Cryptocurrency Mining Overview

Cryptocurrency mining vs trading - which is more profitable?

There is no denying that the world of cryptocurrency is an exciting one. In the past, the wealth that it generated was limited to those in the know. Crypto was almost a closed group, only open to those who really understood it, the ‘geeks’ for want of a better word. That has all changed though. Over the last two years, we have seen the likes of bitcoin enter the mainstream and suddenly everyone wants in.


For those that are new to cryptocurrency, they have a couple of choices when it comes to acquiring any. They can buy it or they can mine it. Those with the know-how and the equipment may well choose the option of mining cryptocurrency rather than buying it. Those who are a little smarter will tap into the power of other people’s rigs to mine, removing most of the risks that exist with the traditional approach.


We’re going to take a look at how profitable crypto mining is and consider how trading compares. With mining at the heart of all things crypto, is this the way to go? We believe so. Read on to find out more.


What is cryptocurrency?


Before taking a look at cryptocurrency mining vs trading, it is worth exploring just what is meant by cryptocurrency. In its simplest form, it is a digital, or virtual, currency. All cryptocurrency is secured by cryptography and this ensures that counterfeiting, or double-spending, is almost impossible.


One of the reasons that cryptocurrencies appeal to so many people is that it is decentralized. They are not controlled by any single person or by any government. In theory, this means that the value can never be controlled, influenced, or manipulated, by any government or powerful organization/individual. Some of the most popular cryptocurrencies that you are likely to have heard of, include the likes of bitcoin and Ethereum.


To own any cryptocurrency, you either need to mine it or go over to a cryptocurrency exchange and buy it. You will find that there are more and more uses for cryptocurrencies today as more and more retailers have opened their doors to accepting them. That being said, the main attraction is their trading value after their worth has skyrocketed over recent years. 


What does it mean to mine a cryptocurrency?


Cryptocurrency mining is a process used for Bitcoin and other cryptocurrencies. It is used to generate new coins and, just as importantly, to verify new transactions that have taken place. Mining utilizes a vast, decentralized, network of computers that are spread around the world. These networks verify, and secure, blockchain, which is best described as a virtual ledger that records all crypto transactions.


It takes a considerable amount of processing power to keep the blockchains secure. Those computers that are connected to the network, and sharing their power, are rewarded when new coins are generated.


This leads to an ongoing cycle when it comes to cryptocurrency mining:


  • Miners have the responsibility of maintaining the blockchain and keeping it secure 
  • The blockchain awards new wins to the miners in return
  • The miners have an ongoing incentive to carry on maintaining the blockchain


As you can see from the above, the mining process is an integral part of crypto, its workings, and even its existence. As long as there is crypto, there will always be the need to mine.

Who can do cryptocurrency mining?


Whether trading or cryptocurrency mining is more profitable is irrelevant if you are unable to do either of these. When it comes to cryptocurrency mining, those who were involved in the early days have witnessed a great deal of change. Those early days saw them being able to mine from home with a standard PC. A basic mining rig at home could see them making thousands each and every day. That success meant that everyone wanted to get involved, and then it all got that much harder.


The mathematical equations that computers are trying to solve have grown more and more complex. Added to this is the fact that more and more people are scrambling to have their machines solve them. Those who are successful have created what can only be described as mining farms – a place with numerous powerful machines and thousands of coolers and graphics cards. To set up now, and to compete, means a huge outlay. One that there is no guarantee of recovering. 


For many, the outlay to set up a mining farm is far too big. So, where do these people turn? To companies that already have the infrastructure in place that can mine on their behalf. 


The risks of cryptocurrency mining


People tend to be accepting of the fact that with trading, comes risk. However, not everyone is as aware of the fact that mining cryptocurrency carries its own risks. When looking at mining cryptocurrency vs trading, neither option is risk-free. Certainly, when it comes to mining for yourself, the risks are significant when you look at the value of your equipment, and what could go wrong. 


To achieve the type of cryptocurrency mining rig that has a chance of success, you’re going to need three to four high powered machines. These don’t come cheap. You will be looking at spending thousands on each of them. The risk comes with the fact that these expensive machines are going to need to run continuously. This gives plenty of opportunities for them to get damaged.


Cryptocurrency mining energy consumption is something else that needs to be considered. The running costs of a mining rig are huge. When you add this to the expense of your machines, and the fact that you may be unsuccessful at mining, the risk can not be ignored. However, these are risks that can be mitigated, as we shall see next. 


Crypto cloud mining as an alternative


For those where a mining rig is out of financial reach, they seek alternative ways to stay involved.  Crypto cloud mining sees miners taking advantage of cloud computing which is used in many sectors and industries. Cloud computing did away with the need for businesses to have huge computers taking up valuable space just for the purpose of storing data and allowing software to operate. It saw companies, instead, tapping into computing power that was held elsewhere. So, what does this mean for cryptocurrency miners?


Crypto cloud mining removes some of the risks that are associated with mining. Mainly, it does away with the need for cryptocurrency miners to shell out on expensive equipment. Instead, they take advantage of the computing power of cryptocurrency mining companies. This sees miners paying a percentage of any profits to the company leading to a win-win situation.


A look at cryptocurrency trading


If you already have experience trading stocks, shares, or forex, you need to bear in mind that trading cryptocurrency is still relatively new. What this means is that strategies that you may already employ in your trading will not necessarily be effective here. There is a need to step back and take the time to learn new strategies and how the market works. There are the options of trading through a CFD account or an exchange.


With a CFD account, you never own any coins. Instead, you speculate on how the prices may move. You buy if you think prices are going to increase and sell if you think that they will fall. With an exchange, you need to actually buy the cryptocurrency before you can trade with it. You store your currency in your own wallet until the time comes when you’re ready to open your position. Both of these approaches come with steep learning curves. 


The risks of trading cryptocurrencies 


The first thing to note when trading cryptocurrencies is that they are not affected by world events in the same way that fiat currencies or stocks and shares are. While with forex, key events may lead to significant changes in value. With crypto being decentralized, it is not ruled as much as other markets are. This can make it difficult to predict which way crypto may go. However, that’s not the only reason that trading cryptocurrencies can be tricky.


One of the other risks comes with exchanges that offer leverages so that you can open short positions. With the likes of bitcoin, it probably makes sense to go long, but what if you get the timeframes wrong? Other traders will have an influence on the price and they apply their thoughts to the market. This is particularly true when it comes to newer coins being launched. 


A positive of the last 12-18 months is that the volatility of cryptocurrencies seems to have calmed. However, traders still need to be aware that there can be wild swings that can have a significant impact. History shows that certainly where bitcoin is concerned, recovery follows, but short-term losses can certainly hurt.


Final thoughts


When looking at cryptocurrency mining vs trading, both approaches carry their own risks. The truth is that people have been attracted to trading as mining has seen a higher entry point which has become a barrier to some. However, the alternatives on offer open up mining to the many rather than the select few.


The ability to tap into computer power elsewhere, via cloud mining, means that people can still benefit from mining but can remove some of the biggest risk factors. There is no need to invest in expensive equipment and there are no fears regarding these becoming damaged, or even obsolete. Of course, you need to make sure that you are working with the right cryptocurrency mining company to mitigate the risks even further.