To trade crypto coins or to mine crypto coins?

Mining Analysis 2 Comments 1417 Views1

To trade crypto coins or to mine crypto coins IMG 01

In the past years, the cryptocurrency market has been extremely hot. The price of bitcoin has risen to thousands or even tens of thousands of RMB, which made many newbies full of eager to get rich overnight. Based on the current situation, there are two ways for the ordinary people to obtain cryptocurrency: 1. mining; 2. trading at the exchange. How should the new investors make the choice between trading and mining? What are the advantages of the both? This article will have a detailed discussion as follows.

 

Mining

To trade crypto coins or to mine crypto coins IMG 02

On January 3, 2009, the author of Bitcoin White Paper, Nakamoto Satoshi, personally created the first block, on a small server in Helsinki, Finland, and he obtained the first 50 bitcoins automatically generated by the system as the reward, the first bitcoin came into being since then. That’s to say, the first bitcoin was obtained by mining.

So in the early days of bitcoin development, the players who know computers only need to install a good CPU and download a software, then they can start to mine bitcoins by computer CPU. That’s also why there’s a story that a player dared to spend 10,000 bitcoins buying a $25 pizza. However, since the number of blocks is fixed and the output will be reduced by half every four years, if more and more people have participated in the calculation, the coins will be more and more difficult to be mined.

According to the review on the history of mining, the bitcoin development has experienced the following five periods (please refer to A Brief History of the Cryptocurrency Miners):

CPU mining – GPU mining – FPGA mining – ASIC mining – large-scale cluster mining

as well as the development of mining speed:

CPU (20MHash/s) – GPU (400MHash/s) – FPGA (25GHash/s) – ASIC (3.5THash/s) – large-scale cluster mining (3.5THash/ s * X)

The mining speed refers to the hashrate, which means the computer capability of generating the hash collision every second, or in other words, how many times the miner can make a hash collision per second. Hashrate is the capability to mining bitcoin. The higher hashrate, the more bitcoins and profits.

 

Mining vs. Trading

What happens when 21 million bitcoins were exhausted IMG 02

In general, the advantage of the mining is the low risks. With only some costs on miners and electricity, people may harvest profits several times more than the investment. Compared to trading, the risks are very small.

However, there are also disadvantages. For instance:

  1. High threshold. Firstly, people must pay money as well as their time on mining. Even the miner has been bought, lots of electricity fees need to be paid. Moreover, even all these investments may not result in any profits. People have to keep mining at very high operation costs even if nothing has been mined.
  2. Halved bitcoin production makes mining more difficult. Since the total number of bitcoins is fixed and the production will be reduced by half every four years, the bitcoins available in the future will be less and less. That is, more and more mining workers while less and less bitcoins.
  3. Too many uncontrollable factors. In June of this year, heavy rains attacked Sichuan Province in China and several farms at low altitude had been suffered, including a large farm with tens of thousands of miners, only 2,000 miners were saved. The miner worth 5,000 yuan now has become a piece of junk, the loss was quite heavy.

Another way is trading at the exchange. Compared to mining, the exchange is the place attracting most speculators now. The two main reasons why they choose exchange are as follows:

  1. Low threshold. People can directly trade at the exchange without any tedious certifications.
  2. Low cost. People only need to pay some transaction fees and the cost is very low.

Disadvantages of trading: high risk. Although it resembles the stock market, the stocks are subject to price limits while the cryptocurrency market has no such limits at all. The coin may rise 100% on the first day and drop 200% on the next day. Moreover, it’s floating in 24 hours and it’s hard for the investors to understand the price changes, therefore the risks are also quite high.

 

Summary

Therefore, for the new investors, trading has the lowest threshold but the highest risk while mining is just the opposite. Each has its own advantages and disadvantages and the investors should make the choice based on their own actual situations.

 

Appendix

A series of articles on cryptocurrency mining for beginners on EastShore: