Crypto mining and its methods
What is crypto mining?
Crypto mining is the process by which new coins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger. It is performed using very sophisticated computers that solve extremely complex computational math problems.
How much does a Crypto mining rig/machine cost? What are the additional costs associated with the mining process?
A mining rig also called a GPU (Graphics processing unit) cost approximately $3,000.
Generally, 40% of the value of coins mined is your expense in the form of:
Equipment costs
Electricity costs
Repairs
Rented space
A Few Mining Methods:
CLOUD MINING
A process where you rent a mining rig which is owned by another party or large corporation.
They mine the coin for you, collect rent for their machine + other expenses, and the remaining amount is transferred to your crypto wallet in the form of coins earned.
(Coins mined - rent + other expenses = net coins mined & transferred to your wallet)
Cloud mining involves minimized risks & lesser costs.
CPU MINING (Central Processing Unit)
Particular rigs with certain specifications are needed to be purchased. Mining coins using a regular laptop or computer might damage the machine due to overheating.
This is a slow and costlier process considering high electricity, rent, & cooling costs involved.
GPU MINING (Graphics Processing Unit)
Designed to mine coins using graphic cards
Includes a Processor, Motherboard, Inbuilt Cooling unit, Rig frame, 2-8 graphic cards.
Cost-efficient and relatively cheaper compared to CPU mining.
How is Cryptocurrency mining revenue taxed?
Just like other business operations, an income statement is prepared for crypto-mining activities.
Income equals to the value of coins when they were mined (Daily rate of coins earned multiplied by the quantity of coins mined on that date & time)
Expenses like electricity, rent, & cooling costs are written off against income earned in the form of coins.
Mining rigs are reported as long-term fixed assets on the balance sheet which can be depreciated over a period of its anticipated life span. Most assets have an estimated life of 5 years which can be applied towards mining rigs.
