Mining crypto is easy. You just leave your computer running for a few days then you can head to your nearest Lamborghini garage as a newly minted millionaire.
Unfortunately, it’s not 2011 anymore. But that doesn’t mean there aren’t still some great positives to mining Bitcoin and other tokens. Just make sure you understand all the pros and cons before you dive in.
Types of Crypto Mining
Most crypto mining takes place via “mining pools.” Some of this article might not make much sense if you don’t know what they are or how they work.
The Pros of Mining Cryptocurrency
We’re all optimistic people here at Blocks Decoded, so let’s begin with the positive aspects of mining crypto.
1. You Can Make Money
Money is a motivating factor for an awful lot of people—sad, but true. And mining crypto has the potential to earn you a significant amount of cash.
Though beware: It’s certainly not a given. You need to make sure you’ve got the right equipment and that you’re mining the right coins.
2. Mining Is Getting Cheaper
At the start of December 2018, Bitcoin mining difficulty dropped by 15 percent. It was the second largest drop in Bitcoin’s history (after an 18 percent drop in 2011).
The drop was driven by the large number of miners who quit following crypto’s crash in the preceding months.
Fewer miners means less hash power, and less hash power means Bitcoin automatically adjusts itself the reduce the difficulty of solving new blocks.
For people who are still mining—and mining newcomers—the upshot is mining Bitcoin has suddenly become a lot more profitable.
3. The Rise of Cloud Mining
For new miners, the rise of cloud mining is also a massive positive. It lets you mine crypto without shelling out on expensive hardware and extortionate electricity costs.
Instead of using your own equipment, cloud mining offers a way for users to “hire” hardware in remote data centers. Some of the leading cloud mining providers are Genesis Mining, Hashnest, Hashflare, and Hashing24.
The process is simple: Make an account, choose your hash rate, pay your subscription fee, and wait for the coins to start rolling in.
4. Hardware Retains Its Value
If you don’t want to join a cloud mining pool, you’ll need to buy your own hardware (more on this below).
However, on the positive side, the hardware retains its value very well. If crypto were to go out of existence tomorrow, you’d still be sat on a pile of kit you can re-sell for a tidy sum.
5. You’re Helping Crypto Grow
Crypto mining isn’t all about the individual. Miners also play a massive role in the crypto community. Indeed, if miners didn’t exist, Bitcoin’s value and practical worth would drop to zero overnight.
If you believe in cryptocurrency and want to help it become more mainstream, mining is one of the best ways to get involved and contribute to its long-term success.
The Cons of Mining Cryptocurrency
Woah there, slow down! It’s not all positive news. Mining cryptocurrency has quite a few cons you need to be aware of as well.
Getting started in the world of Bitcoin mining isn’t easy. Even people who have a good understanding of how blockchains work might find themselves bamboozled in the early days.
At the very minimum, you’ll need a coin wallet, mining software, membership in a mining pool, an account with a crypto exchange, a customized mining rig (computer), a GPU or an ASIC chip, and cooling equipment.
Needless to say, getting all those things up and running smoothly isn’t a straightforward task. You need to be prepared to read a lot and make plenty of mistakes.
2. Electricity Costs
Mining crypto—especially Bitcoin—is an electricity-intensive process. Indeed, it’s so intensive that crypto is now starting to feel the heat from ecologists. They argue that mining is beginning to have a seriously negative impact on the environment.
It’s not hard to see why they make those claims. The figures are hard to comprehend. According to Digiconomist, the annualized total value of Bitcoin mined in the last year is $2.7 billion. The cost of the electricity to perform that mining stands at $2.6 billion. Bitcoin alone now needs more energy than the entire country of Bangladesh; that’s enough power to run five million US households for a year.
Prior to the crash at the end of 2018, the figures stood at $4.6 billion and $3.6 billion, respectively.
3. Hardware Costs
Electricity isn’t the only cost you need to worry about. If you don’t want to go down the cloud mining route, you’ll also need an impressive array of high-end hardware.
There are a few different hardware approaches you can take. Discussing them is beyond this scope of this article, but suffice to say you’ll need a large budget. If you want to learn more, the Bitcoin wiki gives an insight into the type of kit you’ll need.
The crypto world is awash with scams, some of which affect the mining industry.
People who choose to use cloud mining companies are particularly at risk. There’s no shortage of fake companies and unscrupulous organizers, all of whom want to take your subscription fees and your mined coins, leaving you with little to show for your efforts.
If you want to start cloud mining, make sure you use a well-established company like the ones we mentioned earlier.
5. You Could Lose Money
Naturally, we are big believers in crypto and blockchains. But our bullish sentiments don’t mean that long-term success is a given.
If the last couple of years have taught us anything, it’s that cryptocurrency prices are extremely volatile. And when prices go down, it drastically affects mining’s profit margins.
Given the high costs of hardware, electricity, and cooling, a drop in prices could mean you’re paying out more money to mine crypto than you’re receiving back in tokens.
These declining margins led to the previously-discussed exodus of miners in late 2018. Sure, the decrease in difficulty offsets some of the losses, but no one in the community has any control over utility and hardware prices.
Let us know your stance on crypto mining in the comments below.