best miner is one with a high hashrate that has good power efficiency. Let’s take a look at four of Bitmain’s top Bitcoin mining machines:
Antminer S19 Pro 110TH
110 TH/s Hashrate
3250 W Power Consumption
29.5 J/TH Power Efficiency
Antminer S19j Pro 100TH
100 TH/s Hashrate
2950 W Power Consumption
29.5 J/TH Power Efficiency
Antminer S19 95TH
95 TH/s Hashrate
3250 W Power Consumption
34 J/TH Power Efficiency
Antminer S19j 90TH
90 TH/s Hashrate
3105 W Power Consumption
34.5 J/TH Power Efficiency
These are some of the best Bitcoin miners in circulation today, and are expected to remain profitable for quite some time. The S19 Pro has the best profitability of the four at around $41/day, at the time of writing, based on an electricity cost of $0.05/kWh and at the current price of Bitcoin, sitting at approximately $63,000. Ultimately, the best mining machine is the most efficient one, as you make more BTC with a lower operating cost.
So, How do Bitcoin Miners Relate to Exotic Cars?
Firstly, crypto mining enthusiasts need to take into account that there are 4 tiers of depreciation of crypto mining equipment when buying a brand new miner. In the first 1-3 months, the value of a miner depreciates 15% of the original price. In the 12 months from purchase date, the value depreciates by 15% compared to the value after the third month, while after 24 months the value goes down to 20% less than what it was at the 12 month mark. After 60 months, the value decreases by another 25% from the value the miner had at 24 months of use.
You’d still have to consider whether the price of Bitcoin is going up or down to understand if the current market value will continue to increase or decrease. However, if you were to freeze the market price and compare the 4 tiers of depreciation, you’d find the discounts to be consistent.
That being said, despite the substantial difference in depreciated value of a miner between 1-3 months and 12-24 months, the quality of the product hasn’t really changed, as the product will still last over 60 months. That is to say, like an exotic car, purchasing high end Bitcoin mining equipment for resale value is actually a savvier investment. Similar to the car example we gave at the beginning of this article, if you buy a 12 month old miner at resale price, not only are you getting a better deal, but chances are that if you were to resell it after 23 months your miner could actually appreciate in value.
To understand this, we should consider that the ROI on the machine in real time is tied to the Bitcoin value; the price goes up and the difficulty goes down, then the price of the machine also becomes higher. By this logic, it is very much possible that if you were to purchase a brand new machine today, and given that the BTC value goes up, your machine may actually be valued at more than what you paid for it initially. Hence, why we compare purchasing a Bitcoin miner to purchasing an exotic car.
Wattum offers a full suite of services for getting started in mining, offering end to end solutions that range from equipment and mining pools to management and hosting, supporting you and your success in mining every step of the way. So, whether you’re looking to purchase equipment and get started yourself, or want to learn more and get your foot in the door, our team can help you join one of the fastest growing industries in the world. Get in touch with us today.