  Cryptocurrencies that are based on Proof-of-Work (PoW) often rely on special
purpose hardware to perform so-called mining operations that secure the system,
with miners receiving freshly minted tokens as a reward for their work. A
notable example of such a cryptocurrency is Bitcoin, which is primarily mined
using application specific integrated circuit (ASIC) based machines. Due to the
supposed profitability of cryptocurrency mining, such hardware has been in
great demand in recent years, in-spite of high associated costs like
electricity. In this work, we show that because mining rewards are given in the
mined cryptocurrency, while expenses are usually paid in some fiat currency
such as the United States Dollar (USD), cryptocurrency mining is in fact a
bundle of financial options. When exercised, each option converts electricity
to tokens. We provide a method of pricing mining hardware based on this
insight, and prove that any other price creates arbitrage. Our method shows
that contrary to the popular belief that mining hardware is worth less if the
cryptocurrency is highly volatile, the opposite effect is true: volatility
increases value. Thus, if a coin's volatility decreases, some miners may leave,
affecting security. We compare the prices produced by our method to prices
obtained from popular tools currently used by miners and show that the latter
only consider the expected returns from mining, while neglecting to account for
the inherent risk in mining, which is due to the high exchange-rate volatility
of cryptocurrencies. Finally, we show that the returns made from mining can be
imitated by trading in bonds and coins, and create such imitating investment
portfolios. Historically, realized revenues of these portfolios have
outperformed mining, showing that indeed hardware is mispriced.
