Solo mining vs Lotteries: The Ultimate Battle
Or the perfect marriage - 892294
Human beings don’t like risk and uncertainty. In the presence of an uncertain outcome, our brains tend to crave as much certainty as possible. The explanation lies in both psychology and anthropology. In our evolutionary past, avoiding risk was crucial for survival. Those that took excessive risks could be killed or injured, while those that were more cautious had a higher chance of surviving and reproducing. Although we live in an era where there are more resources and less threats to our species, our brains still function like if we were living in the middle of the jungle surrounded by predators starving for human meat. Our brain chips still haven't been upgraded to 21st century modern life. And we all pay a big price for it.
“Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce.” - Daniel Kahreman
However, in certain aspects of our lives, we don't avoid risk at all, we actively seek it with full enthusiasm. Casinos, lotteries and all sorts of luck games are the biggest examples. Although the first known record of gambling activities by humans was around five 5000 years ago, it's very feasible to assume that this activity is practically as old as humanity itself. From China to Greece to Rome, every ancient civilization experienced the thrills of betting on uncertain outcomes. Six-sided dice dating back to 3000 BCE have been linked to ancient Mesopotamia. Gambling houses were widespread in China during the first millennium BC. Betting on sports took place during the ancient Olympic Games, around 800 to 700 BC. Romans bet on chariot races. The first known casino - The Ridotto - was established in 1638 in Venice, Italy. In 2023, the lottery market, online gambling and sports betting markets combined size was estimated to be around 865 billion US dollars. Gambling has been part of our human existence and will surely continue to be part of it. It’s in our DNA and in our blood.
Why are humans so drawn to gambling, despite their natural inclination to avoid risk? Dostovesky almost went bankrupt due to his gambling addiction. And he wrote a book about it! For some reason, humans enjoy betting their wealth on uncertain outcomes. Once again, it all comes down to psychological and anthropological reasons. Cognitive biases, social influences, dopamine-driven rewards, and environmental triggers make gambling highly appealing—sometimes even leading to dangerous addiction. Even though people are aware that the odds always favor the house, they continue to gamble. Ultimately, casinos and lotteries are games of chance, where the house always has the advantage. Another reason is the significant discrepancy between what’s at stake and the potential payout. When the potential reward greatly exceeds the risk—especially when the initial stake is small—our brain tends to ignore the actual odds and whether we’re getting a fair return on our money.
People like to gamble, cool. What if we could redirect this human need for a greater good: helping decentralize bitcoin’s hash rate?
The Bitcoin Lottery Risk Swap
At its core, Bitcoin mining is just a straight-up lottery. A completely random process. When someone powers up an ASIC and joins the bitcoin network, there’s no guarantee they’ll earn anything by the end of the day—it’s all just probability. We can think of the miner’s hashrate like a lottery ticket production facility. The more tickets we produce, the better are our chances, but there are still no promises of winning anything. But here lies a fundamental problem. The vast majority of miners are not interested in the lottery aspect of bitcoin mining. They don’t want the stress of unpredictable, volatile payouts. To solve this issue, miners usually join pools. By teaming up with other miners, they’re able to smooth out their earnings and get consistent payouts based on the computing power they contribute to the Bitcoin network.
But here’s the thing—while many miners avoid volatility, some people actually chase it. Gamblers thrive on that kind of uncertainty. So why not shift the risk from those who want stability to those who are actively looking for risk? It’s not a new idea—our society has been doing this forever.
Take interest rate swaps, for example. One party might have a loan with a fixed rate, another with a variable rate. One wants predictability, the other is willing to take on risk. So they make a deal and trade exposures. Simple as that. The same concept could apply to Bitcoin mining.
This would be a no-brainer—especially if speculators could get more bang for their buck, compared to traditional lotteries such as the Powerball in the USA and Euromillions in Europe. But to really understand the value of a Bitcoin mining “lottery ticket,” we’ve got to do some math.
Before we dive into the numbers, though, let’s take a quick detour and break down the idea of expected value. It's a key concept that helps us figure out what a single mining attempt is actually worth, on average.
This would be a no-brainer—especially if speculators could get more bang for their buck, compared to traditional lotteries such as the Powerball in the USA and Euromillions in Europe. But to really understand the value of a Bitcoin mining “lottery ticket,” we’ve got to do some math.
Before we dive into the numbers, though, let’s take a quick detour and break down the idea of expected value. It's a key concept that helps us figure out what a single mining attempt is actually worth, on average.
Expected Value - What is it?
The expected value (EV) of a random process is the average amount you can expect to win or lose if you were to repeat the same bet many times. It’s calculated by multiplying each possible outcome by the probability of that outcome, then adding up those values. For example, in a coin flip bet, if you win $2 on heads and lose $1 on tails, and both outcomes have a 50% chance, the expected value would be:
(0.5 * $2) + (0.5 * -$1) = $1 - $0.50 = $0.50.
In European roulette, a straight-up bet on a single number involves 37 slots (18 red, 18 black, and one green "0"). The probability of winning is 1/37, and if you win, you’re paid 35 to 1, earning $36 on a $1 bet. The expected value of a $1 bet is approximately -$0.027, or a loss of 2.7 cents per dollar wagered. This means that over time, for every $100 bet, players can expect to lose about $2.70, reflecting the house edge. Why would anyone participate in this losing business? Because bettors don't necessarily value making money; they value the excitement of having a chance to win, even though they know in the long run, they likely won’t.
Now, it’s time to look at the expected value of traditional lotteries and bitcoin mining to see which one provides the higher ROI.
Powerball
Since this is not a math class, and all these calculations were already made by math nerds, I won’t get into the math aspect of it. You can have a look at them at the following links.
When you factor in taxes and estimate divided jackpots, you discover that, even at its highest value, a $2 Powerball ticket is truly worth only around $0.852, or just 43% of what you spent on it. A beautiful deal if you like to lose money.
Euromillions
Heading across the Atlantic, the situation is quite similar. In EuroMillions, you need to pick 5 numbers from 1 to 50, and 2 Lucky Stars from 1 to 12. Taking into account the prize combinations, the expected value of a ticket, and assuming an average jackpot of €67 million, with no taxes and no prize splitting, the expected value comes out to about 99.2 cents — roughly 45.09% of what you invest.
When taxes are factored in, the expected value drops to around 80 cents. So essentially, you're paying €2.20 for only 80 cents worth of value. Welcome to the world of selling dreams... and losing money for anyone who buys into it.
Solo Bitcoin mining - the best lottery of all?
Let’s now take a closer look at solo Bitcoin mining. The following miners were analyzed: an antminer S21 XP and a Bitaxe Gamma. To perform these calculations, I had to make a series of assumptions about hardware depreciation, electricity costs, other operations costs, residual value, and hash price.
There might be a universe of reasons to get a Bitaxe, but getting our money’s worth for our investment/bet is not one of them. Currently, when mining with a Bitaxe, you’re essentially getting 32 cents for every dollar spent. Even if hashprice increases due to a rise in the Bitcoin exchange rate, the expected value will probably still be under 100%, though it will still outperform traditional lotteries like the EuroMillions that we’ve looked at. If you’re a bitcoiner that spends money on lottery tickets trying to hit the jackpot every single week, it’s time to buy a Bitaxe and put that money towards hashing. You'll have better odds while also contributing to the decentralization of Bitcoin’s hashrate.
The s21 xp numbers are very different, as one would expect. The expected value is greater than 100%, in this case around 154%. It would be strange if it wasn’t the case, since people only mine if revenues will be higher than costs, which translates into an expected value higher than 100%. Although these numbers will fluctuate based on variables like hashprice and electricity costs, it’s clear that anyone participating in the Bitcoin lottery has far better odds than those in traditional lotteries. Bitcoin mining seems to be the ultimate lottery, offering the best potential rewards in the world.
Bitcoin mining - a lottery for the masses
We cannot forget that these calculations were based on the expected value of revenues, not actual revenues. There is absolutely no assurance that a miner will find blocks. That’s why the vast majority of miners join a pool. They don’t want this payout uncertainty. They don’t want to partake in a lottery. But there is a hundred billion dollar industry that wants to. It’s time to bring the bitcoin lottery to the masses.
As we've observed, the expected value of Bitcoin mining significantly exceeds that of traditional lotteries. Assuming the market favors a lottery with a higher return on investment, it's very likely that these "hash rate lottery tickets" generated by miners will be highly demanded by the market. With this tool in their hands, miners can sell their hashrate, effectively reducing their revenue volatility. Meanwhile, lottery participants get access to a more profitable lottery/a better prodcut. It's a straightforward win-win scenario. Each user purchasing a hashrate lottery ticket would fulfill their wagering/gambling desire while also helping miners achieve more stable payouts.
The lottery market and Bitcoin mining are a perfect pairing, each addressing the other's key challenges. The synergy is clear—now it's time to bring it to life.
