Planning Your Mid Size Bitcoin Mining Operation

Operating a Bitcoin mining facility can be profitable, but you need to treat it like a business. I operate a small Bitcoin mining facility, and there is a lot more that goes into it than just plugging in the equipment and letting it run.

It’s easy to set up a single Bitcoin mining device and run it. Scaling to something that can make a significant amount of money is a different story, however. To make a profit, one needs reliable revenue and low costs. This means low costs for all aspects of the operation:

Equipment
Electricity
Cooling
Infrastructure
Business Management
Operations and Maintenance

Equipment

Antminer S9

Bitmain Tech Antminer S9

Bitcoin mining hardware is the first and most important part of the operation. If you can’t get good equipment at a good price, you might as well stop right there. At this point in time, the best equipment to buy is the Bitmain Antminer S9. You should be able to generate about 0.5 Bitcoin per month (as of July 2016, post-halvening).

The Bitmain Antminer S7 is a good choice to learn about mining. Depending on your electricity prices, it might be profitable for you to operate it.

The power supplies need to be purchased separately. If you have 110 Volt AC, get this setup from Centrix International. If you have 220 VAC, you can use either the Centrix setup, or get the power supply from Bitmain.

Electricity

The Bitcoin mining hardware basically convert electricity to Bitcoin. The lower your electricity costs, the better off you will be. For US Dollars, your electricity costs should be $0.10 per KiloWatt Hour or less to maintain profitability.

Calculating actual electricity cost can be a bit tricky, and if you have a choice of electricity suppliers, it is worth getting their rate sheet to determine the price at the usage. As a starting point, there will be different rates.

Residential – usually low price.
Commercial light – less than 200 amps or 30,000 KWHr per month
Commercial medium – less than 500,000 KWHr per month
Commercial heavy – everything else

Within these rates, there will usually be a few categories of costs. It is best to put together a spreadsheet, add all the costs together, then calculate an effective per KWHr rate in order to compare the two. The costs you will have to take into account are:

Monthly service fee
Usage fee – how many KWHr used
Demand fee – maximum Watts used at any one time
Demand peak – additional fee based on maximum Watts vs. average Watts

I was looking at setting up shop in the Canadian province of Quebec, because the price was $0.0493 per KWHr, but as I looked at the Quebec Hydropower rate sheets more carefully, there was a Demand Fee that brought the effective rate up to $0.07 per KWHr. That’s a big difference!

Quebec Hydropower Commercial RatesIf you are in a location where electricity is included in the price of your location, you may be able to operate a single Bitcoin miner. I’ve found that you can turn the fan speed down to 40% or so if you operate in an air-conditioned environment, then it won’t be that loud, and you might be able to run it without anyone noticing…but if you operate more than one of the units the electrical usage will be probably be noticed by the building owner at some point. These devices use a lot of electricity!

One of the first questions I get is the possibility of using solar power. Yes, it’s possible, and let’s think about it for a minute. A solar panel can supply about 100 Watts when the sun is shining on it. Ten of the Antminer S9’s use 12,000 Watts, 24 hours per day. So you would need three times as many solar panels and a storage system. That’s 360 solar panels, and at $100 each, that’s $36,000 in panels! You would also need a place to set them up, wiring between them, and someone to keep them all running. That would be difficult and probably not the best use of your time.

Whenever you have the option, use 220 Volt AC instead of 110 VAC. The power supplies for the miners run more efficiently at the higher voltage.

Cooling

Bitcoin miners put out a lot of heat. The fans on each of the Antminer units push through about 200 Cubic Feet per Minute (CFM) of air. The nice thing is, there are no hard drives in these systems, so they can run hotter than a typical server.

These systems are basically three cards, each running lots of ASIC’s, with heat sinks on the top and bottom of the chips. Here is one that’s open for cleaning.

Antminer open for cleaningSo the good news is that these boxes don’t need to be in an air conditioned environment, they just need a lot of airflow to get rid of the heat. In my first location, I put in place a large exhaust fan that was rated at 10,000 CFM. That size fan would be able to remove the heat generated by 50 Antminers because 50 x 200 CFM = 10,000 CFM. I had to match the intake vents to 10,000 CFM of airflow also, of course. That took up twice the space of the fan. Here’s a nice fan from Grainger, and some Drainable Louvers:

Grainger 36%22 Exhaust Fan Grainger Louvers

You will need a way to direct the flow of air so it does not bypass or recirculate around your Bitcoin miners. I built some air flow guides out of wooden 2×4’s with plastic sheeting stapled to it.

Infrastructure

This is all the stuff that you need to get the Bitcoin miners connected and working. It helps to have a little bit of data networking knowledge here. Easiest way to get that is to pick up a Cisco CCNA certification guide from the bookstore and use that as a reference.

Firewall and router

You’re going to need an internet connection. It does not need to be fast, but it should be reliable. The Bitcoin miners can only earn money if they can download the hashing puzzles from the Internet and upload the solutions.

It would be useful to have a firewall that has remote access VPN capability, so you would be able to access the equipment remotely. I really like the Cisco Meraki MX64W firewall. It’s everything you need, has top level security, and provides remote access VPN along with Wifi.

Network Switches

Each of the Bitcoin miners has a network connection. It needs to plug into something. You’ll need to buy a network switch to make it work. The switches don’t have to be fast. I prefer to buy used Cisco 48 port switches. You can get one of those for less than $100 on eBay.

Power Distribution Unit

The Bitcoin miners use a lot of power – did I say that already? You are going to need an electrician to run electricity to your miners. Tell him that you want a bunch of 220 VAC, 30 Amp connections, and you are going to be using NEMA L6-30P connectors (in North America).

Plan on each Antminer using 6 Amps of 220VAC power, which means if you get a 30 amp Power Distribution Unit (PDU), you can power 4 Antminer’s from it. You can try to power 5 from them, but you’ll pop circuit breakers. This Tripp-Lite PDUH30HV would a good one to get.

Power Cords

You’ll need to get the power cables that go from the PDU to the power supplies also. These can be tricky to figure out. You’ll need the IEC C14 to C13 connectors. There’s lots of different vendors for these.

This is a handy guide from APC to all the different types of power connectors that can be used in North America

Video Surveillance System

These are really inexpensive these days. Connect a cheap 4 camera video surveillance system up to your network. It’s nice to be able to quickly see that everything is working well while you are away. And if someone messes with your stuff, that’s nice to see also.

Shelves

I bought cheap shelves from Lowes and Home Depot. I like the ones from Home Depot better. You don’t need anything fancier.

Things You Don’t Need

There is stuff you could buy if you wanted to be extravagant. But I don’t think it’s worth it.

Smart PDU’s – I first started using these, because I thought it would be nice to be able to reboot the Bitcoin miners remotely. It turns out they are more trouble than they are worth.

Computer Server Racks – These are a waste of money. The Antminers don’t fit on them.

Air Conditioning – Too expensive to run

Uninterruptable Power Supplies (UPS’s) – Not needed, and way too expensive. If power goes down, you want your miners to shut down. When power comes back on, everything will boot and start running again.

Business Management

This is a business that makes money. There are things that need to be done for business management, both in the initial setup, and in the ongoing operations. It should be registered as a company so that business expenses are deducted from income, and any taxes will be paid only on the profits.

This means you should engage with at least an accountant, so that you can capture the depreciation of the Bitcoin miners.

Business Setup

Form business as an LLC, register with the State
Get an Employer Identification Number from the IRS
Set up a bank account and fund it.
Lease a space for operations
Obtain a Certificate of Occupancy (pro tip – make changes to space after getting CO)
Get account with power company and internet service provider

Bitcoin Mining Operations

Get electrical pulled into space
Set up natural circulation cooling
Configure data network
Configure power distribution to Bitcoin miners
Operate miners and scale up
Keep track of all purchases and expenses for tax purposes.

Business Operations

Set up Bitcoin Miners to send Bitcoin to an account on an Exchange.
Sell Bitcoin on the Exchange to fund operations, send money to bank account.
Pay bills from bank account.
Keep equipment running.
Save enough Bitcoin or money to fund an equipment refresh every two years
Pay taxes as you need to. Understand depreciation. Get an accountant.

Operations and Maintenance

The first few months of operations will be great. As you add more Bitcoin miners, you’ll see your daily, weekly, and monthly income go up.

And then things will start to go wrong. Power, cooling, and other issues will crop up.

So you’ll have to start a regular schedule of maintenance and upgrades to the equipment. There’s many different things that will have to be done, but the biggest one is cleaning.

Get yourself a dust mask and an air compressor, and clean your Bitcoin miners out every few months.

Summary

Remember, keep your costs low. The two biggest costs are the Bitcoin miners and electricity. If you can control those, everything else will work out. If you are planning on setting this up as a legitimate business, plan for minimizing taxes right from the start. If you do it right, you can be cash flow positive yet have a tax loss to offset your other income…good luck!