South Africa’s cryptocurrency mining market is growing. Opportunities abound for specialised hardware sales, but there are challenges.
On June 13 2017, Ethereum reached an all-time high, trading at $395; a month prior, it was at a then-all-time high of $100, compared to $8 at the start of the year. Ethereum’s time in bitcoin’s shadow is finally over.
While bitcoin and Ethereum are the two largest by market capitalisation, there are around 900 digital cryptocurrencies in total. These fiat alternatives have gained popularity because they aren’t controlled by a central banking system and offer an alternative high-risk, high-reward investment opportunity.
Bitcoin has been ‘in the wild’ since 2009 and there are already numerous examples of real-world millionaires who’ve made their money from investing and trading in the coins. Another aspect of cryptocurrency that can also be profitable is the mining of coins. This digital creation process requires a lot of computational processing power. As there’s no central records system, cryptocurrencies rely on a network of dispersed ledgers all tracking transactions. The administrative work of validating the transactions is the mining which generates rewards for the participants.
Today, bitcoin mining is the domain of large-scale operations, as the ‘problem solving’ required is so much harder than it used to be and the processing power required so significant. However, other cryptocurrencies, such as Ethereum, provide opportunity for smaller-scale miners to get in while the going is good.
“Newer currencies with small numbers of users are much easier to mine,” says Lorien Gamaroff, CEO, bankymoon. The technical complexity involved in the mining is lower, but the risk lies in the speculation around future growth of that cryptocurrency’s value.
Getting rigged up
The mining process requires a devoted PC, or rig, plugged into the internet and left running, mining away 24/7, providing a passive income for the owner.
The costs to mine are the capital expenditure of the rig itself, including any operating system licensing, and the operational costs of electricity and internet connectivity; the software used to mine is open source.
Industrial mining rigs at the Bitmart Diepkloof mine.
The core part of the Ethereum mining rig’s processing power comes through graphics cards, not because mining is visually spectacular, but because they’re more suited to the task.
With Ethereum hitting such stellar performance recently, interest in cryptocurrency mining has heightened. The most popular video to date of local YouTuber Hanu Nel of We Do Tech is entitled How To Mine Ethereum (Very Easy); when launched in late June, it generated 100 000 views in its first two weeks. Nel tells The Margin that graphics cards with GPUs are better for mining than regular CPUs found in your average desktop PC. “People don’t really mine with CPUs, because they don’t have enough raw power. CPUs have a few very fast cores, but GPUs have thousands of slower cores that can handle a lot more tasks simultaneously.”
Ivor Todorov, co-owner of Lonehill Computers, an independent PC retailer and repair specialist, says: “A GPU is about 200 times more powerful than a CPU in doing the calculations involved with mining.”
Gold in the ground, but no shovels
With great demand can come great shortages, and that’s led to a glut of suitable GPUs and graphics cards. Todorov, who keeps a constant eye online to check availability, says: “GPUs are being snapped up from distributors as soon as new shipments arrive, and most have back orders.”
Jacques Serfontein, CEO, bitmart.co.za, agrees: “There’s a global shortage of graphics cards, mainly the AMD Rx 460, 470, 480 and Rx 560, 570 and 580 range cards, as well as the Nvidia 1060, 1070 and 1080 cards.”
The shortage also creates resentment among the traditional graphics card market – PC gamers. “A lot of gamers hate miners, as the miners are buying all the GPUs. Because of that, Nvidia, AMD and all the other board manufactures decided to increase the prices,” says Nel.
Todorov believes the competing tribes of gamers and miners is a good thing for the long-term market. “Demand for GPUs will contribute to development of better, more powerful platforms. It's an issue for gamers currently, but I think it will benefit them ultimately. If the bubble bursts, the market will be flooded with second-hand GPUs, and gamers can benefit from low prices then,” he adds.
Both AMD and Nvidia have announced plans to produce GPUs designed specifically for mining functions. It’s noteworthy that these new GPUs will come with only a 90-day warranty as opposed to the standard year that regular GPUs get today.
Horses for courses
Before rushing out to try to find stock for your store or to buy rigs to mine cryptocurrency in your spare room, another consideration is the currency to be mined.
Bankymoon’s Gamaroff says: “There are a number of technical variations in terms of mining across the different coins.”
Each currency has its own difficulty curve and earnings vary from coin to coin, agrees Serfontein. “Some cards mine some algorithms better than others, so you want to spec your rig for what you want to mine. For example, AMD cards mine Ethereum better than Nvidia; conversely Nvidia mines Zcash better,” he says.
All creatures great and small
Mining is a global activity and, says Gamaroff, China is a big player, due to the low cost of labour, electricity and hardware. That said, there are miners in South Africa, and they come in all different sizes, from the hobbyists looking to make a bit of extra income through to industrial operations running farms of rigs.
Based in Fourways, Johannesburg, Lonehill Computers’ Todorov recently started building and selling small quantities of Ethereum mining rigs as a diversification play. Selling one or two units at a time, his market is more likely the local hobbyist dabbling their feet in the crypto currents.
Comparably, Bitmart, which operates out of Nelspruit, claims to be the largest cryptocurrency mining supplier in Southern Africa, having supplied over 5 000 units in the last 18 months. Serfontein says: “We supply businesses and individuals alike and we source our parts from the manufacturers directly or from wholesalers worldwide. We know of a few mining operations (in South Africa) and we help set up some of them. We sell off-the-shelf rigs, rig kits and cards for those who want to build their own rigs and try their hand at a little DIY. We also build custom rigs at our factory.”
He says assembly is the easy part, it’s the configurations and tweaking to get the mining hardware stable and efficient that presents the challenge.
Todorov agrees that building a rig isn’t something just anyone can do. “It takes more than general knowledge in PC design and assembly. You have to know about motherboards and balancing available resources, especially if it's not a board designed for mining.”
Given that mining is primarily a money-making activity, input costs, pricing of mining rigs and return on investment (ROI) are key considerations. Software exists that enables miners to track their rate of ROI in real-time.
“From an energy consumption perspective, we believe it's better to get smaller rigs as you have to factor in the electricity prices. My opinion is the more powerful the rig, the bigger the expenses on hardware and electricity, so the time to ROI is likely to be longer. The exchange rate also influences ROI. When it comes to optimum spec and pricing for best ROI, there's no single right answer and it depends on a lot of dynamic factors,” Todorov says.
Those last few words are, undoubtedly, the truest summary of the market. With so many developing cryptocurrencies, fluctuations in value, a shortage of critical GPUs and the ability to track ROI in real-time, it’s a complex investment and there are a lot of dynamic factors involved indeed.