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Cryptocurrency mining rig

Cryptocurrency mining: An alternative to investing

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The flood of several recent news reports surrounding cryptocurrency mining undoubtedly indicates an increase in public recognition of the business.

Discussions surrounding the topic often brings up the question of whether mining a cryptocurrency is more profitable, or safer, than directly investing in it. The answer to that, however, is not very straightforward and definitive due to the sheer number of variables involved.

Even though the practice has proved to be quite viable historically, the popular saying, “past performance is not an indicator of future gains” applies here quite perfectly.

Earlier this month, eighteen Antminer S9 bitcoin miners went missing in Chesterfield, England with no clue as to who the perpetrators of the crime were. It is clear that the end goal of the criminals is to either use the hardware to mine bitcoin themselves or put them up for sale in a public marketplace.

In another success story, Canadian cryptocurrency mining firm, HIVE Blockchain Technologies, managed to report a net profit of $149,724 in the third quarter of 2017, with a total revenue that reached well into the millions of dollars. The company’s success can easily be explained by considering that cryptocurrency mining had not reached peak popularity and the market was in an uncharacteristic uptrend.

Despite those circumstances, revenues of that magnitude are certainly nothing to sneeze at. Furthermore, the company claimed that it has the capacity to report an annual revenue of as much as $150 million.

Risks associated with mining

That said, cryptocurrency mining is not necessarily risk-free either. There is a great number of factors involved in determining the future profitability of mining any currency. While an increase in mining difficulty is one of the more predictable and well-documented ones, things like extreme volatility and sudden increase in competition can all make mining suddenly unviable.

Another aspect of mining that is often taken for granted is the resale value of the used hardware. While the strategy of selling mining gear after use demonstrably works for consumer grade graphic cards (GPUs), the same cannot be said for dedicated ASIC hardware that becomes immediately obsolete after a tank in profitability.

The situation is, in fact, a rather common conundrum for many first time miners as ASICs do provide much more revenue than their GPU counterparts. In these scenarios, a miner must ensure a careful tradeoff between current revenue and future viability.

Mining also requires the user to have some amount of expertise with computer hardware, a rather rare skill for the average person just entering the cryptocurrency ecosystem. Even an experienced professional is bound to fumble as the concept of mining difficulty, power consumption, and overhead costs may prove to be too daunting without significant research on the topic beforehand.

Despite these hurdles, however, some of the richest people in cryptocurrency have amassed almost the entirety of their wealth thanks to mining. In the early days of bitcoin mining, any computer was sufficient to fully mine a bitcoin block, rendering anyone that held onto their reward a millionaire a few years later.

It is undeniable that cryptocurrency mining is lucrative for most people getting started with the technology and is often glamorized by mainstream articles advertising their increasing popularity. Smaller investors and general hobbyists, however, may be better off just purchasing some amount of cryptocurrency instead of hardware and holding it for an extended period of time.

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