Why mining is here to stay and how to get started
Consider this- According to this Cointelegraph article, Bitcoin miners have made $14 Billion as of August 30, 2019. What makes this statistic more amazing is that this is only revenue for Bitcoin, the biggest cryptocurrency by market capitalization.
Add in mining revenue from other cryptocurrencies such as Ethereum and Dash, and the figure will be way higher. What this confirms is the following:
Crypto Mining is still a revenue-generating business
How can you get started with crypto mining as a retail investor? We explore that in this article and more. But first, let us go through how the basics of crypto mining.
How Crypto Mining Works
In essence, mining serves two purposes- adding new transactions to the Blockchain in a secure and verifiable way as well as releasing new tokens to the ecosystem.
This is done by miners solving mathematical problems with cryptographic hashing functions related to the specific block to be mined.
Swiss based ETP enters the Crypto trading market | Data Driven Investor
Although there is hardly ever a dull moment in the financial market specially after the introduction of…
If this sounds overly complicated, a simplified version would be the following- Computers and servers are run simultaneously to solve a mathematical problem, whereby higher computing power gives a higher probability of solving the problem.
The server that solves the problem will be rewarded with coins for mining that particular block!
This method of crypto mining secures the network, as hackers who want to take control of the network, will need to own at least 51% of the computing power of the network. Unless you are willing and able to put in huge amounts of resources, hacking the network in most cases is not possible.
Coins mined successfully can be sold on exchanges or through Over The Counter (OTC) to earn a profit, which brings us to the next point.
Getting Started As A Retail Investor
For crypto mining to be profitable, it needs to be a medium to long term endeavor. As capital and time are limited for the typical retail investor, it will be better to join a mining pool to get started initially.
This requires the retail investor to use a Crypto mining monitoring software to track a multitude of variables. These variables include but are not limited to the following
- Electricity costs incurred
- Hashrate of competition (Speed of solving equation)
- The volume of coin on exchanges
- The estimated value of the block reward
- Performance of your mining pool (what algorithms and mining equipment are used)
- Fees charged by mining pools
- Size of the mining pool- Smaller pools offer irregular but higher rewards, whereas the opposite is true of the larger pools
Minerstat is a platform that allows you to monitor most of these variables in a single dashboard. This will help you to evaluate which coins to mine, which mining pool to join and when to switch mining to other coins.
For more detailed evaluation criteria for mining pools, read this guide by Investopedia.
Best Countries For Crypto Mining
Evaluating the jurisdiction where mining is done is as important as evaluating the performance of mining pools.
Choosing the best jurisdiction to do mining is a balance between lowering costs and the regulation of each jurisdiction towards crypto.
Countries that incur a low cost may not be the best places, as they may either have an unstable political situation or may hold an unfriendly stance towards crypto, charging high tax rates on crypto gains for example.
Taking into account these two factors, here are 3 countries to consider when it comes to crypto mining.
Mining In China
When it comes to crypto mining, you can never take China away from the conversation. As of early 2019, China accounts for 70% of the Bitcoin network’s collective hashrate.
The vast availability of coal and hydroelectricity together with electricity subsidies from the government translates to one of the cheapest places to mine crypto.
Furthermore, the Chinese government has recently removed crypto mining from the list of industries they want to eliminate. This is an encouraging sign for crypto miners in the country.
However, Bitcoin and other cryptocurrencies are still banned in China. There has also been a crackdown on crypto exchanges operating in China. No one knows if and when crypto mining will be banned. This is a risk mining companies in China will have to undertake.
Mining In Georgia
Georgia is not a country we often hear about when it comes to crypto mining, but it is an ideal location. Possessing an abundance of natural gas and hydroelectric, mining crypto is cheap in Georgia.
Also, the country has proven to be crypto friendly, exempting Bitcoin from Value Added Tax. This applies to both companies and individuals who trade crypto. With friendly crypto regulations and cheap mining costs, Georgia is one of the best countries to do crypto mining.
Mining In Other Less Developed Countries
Other locations such as Kuwait, Bahrain, and Venezuala have been spoken of as cheap and viable places to do crypto mining.
However, there are other factors to be evaluated, such as their unstable political situation and hot weather that may increase the costs, as more electricity is needed for cooling. As with all the other locations, more research is needed before making a decision that suits the retail investor.
Mining Is (Still) Here To Stay
Despite the current bear market, crypto mining can still be a profitable long term investment. By lowering your costs through researching mining pools and different jurisdictions, you will give yourself the best chance to accumulate coins you believe in at the lowest cost possible.