Cryptocurrency mining is a tedious, expensive, and rarely rewarding job. Many investors are attracted to cryptocurrency and Bitcoin mining because they can earn crypto rewards for their efforts without having to use the money to buy the coins.
Entrepreneurs see crypto mining as free money, but there is more than meets the eye and mining isn’t about getting coins for free. Far from it. For some, it may be illegal while for others may just not be worth it. Let’s dig deep into how crypto and Bitcoin mining works and if it works for you. If you are technologically inclined, why not?
Alternatives to Crypto and Bitcoin Mining
- Cryptocurrency CFDs: One of the most popular alternative is trading through derivatives that allow you to speculate on cryptocurrency's rising or falling prices without owning the underlying coins.
- Crypto stocks and funds: Another popular option is to buy shares in companies that have a future or a financial stake in cryptocurrency and blockchain technology if you prefer a less volatile, more liquid exposure to crypto market.
- Bitcoin ETF: Launched in October2021, ProShares Bitcoin Strategy ETF (BITO) is the first and only authorized Bitcoin exchange-traded-fund that tracks Bitcoin futures contracts, and it is tied to the price of the cryptocurrency.
A cryptocurrency is a digital currency, and it is often referred to as virtual currency. It is protected by cryptography, making it almost impossible to counterfeit or double-spend. Many cryptocurrencies are distributed networks that use blockchain technology. This distributed ledger is enforced by a decentralized computer network. The most important characteristic of cryptocurrencies is that no single central authority owns or governs the cryptocurrency's network. This makes them theoretically impervious to government manipulation or interference.
The first cryptocurrency was Bitcoin, and it was created in January 2009. Bitcoin was designed to be a peer-to-peer digital coin that could replace the traditional financial system. Over the years, Bitcoin became more of a means to store value, and investors got more interested in investing in Bitcoin than using it as a digital currency. Here is the 2024 Bitcoin price prediction.
However, thousands of cryptos were launched in the years that followed, and some became profitable investments for their earliest investors. Here is a list of top cryptocurrencies to invest in for 2024.
Today, there are many cryptocurrencies on the market (consult a detailed cryptocurrency list). Each cryptocurrency claims a unique function and specification. For instance, Ethereum (ETH) is a smart contract platform, while Ripple (XRP) is used to facilitate international money transfers.
Many other cryptocurrencies have been created in the wake of Bitcoin's success. They are called "altcoins". While some of these currencies are clones of Bitcoin or forks, others are brand new cryptocurrencies. These include Litecoin (LTC), Cardano (ADA), Stellar (XLM), Chainlink (LINK), Bitcoin Cash (BCH), Dogecoin (DOGE), Tron (TRX), Compound (COMP), Dash (DASH), Aave (AAVE), EOS (EOS), Polkadot (DOT), Neo (NEO), Monero (XMR), Tezos (XTZ), Yearn.finance (YFI).
What is cryptocurrency mining? What is Bitcoin mining?
Mining is a metaphor to introduce new Bitcoins or other cryptos into the system. It requires computational work, just like mining for gold and silver requires physical effort. The tokens that miners discover are virtual and only exist within the blockchain's digital ledger.
Cryptocurrency mining requires computational power to solve mathematical puzzles. There are also different algorithms to mine crypto, but they all work to verify transactions and create new blocks to be added to the blockchain. Bitcoin’s blockchain uses Proof-of-Work (PoW) to validate transactions.
The blockchain is a distributed ledger that records details of an investment in cryptocurrency. The transaction is only complete when a "miner", or someone who validates the transaction, confirms it as valid. Once this is done, the transaction will be visible on the blockchain and is completed.
The verification process requires miners to solve complicated equations. To solve the problem, they must race against each other to provide a result for the equation. The first to do so and validate the block is paid a reward as a fee. Each successful validation results in new coins being put into circulation.
In the beginning, Bitcoin could be mined with any standard computer – however, that it’s not the case anymore. Although it is theoretically possible to mine cryptocurrency, it becomes increasingly difficult for PoW networks, because the difficulty of the cryptological puzzles increases over time. Bitcoin mining requires specialised equipment, called ASIC (Application-Specific Integrated Circuit) miner. While these special miners are also very expensive, they consume vast amounts of energy. Actually, it is estimated that 0.5% of the world’s electricity is used to power Bitcoin miners. This is roughly the amount of electricity Finland uses per year. Most Bitcoin miners use 60% to 80% of their mining money to cover the electricity costs.
The other popular algorithm that doesn’t require cryptocurrency mining used by blockchains is called Proof-of-Stake (PoS). The PoS system requires validators, which are selected at random based upon their crypto stake. Some of the top cryptos that use the PoS consensus are Cardano (ADA), Polkadot (DOT), EOS (EOS) and others.
Ethereum (ETH) is expected to complete the update to a PoS system by the end of 2022.
Cryptocurrency mining pools
The mining rewards go to the first miner to solve the puzzle. Participants with a low percentage of the mining power stand little chance of finding the next block by themselves. The chances of finding the next block are very low, so it can take a while before a miner finds one. And the difficulty going up only makes matters worse. The miner might never be able to recoup their investment. Mining pools are the solution to this problem.
The third-party that manages mining pools coordinates groups of miners. Miners can receive a steady stream of Bitcoin by working together and sharing the payouts between all participants.
How to Mine Bitcoin
In the very beginning, people were able to mine Bitcoin using their personal computers. However, this is not the case anymore. This is because the difficulty of mining Bitcoin changes over time.
The Bitcoin network strives to produce one block every 10 minutes to ensure that the blockchain works smoothly and transactions can be processed and verified. But if 1,000,000 mining rigs compete to solve the hash issue, they will likely find a solution quicker than if 10 are working on the problem simultaneously. Bitcoin's difficulty level is adjusted every 2,016 blocks. That's roughly every two weeks.
To maintain stable block production, there must be more computing power available to mine Bitcoins. This means that mining becomes more difficult. The difficulty level drops when there is less computing power. Using a personal computer to mine Bitcoin today will probably result in nothing.
To mine Bitcoin, you would need to take into consideration the right mining equipment and the cost of electricity. You can use mining profitability calculators which are available online, to decide if you could make a profit from your Bitcoin mining. Of course, you can mine any other PoW cryptocurrency.
Bitcoin Mining hardware
To be able to compete with the mining farms that exist all over the globe, you need to invest in specialised mining equipment. This equipment can cost anywhere from $500 to tens of thousands of dollars.
ASIC machines are the majority of Bitcoin mining hardware today. They do one thing, and that is Bitcoin mining. ASICs today are orders of magnitude faster than GPUs and CPUs, and they gain more hashing power as well as energy efficiency with every new chip that is developed and deployed.
Bitcoin mining: Risks and difficulties
Bitcoin mining has both regulatory and financial risks. The financial risk of crypto mining is the most immediate, as the miner can spend thousands of dollars upfront, and the mining process might not generate the expected profit. However, smaller miners can join mining pools to unite their mining power and increase their chances of generating Bitcoin.
Miners should also be aware of their local regulations regarding mining cryptocurrency. In some places, crypto mining is banned (China and others). Make sure to check your country’s regulations around cryptocurrency before you invest in mining equipment.
The profitability of Bitcoin mining lies in the local price of electricity. Despite ASIC chips being more efficient, this technology is a huge energy consumer. Many high-profile personalities, including Elon Musk, have expressed concerns regarding Bitcoin mining's impact on the environment and carbon footprint. In the past, this news has caused the price of Bitcoin to plummet.
However, there are ways to reduce the carbon footprint caused by Bitcoin mining. These include using carbon offset credits and looking for cleaner, greener energy sources. Another strategy is to switch to less energy-intensive consensus mechanisms such as proof-of-stake (PoS), following the example of Ethereum, which is due to finalize the upgrade by the end of 2022. For example, it incentivizes hoarding rather than using coins and runs the risk of centralizing consensus control.
What Cryptocurrencies Can You Still Mine
Investing in some of the popular cryptocurrencies may be difficult for some, considering the soaring prices and the market’s volatility, but you can still be part of the decentralized economy by actively supporting the blockchain and generating new coins. You might consider starting a small cryptocurrency mining business at home.
Building a huge mining rig is unnecessary to make cryptocurrency easy to mine. Miners can easily join mining pools to increase their chances of generating a profit from their mining activity.
However, it is slow and may cost more electricity than the value of coins that you can mine. GPU mining is an option for those who are serious about mining.
Prices for GPUs can range from $600 to as high as $2000. Performance is the main reason for the difference in price. This refers to GPUs' maximum hash rate. In simple terms, hash rate is the amount of power/speed/calculation that the GPU unit can apply when mining cryptocurrency. The hash rate can be expressed as a million hashes per second. One million hashes per second is 1MH/s. Hashrates are usually lower on GPUs with lower prices. The hash rates of CPUs found on laptops and desktops are lower. They are measured in thousands per second, as opposed to millions.
Cryptocurrency mining is only possible for native cryptos of PoW blockchains, such as the Bitcoin blockchain. But Bitcoin isn’t the only cryptocurrency that uses a PoW consensus mechanism. Some of the most popular altcoins that can be mined include Litecoin (see Litecoin prediction 2023, 2025, 2030), Monero (XMR), Dogecoin (see Dogecoin prediction 2023, 2025, 2030), and Bitcoin Cash (see Bitcoin Cash prediction 2022, 2025, 2030).
Alternatives to Bitcoin and Crypto Mining
Cryptocurrency mining is not for everyone, and it’s one of the costliest options if you want to get started in the crypto world. If you only want to invest in cryptocurrency by speculating on their price movement, then CFD trading is a popular alternative.
Trading Cryptocurrency CFDs
CFDs (contract for differences) are derivatives that allow you to speculate on cryptocurrency's price movements without owning the underlying coins. If you believe a cryptocurrency price will increase in value, you can “go long” (open a buy position) or if you believe the price will decline you can “go short” (open a sell position). CFDs can also be used to hedge against losses in an existing portfolio.
CFDs are leveraged products. This means that you only need to make a small deposit (known as margin) to have full access to the underlying markets. However, leverage can increase both profits and losses.
But the finer details can often be a little more complicated – especially since cryptocurrency trading platforms and trading apps functionality vary from provider to provider.
Investing in Cryptos through stocks and ETFs
Many investors are cautious because cryptocurrencies are new investments with little or no history. Cryptocurrencies are volatile and speculative investments, and investors should be cautious. The volatility of the crypto market keeps some investors away from it, but there are still ways to invest in cryptocurrency, even if you don’t want to buy or hold it.
One of the best alternatives is to buy stocks in companies that have a future or a financial stake in cryptocurrency and blockchain technology if you prefer not to directly invest in it.
These so-called cryptocurrency stocks can be broken down into a few broad categories:
- Public companies that own cryptocurrency. It’s a known fact that MicroStrategy (MSTR) and Tesla (TSLA) own substantial amounts of Bitcoin.
- Crypto exchanges. For instance, Coinbase (COIN) is a major cryptocurrency exchange. The company is listed on the Nasdaq exchange.
- Cryptocurrency miners. RIOT Blockchain (RIOT) is a Bitcoin mining company.
- Financial services firms. You can invest in CME Group (CME), which established the first bitcoin futures market, and Robinhood (HOOD), an online trading platform for stocks and crypto.
- Payment processors. Square (SQ) and PayPal (PYPL) allow users to buy and store cryptocurrencies. Visa (V) and Mastercard (MA) handle payments for several crypto-linked credit and debit cards.
- Tech companies. NVIDIA (NVDA) and Advanced Micro Devices (AMD) are the essential microchip producers for the blockchain hardware infrastructure. VMWare (VMW) is a leading cloud computing company that has blockchain-focused businesses. DocuSign Inc (DOCU), a platform that facilitates electronic signings and agreement processes, uses blockchain technology to secure signer identities and keep contract evidence.
Exchange-Traded Funds (ETFs), are a type of investment fund that can be purchased just like stocks. ETFs are a quick and straightforward way to diversify because they invest in several stocks, bonds, or other assets. The so-called cryptocurrency ETFs include either one or more cryptocurrencies or stocks from crypto and blockchain-related companies.
Are Bitcoin and crypto mining for you?
Bitcoin mining is the function that verifies and confirms transactions on the blockchain. It also helps to stop bad actors from double-spending. This is how new Bitcoins are introduced to the system. The miners must provide answers to complicated puzzles and the process requires a lot of energy. The mining process is imperative for the system to continue to function, and it keeps the decentralized system secure, reliable, and trustworthy.
The profit generated from Bitcoin mining and any other cryptocurrency mining comes from selling the coin you’ve generated. If the value of Bitcoin is higher than the electricity bill and the cost of the equipment used, then your Bitcoin mining is profitable. Many voices have blamed the heavy energy consumption of Bitcoin mining to hurt the environment, but there are green energy sources that can be used. In this case, the energy is stored in Bitcoins, and its blockchain can be seen to store energy, which is otherwise impossible. This process might not be possible for everyone, and each miner must decide for himself if Bitcoin mining and cryptocurrency mining, in general, is profitable investment.
Before you start using cryptocurrencies, you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of free cryptocurrency courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader or make more-informed investment decisions.
Our demo account is a suitable place for you to get an intimate understanding of how trading and investing work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for investors who are looking to make a transition to leveraged securities.
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