# How to Calculate the Profit-Cost Ratio When Mining Cryptocurrencies

In this article, we will give you an insight into the economics of cryptocurrency mining and the relevant factors that determine costs and profits. An example of a calculation will illustrate how a miner can determine profitability himself using the most important parameters. We will first give an explanation of what these parameters are and transfer the logic of the calculation, then we will apply the calculation to Safex (SFX) and Monero (XMR), two cryptocurrencies that or the rise when it comes to demand.

Don’t worry, this calculation is not complicated at all, it is actually more informative and the knowledge of mathematics from the lower grades of primary school will be quite enough for you to understand it.

Cryptocurrency Mining and ‘Game Theory’

Cryptocurrency mining is a great example of so-called ‘game theory’ where dynamic market price and average cost when mining are the main ‘players’. Increasing the market price of the mined coin will increase profitability. According to this, it is expected that more participants will enter mining as they see an opportunity to make money. On the other hand, by reducing the market price, the profitability for the individual is also reduced. According to this, it is expected that miners with high costs will be forced to leave the network because their mining is no longer profitable.

The temporary gap between the market price and the average mining price can be overcome with the help of other network members, in the long run. The bigger the gap, the more likely it is that an individual will rather be mining than buying. Market demand will be reduced and it is very likely that the miner will sell part of his reward, which will increase the number of sales on the market.

Mining Profitability and Its Main Parameters

Profitability can be determined by looking at the net mining price and the market price of the mined cryptocurrency. The main parameters that determine the profitability of cryptocurrency are:

• The market price of cryptocurrency
• Daily issuance of mined cryptocurrency
• Daily income
• Daily energy consumption by mining equipment
• Total hashrate of network participants
• The price of electricity used for mining
• Utilization of mining equipment

Mining Profitability Calculation Based on Main Parameters

1. Net profit can be defined as the difference between the market price and the mining price. These two parameters create the following equation:
• Net profit [USD/SFX] = market price [USD/SFX] – mining price [USD/SFX]
1. The daily price of power and the daily reward in Safex Cash determine the price of mining per coin, yielding the following equation:
• Mining price [USD/SFX] = daily price of electricity [USD] / daily reward in the form of Safex Cash [SFX]
1. The daily price of electricity can be obtained from the price of a kilowatt of electricity per hour and energy consumption by mining equipment. Assuming that the mining equipment works 24/7, we can get the third equation from there:
• Daily electricity price [USD] = price per kilowatt-hour [USD/kWh] x daily consumption [kW] x 24h [h]
1. The daily reward in the form of Safex Cash can be obtained with the help of daily block broadcasting of cryptocurrency (block reward), daily earnings from transaction fees (transaction fee revenue), hashrate of your mining equipment, and hashrate of the entire network. A miner can plan his mining strategy using a hashrate diagram (you can find such charts on some of the platforms dealing with mining pools based on PoW consensus) and using the result of the fourth equation:
• Daily reward [SFX] = (daily coin issue [SFX] + daily transaction fee [SFX]) x your hashrate [hr/s] / total hashrate [hr/s]
1. Finally, we will get the daily profit from the net price of mining and the daily reward. Based on this result, a weekly, monthly, or annual profit can be concluded – assuming that all parameters are relatively constant.
• Daily profit [USD] = net profit [USD/SFX] x daily reward in Safex Cash [SFX]

Example of a Calculation With the Mentioned Parameters for Safex Cash

In the table that follows, we will show the mentioned parameters and make a calculation for Safex Cash. A processor is used for Safex Cash mining, so we will take the AMD Ryzen 9 3900x 12-CPU as an example, the setup and activation of which will be shown in this article. This processor has a hashrate of 12.5 kH/s (12,500 hashes per second) and consumes 150 W on average (0.15 kW).

In the following table, we see the results of mining profitability. Relative profitability is 96 % based on the values used. Short-term profitability could fluctuate significantly due to market price fluctuations and due to inconsistent total online mining. According to the given parameters, the SFX reward is \$ 0.917 per day.

Comparison With Profitability by Monero Mining

Similar to the previous example, the following tables give the relevant parameters and profitability results for Monero mining. The relative profitability is 42 %.

Profitability Depends on the Mining Strategy

This example of the calculation provides an overview of short-term profitability for a miner who would like to cash in a profit on a regular basis to cover his costs or use it for something else of his choice.

However, if a miner does not want to sell his reward and decides to keep it for a long time, his profit can increase significantly. Profits can increase significantly in the long run thanks to the long-term rise in the price of the cryptocurrency. Moreover, long-term profitability may include life expectancy or potential resale of mining equipment.

If a person plans to mine and keep coins in the long run (he can use them either for investments or for buying various goods and services: travel arrangements, real estate, playing games online, gambling online at casinos having top-notch game providers on their offers – such as Top Belatra casinos…), and eventually sells the equipment, he can calculate profitability as follows:

Total profit [USD] = full mining reward [SFX] + market price [USD/SFX] – total costs el. energy [USD] + selling price [USD].

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