Are Cryptocurrency Mining Contracts Part Of Cost Basis

Are cryptocurrency mining contracts part of cost basis

Are cryptocurrency mining contracts part of cost basis

Hello fellow miners, cryptos, and strange ones.

Mining cryptocurrency builds in difficulty every single day as the availability and supply of hashrate contribution grows exponentially, even more so lately, as recent media attention has renewed interest in the value behind the blockchain and the demand to obtain the currencies has driven the coin market cap to recent all-time highs.

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One way cyber-pioneers are striking their own stake and building their private cache of early currencies, short of direct hardware mining which is becoming less financially feasible, is through the use of 3rd party mining contracts. These contracts allow the purchaser to obtain a rate of hash-power on leased equipment for a specific algorithm on an open-ended or specific duration.

Think of this as the equivalent to buying a stake in a gold mine but not buying any of the mining equipment yourself.

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One of the most popular mining contract sites, Genesis Mining, provides a simple user-friendly platform for the savvy and greenhorn contract miner to purchase and lease a share of their hardware mining activities.

Genesis Mining isn't shy in their transparency and provides the ability to verify their physical mining sites through public release of location addresses as well as company-provided resources allowing prospecting customers to visit the sites themselves as shown below:

The transparent availability of site activity combined with their platform accounting for all payouts and distribution on a daily basis, allows for quite a large amount of reliability in the service and confidence in the customer.

Are cryptocurrency mining contracts part of cost basis

However, this doesn't always mean you'll be profitable with your contracts.

Profitability in contract mining depends on an array of variables:

  • Initial Cost of Hashrate (Cost-basis) 
  • Block difficulty of target Algorithm
  • Estimation of payout for Duration

Before selecting a mining contract at a specific hashrate, you need to measure the profitability against your cost-basis and decide whether or not the terms of the intended contract will produce a desired ROI.

Remember that block difficulty increases almost daily and in a constant state, which will mean when mining at a fixed hashrate, you will see daily variances up and down based on this difficulty. These variances will effect your payouts and will in most situations decline over the duration of the contract: 

There are many available resources which you can utilize to calculate profitability on a per-algorithm basis, such as CryptoCompare, which allow you to input the values comparative to the terms of the intended contract.

These provide a tentative idea of what you will initially earn but should be used for estimation of short-term production only and you will be required to continually re-revaluate the profitability of your hashrate.

The sad truth is--Genesis Mining contracts won't stay profitable over the term of the contract.

Determining the Cost Basis of Virtual Currency

At a fixed hashrate on any algorithm you will see an eventual decline until this contract becomes unprofitable completely. Larger initial hashrates can increase the duration of profitability, but in most cases of smaller contracts the term will exceed the return.

Are cryptocurrency mining contracts part of cost basis

Fortunately, Genesis Mining offers the inherent ability for contract owners to extend profitability through the use of their allocation feature.

The simple feature will allow for a re-distribution of the purchased hashing power into a lower-difficulty algorithm of the contract owner's choice.

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Calculation of the application of their hashrates into a more profitable configuration creates the ability to 're-invest' the cost-basis of a contract that is no longer profitable and provide a continued accumulation of alternative returns for the contract owner.

Returns that can actually produce renewed value.

*NOTE: Remember to supply wallet addresses for any desired type of payouts.

For example, a 10 MH/s contract for mining ETH would quickly become unprofitable as the block difficulty grows on Ethereum (dagger-hashimoto) due to recent market capitalization.

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As the profitability declines, the contract owner can shift this hash-power into another target return. The resulting production on the original algorithm is then converted automatically to the desired output, and based on current market prices, can yield a more profitable return without purchasing a newer expensive contract extending the ability of the contract owner to achieve ROI.

This allocation requires a certain amount of profitability comparison on the part of the contract owner, but provides a large amount of control and allows even small contracts to continue to see return in the long-term, should the owner wish to apply this measure of pro-active configuration.

Are cryptocurrency mining contracts part of cost basis

The re-allocation of hashrate can be changed by the contract owner at anytime, and active contract owners can find a large amount of potential measure of profitability in sinking productivity.

This is an often over-looked function on Genesis Mining that I wanted to highlight for all of you that may be new to this sort of 3rd party contracting.

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I often see people in despair over the quick loss of returns on their smaller contracts and want to garner some interest into how self-configuration can provide a better experience as well as a better return.

Remember fellow Steemians not to despair at declining returns -- Just do your research, diversify, and take control.