How we calculate earnings and information about our 100% luck protection

Here we break down the 3 most important concepts with mining bitcoin: Luck, difficulty, and price. This should also offer some guidance on when and when not to use our 100% luck protection.


What is luck?

In the bitcoin mining sense, luck is basically what it sounds like. Bad luck means less bitcoin was mined than expected, good luck means more bitcoin was mined that expected.

More specifically, if we know the speed (in GH) and the difficulty, we can calculate what we should expect to make in a time frame in BTC on average. But this is theoretical.

In real life, it doesn't always work out this way. We can (sort of) compare this to winning a lottery. Each GH someone has to mine with we could compare to buying tickets in a lottery. Having more increases the chance you will win the lottery by giving you more chances to win. So if you have more processing speed, you will win the lottery more. If you have less, you'll win less. However, each individual lottery ticket has the same chance to win. Over a long period of time, the amount made per unit of speed will be the same, but someone with less "tickets" to the lottery will have to wait longer to win than someone with more tickets. 

So in the actual mining of bitcoins, a more realistic example might look something like this:

Luck example

The red line shows the luck value for each week, 45%, 250%, 55%, 50%. The blue line shows how the average flattens out over time. Now when we speak about luck value, we mean a percentage of the expected earnings for a period of time. If we expected to make 1 BTC a week (just to make the numbers easy), then the first week we would have made 0.45 BTC,  the second week 2.5 BTC, third week 0.55 BTC, and 4th week 0.5 BTC. Note that the blue line ends at 100%.

In real life, variability depends on the mining pool you are using. From testing, the pool we use (kano.is) was selected as it tends to give the best return over the long-term. But, because it is smaller (less tickets in the lottery), we hit blocks less often, so there is a longer period of time before this averages out to 100%. I believe it currently takes about 4 months for this to even out to 100% with this pool.


Difficulty explained

Difficulty refers to how hard it is to "crack" a block, and changes with the state of the entire bitcoin network. Higher difficulty means it's harder to crack a block, and so the same hash rate will produce less bitcoin than during times of lower difficulty. Difficulty needs to be factored in when trying to calculate earnings in bitcoin over time.

This is entirely dependent on  the total network hash rate. Every 14 days the network recalibrates, setting the difficulty rating up or down in order for blocks to be found on average every 10 minutes. So depending on when in this cycle you start mining, difficulty rating may change once or twice during a monthly contract. 

If difficulty increases or decreases, the expected earnings will change by that amount. For example if expected earnings were 1 BTC for a week and the difficulty increased 10%, then earnings would decrease by 10% and the following week we would expect to make 0.9 BTC.

As you can see, the general trend is that difficulty will increase over time (especially as new machines come onto the market) and this will decrease the earning potential over time.


Price advice

Note that while we can somewhat predict the amount of bitcoin earned, price is another matter. It is not something one can predict with any real accuracy. The best advice we can give our customers is that in general, bitcoin tends to increase in value over time. But we urge you to do your own research and talk to us about this. There are a couple of reasons for our recommendation to hold:

  1. Fiat currencies like the dollar inflate over time. 
  2. There is a limit to the amount of bitcoin produced. Only 21 million will ever be produced, with the last bitcoin to be mined probably happening around the year 2140.
  3. The supply dwindles over time. The block reward halves roughly every 4 years. It started at 50 BTC, then 25 BTC, and currently we are at 12.5 BTC.
  4. Bitcoin gets lost. By some estimates some 4 million bitcoin is lost, by people losing access to their wallets and by accumulation of "dust," small amounts of basically worthless sums of bitcoin. When bitcoin is lost it reduces the supply of bitcoin and increases its value.

In the most concrete terms, the value of bitcoin depends on the number of coins actually in circulation and the number of people using it.

Over this time frame we can see that the price of bitcoin does tend to increase over time.


How customer earnings are calculated

Plattsburgh BTC uses a fairly straight forward calculation for this.

Actual Earnings=The earnings for the week (Monday-Sunday) are tallied, including all transaction fees.

Hashrate*=The average actual hash rate for the week.

Expected earnings= The expected earnings if luck at 100% is assumed.

Customer earnings= What you actually receive.

*Note that in real life conditions hashrate will fluctuate with things like heat and possible failure of units or even internet/power outages. Downtime does not have a detrimental effect on customer earnings as we will simply increase the hash rate of our customers in order to offset any loss of hash rate, thereby protecting you from potential loss at our cost. Additionally if the speed of the whole is lower, then your share of the earnings will increase, so this will also not have an effect either.

As an example, say we have a hash rate of 100 TH and our expected earnings are 1 BTC but we have good luck and our actual earnings are 2 BTC in a week (this is not realistic at all, just to make numbers easy). If you were to order 25 TH, then you will receive a quarter of the earnings, or 0.50 BTC for that week. So the calculation looks like this:

(Customer hashrate/Total hash rate) X Actual Earnings=Customer Earnings

Now if the mining pool suffered very bad luck, and instead of earning 1 BTC as expected, it earned 0.5 BTC (for luck of 50%), then the customer would receive 0.125 BTC.

If you opt in to use our luck protection, then we will do a second calculation:

(Customer hash rate/Total hash rate) X Expected earnings=Customer earnings

We will use whichever formula gives the greatest customer earnings. So the second formula would be used in times when luck is less than 100%. In this case, the customer would earn the expected 0.25 BTC instead of the actual 0.125 BTC.

Please note: if luck protection is opted out then we will only use the first formula and the customer would receive the actual 0.125 BTC. More information about this and why you might want to waive this protection is explained in the next few sections.


We are able to offer our luck guarantee because, as explained in the above section about luck, the bitcoin earnings we produce eventually even out over time. But, this occurs over a long-term. 

For this reason, we have a contingency fund of no less than 1 BTC. During times of bad luck, BTC is pulled from this fund in order to cover the gap. Using the above example, 0.125 BTC is actually earned in the week, meaning to meet the luck guarantee 0.125 BTC would be pulled from the contingency fund equaling the 0.25 BTC total.

However the numbers in this example are not realistic. 1 BTC was chosen as it currently allows Plattsburgh BTC to maintain this protection to our customers even in the statistically impossible event of not hitting a block for 5 months. Obviously we would not wait this long to take corrective action if that somehow did happen, and the actual value of the contingency fund is publicly available in the table below and on the share distribution page. In the future as volume expands the contingency fund will expand proportionally.

To ensure this is sustainable, a portion of Plattsburgh BTC's mining is reserved for "self mining" to maintain the contingency fund. During good luck weeks, a small surplus is realized and the contingency fund grows.

This is normally factored into the price at a cost of +35% that goes directly to overhead costs. Any cash from customer sales is put towards overhead costs, and each week a portion of bitcoin is sold to meet any gaps to fully cover our cash bills. 

Our 100% luck Protection: general information about how it works for us


When/how should I opt out of Luck Protection?

We offer this in order to stave off potential losses to our customers over a short period and protect you from potentially bad luck during a downswing. It is possible for us to not hit any blocks for a week or two, and so the risks for opting out of luck protection for less than a couple of months are higher. Of course, because this also reduces the price by 35%, there is greater potential for reward. Here you can decide how much risk/reward you are willing to take for short term contracts.

You are not required to use it by any means, so free to opt out of luck protection. We recommend that you leave this default option on if you're going to run a contract for a couple of months.

However, I did mention that luck on this pool balances out at about 4 months or so. For longer term contracts of at least 4 months but ideally 6 to be safe, we recommend waiving our luck protection. This amount of time should allow ample time for luck to balance out to around 100% and will give you more bang for your buck. 


Some background on bitcoin mining

Click to enlarge

Mining is essential to the functioning of the bitcoin network. Bitcoin mining draws many parallels with mining in real life by design. There are a limited number of bitcoins that can be mined, so supply decreases over time, and it gradually becomes more difficult to "extract" bitcoins. About every 10 minutes the bitcoin network discovers another block, which contains 12.5 bitcoins at the moment. This reward is halved every 4 years and started at 50 bitcoins per block.

Blocks contain all the transactions that occurred during the same time period. Nodes then send out these blocks to miners, who then confirm the transactions in those blocks. Miners must verify the transactions before they can be added to the general ledger, known as the blockchain. This service of verifying transactions is what the bitcoin network pays miners to do in a nutshell. Transactions normally include a small fee, and those transaction fees are then included in the reward that's given to the miners.

Miners verify transactions by changing the block into a hash. The network uses SHA-256 (Secure Hash Algorithm) that was originally developed by the NSA. This is the hashing algorithm that bitcoin miners use to complete proof-of-work to verify transactions and add them to the blockchain. Hashes are interesting because they're one way functions. This means it's nearly impossible to work out the original contents of a hash by working backwards, but it's fairly easy to create them. Changing a block even slightly would change the entire hash, which makes picking out fake blocks easy.

For more information, please check out these links:

Intro to hardware mining

Bitcoin mining can be an interesting experience, but sadly it seems that small at home hobbyists are being outcompeted by large mining farms. Two major issues facing those wishing to mine at home is the cost of electricity and getting equipment in on time. Many of the large farms make their own equipment, which gives them another advantage because purchases from ASIC (application specific integrated circuit) producers typically have long lead times. These ASICS are computers that do one thing and one thing only: run the hash algorithm.

Mining today is dominated by these ASICS. Speed is shown in "hashes per second." Many miners today generally operate in the terahash range, with large farms operating in the petahash range. For comparison, the speed of the entire bitcoin network at the time of writing was 413.916 petahashes. You can see a more current chart here. The total mining speed of the network influences the difficulty of the blocks every 14 days. The network attempts to compensate for the amount of processing power bitcoin has access to by making it harder or easier, trying to keep the average time to find a block at about 10 minutes. So as the global bitcoin hashing power increases, the difficulty increases, which means earnings for the same hashing power generally decline over time.

Mining pools

About every 10 minutes a new block is sent out into the network, and the entire network enters what is essentially a big lottery. Mining pools were created to make payouts more predictable. Miners combine their hashing power under a pool, which has enough hashing power to win the lottery on a more consistent basis than mining alone. A pool that has 15% of the networks hashing power should win 15% of the time. The pool then divides up the earnings from the block among individual miners based on their contribution, and there are many different ways to do this. Click here for more information on different payout systems.

Most methods are pretty fair, and in the long run all pools will theoretically pay out about the same if given enough time. The things to look out for are pool fees and whether or not they pay transaction fees. Transaction fees vary by block, and are the culmination of all of the fees that took place when that block was created. However, be aware that not all pools are trustworthy. For example, I used Ghash.io for some time and for some reason the payouts didn't seem to compare to other pools I had used. I've never had any issues with Slush's pool or Antpool, and the average payout per day is what it should be. 

However I would highly recommend Kano CK pool (Kano.is). Primarily I distrust large mining pools based in China, and Kano is designed by a Bitcoin Core coder to be highly efficient at gathering transactions into the block. In effect the blocks are nearly always full to the 1 MB capacity, ensuring a large amount of fees. Recently this equates to about 20% more revenue than a pool that does not distribute fees. Additionally, it has a fair and regular payment system, small 0.9% fee, and tends to have high luck, for whatever reason, averaging about 5% above normal.

Variance and luck

These are two terms I've seen people struggle with, so I'll try to set the record straight as I understand it. Variance becomes more evident with smaller pools. Imagine that you are solo mining with a single AntMiner S9, with 13TH. It would take about 700 days to find one block at the current difficulty! For most people, thats too much of a gamble. The reward would be pretty significant, but is it worth the wait? Small pools have much more variance than large pools, so payouts will be very inconstant. Some small pools may go days before finding a block. Keep in mind that in these smaller pools, your share of the hashing power will be greater, so you will have a larger reward. So in the end, you will make the same amount of money mining for a small pool or a large pool. Large pools offer the benefit of consistent payouts, as well as the benefit of mining more blocks under the current difficulty.

Luck is really just that. Pools average out the normal amount of time it takes for them to find a block, and compares that to the amount of time it just took to find a block. So a pool that struck a block much quicker than usual may display a luck value of 500%, whereas 100% would be average, and 20% would be a bad day. There are two important points I want you to take away from this though. First, luck only tells you what happened, and it in no way gives you information for the future luck of the pool. Every new block the bitcoin network throws out to the pools is a completely new and separate occurrence. Think of every new block like a dice role. Second, over a long period of time, the luck of a pool will be 100%. Pools with less variance will balance much quicker than smaller pools. 

In most cases, having patience is the best thing to do. Some pools are small enough that they may be able to function for free, or for a very nominal fee. The trade off is that it could be days between blocks. These pools can save you some minor costs imposed by larger pools, but the scale is different, so the time it takes for these pools to "balance out" is typically seen in months instead of days.

In either case, pool hopping doesn't do you any favors. Your best bet is to find a pool that your happy with, in terms of variance, fees, trustworthiness, and payouts, and stick with them. 

Setting up and using a pool

There are many mining pools out there, and doing a quick search will lead you to plenty of good options. Personally, I like to use Kano’s pool. It’s a trustworthy pool thats been running for a long time, but be advised that it will take about 4 days of mining on their pool to receive the full reward multiplier, it’s part of how their PPLNS (Pay Per Last N Shares) payment method works.

After selecting a mining pool, many, but not all, will require you to create an account. From here, its as easy as locating their servers and finding an appropriate worker name and password. Nearly all pools use the stratum protocol, and the server address will appear like this: 

stratum+tcp://stratum.antpool.com:3333

Note that the server address may be displayed as just stratum.antpool.com:433. or as stratum.antpool.com port 433. If the information is given like this, then the stratum+tcp:// will need to be added to the beginning, then the url, then a colon followed by the port number.

Next is the worker name. Usually, after creating an account, the format is:

Username.Workername

This is normally the case, but some pools like to work anonymously, so the worker name would just be your wallet address. These pools often don't require that you make an account, as the payouts are just sent directly to the address. An example of this is P2Pool. I'm noting here that I would not recommend using P2Pool at the moment on my rig, because there is not a close enough server to run off of yet. Ping is very important with P2Pool, although I'm looking into offering a local server if there is demand for that. When using these pools, your wallet address can typically be seen easily, so be mindful of the address you use.

About passwords. Personally, I've never encountered a pool that actually requires one, although small private pools probably do. The thing is, if someone stole your password, they would simply be mining for you. In most cases, simply using "x" or "123" is completely fine.

Lastly, I wanted to say that pools can and have been hacked. So just stay on the safe side. When using a mining pool, always send payouts to a hot wallet. Additionally, it's good to invest in some sort of cold storage option, and avoid using "micro" payments of less then 15-20 mBTC to your cold wallet to avoid a large amount of costly “input” transactions when moving to another address. Learn more about that here.