Hashrate, the collective computational power directed at Proof of Work blockchains such as Bitcoin, is a useful benchmark for gauging network security. Measured in hashes per second (H/s), hashrate represents the number of hash calculations that the entire network can perform at a given point in time. But hashrate isn’t just an abstract concept for flexing about network strength: it’s a commodity in its own right that can be traded just like any other digital or physical asset.
It turns out there’s more than one way to profit from Bitcoin than simply buying and selling BTC. The mining economy, which forms the backbone of Bitcoin’s consensus and unrivaled transaction finality, is an industry that supports the two-way trading of hashpower, giving enterprising individuals an opportunity to profit, whichever way the market is moving.
Making Money From Hashrate Markets
There are various ways to trade hashrate, including futures markets that allow miners to hedge against expected downside risk. But when it comes to trading actual hashing power that is directed towards securing Bitcoin’s PoW network, the primary marketplace is NiceHash. It’s been in the mining game since 2014 and is best known today for providing a two-sided spot market that connects buyers and sellers of hashrate.
Anyone can place an order to purchase hashpower on NiceHash, with miners then competing to fill the order. Miners are paid for every share they provide towards the total amount of hashpower ordered. As for the buyer, they can direct the hashpower they’ve purchased towards the mining pool of their choice and profit from the block rewards they earn.
There are a lot of variables that go into profitably trading Bitcoin hashpower, including such calculations as mining difficulty, BTC price, power costs, and mining pool fees. However, the actual purchase of hashrate using NiceHash’s marketplace is incredibly simple, with no contract or time limitation involved.
Not only is this service attractive to buyers, who can access hashpower on demand without needing to physically own ASICs, but it enables miners to earn more in some cases, since buyers will often pay a premium to access the hashrate they require. And during certain periods, supplying hashpower to a marketplace such as NiceHash can prove significantly more profitable for hardware owners than directly mining a pool.
Why Buy Hashpower?
There are a number of reasons why it may prove profitable to purchase hashpower at specific points in time. Broadly speaking, when the coin price is high or mining difficulty is low, the profitability of mining the cryptocurrency will be higher. Of course, at such times, miners may prefer to use their own hashpower to mine crypto rather than renting it out.
The game theory behind hashpower renting becomes more interesting once factoring the projected future price performance of cryptocurrency. If you believe there are catalysts that will drive the price of BTC up, for instance, it makes sense to mine it now and then sell the coins for a tidy profit once this thesis has been validated. With events ranging from halving cycles to Bitcoin ETF demand all influencing market prices, there’s scope for booking significant profits for judiciously timing the optimum mining periods.
The other major selling point of hashpower marketplaces is that from the buyer’s perspective they eliminate the disadvantages to owning ASICs: the upfront cost, the need to periodically upgrade hardware, maintenance, and of course electricity costs. Should the market suddenly turn bearish, hashrate buyers aren’t lumped with unprofitable machines that must be either powered down or run at a loss.
The efficient markets hypothesis holds that markets are inherently efficient, leaving little room to generate meaningful profits since everything is already fairly and accurately priced. The reality is that most global markets, particularly those for an industry as multi-faceted as mining, are anything but. The cyclical nature of mining, coupled with the numerous variables that can dictate profitability, make hashpower an attractive option.
For crypto users who understand mining, but have no desire to get their hands dirty through spinning up their own rig, hashpower leasing provides a frictionless way of getting skin in the game. Doing so profitably on a regular basis is a matter of timing and time in the market. The more you learn, the easier it becomes to instinctively gauge the opportune time to mine.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
