- November 5, 2021
- Posted by: admin
- Category: Blog
We’re sure you’ve heard of the term Cryptocurrency Mining and Crypto Miners (not the one shown above), and some people are strong advocates for how crypto mining is a great source of passive income. But is that necessarily true? And if it is, should you and I take part in it?
However, before we get into it, let’s start with the all important question:
What is Crypto Mining?
Cryptocurrency mining, in the context of Bitcoin mining, is the process by which new BTC enters into circulation, as well as how new transactions are confirmed by the network. Every crypto transaction is a very complex mathematical algorithm, and requires many steps to be verified as valid. As such, crypto mining is a critical component of maintaining and developing a blockchain’s ledger. The article linked above has a very in depth description of how crypto mining works.
However, in layman’s terms, whenever a crypto transaction occurs, a transaction hash(similar to receipt number) is generated and published on the blockchain’s network. The hash is a very complex mathematical problem that needs to be solved to confirm if each wallet has enough of each cryptocurrency pair. Miners will then inspect this transaction, verifying that person A’s wallet has the agreed amount of cryptocurrency A to trade with person B for cryptocurrency B, and vice versa. If both user’s wallets have the required amount of each cryptocurrency, the transaction is valid, and the first miner to solve that hash will receive a small cut of the transaction, known as a gas fee. This same principle is applied if a person is sending cryptocurrency from one wallet to another, but only in a one-sided way i.e. to verify that wallet A has enough crypto to send to wallet B. This process is why you will never receive the theoretical amount of cryptocurrency that you should at market price; some of that crypto is distributed to miners as a form of service fee. However, not all networks allow third party miners; Binance does not allow external crypto miners and handles all transactions with internal servers.
While cryptocurrency mining may seem like it’s more work than it’s worth, it still attracts many potential investors as mining, in theory, can become a source of passive income, if done right. Mining can be attractive as you earn cryptocurrency without having to spend a single dollar, which you can then cash out for actual money. However, as with most things, there’s much more to crypto mining than meets the eye.
Is Crypto Mining Worth It?
While in theory you can set up your computer to sit around and earn you free Bitcoin while you do other things or go to work, in practice there are many more costs to crypto mining than you may think. The biggest obvious cost is electricity. Crypto mining is extremely energy intensive as it takes a lot of computing power to be able to solve the very sophisticated mathematical problem generated with each transaction. To begin with, you would need a decent GPU to even try to mine for crypto. Furthermore, since only the winner is awarded, your computer will have to compete with those unbelievable setups to complete the transaction first to earn your cut. In reality, as a beginner, you will encounter many failed transaction attempts before bagging your first successful one, especially in a competitive blockchain like Bitcoin.
While this may vary by location, there’s a pretty good chance you’re actually losing money, even if you sell all the cryptocurrencies that you earn, as the amount you earn can’t even break even on electricity costs needed to run a decent crypto mining rig. You can learn more about advanced crypto mining rigs online, and get a grasp of the amount of computing power you’re putting your poor little portable laptop up against.
In fact, crypto mining is so energy consuming that many countries are beginning to impose bans and restrictions on mining activities. China had recently announced a full ban on crypto activities including trading and mining, due to rapidly rising concerns on how crypto mining in the country is increasing their energy consumption at an alarming rate.
So Should I Mine Cryptocurrencies?
Well, in general, no, you shouldn’t. Unless your knowledge in crypto is deep enough to know which coins are profitable to mine and when and why, then chances are that your weak rig isn’t going to bag you much money. Even if it breaks even on the cost of electricity, you still have to consider small intangible costs such as how your computer is either out of service, or will underperform due to your graphics card prioritizing mining cryptocurrencies.
However, if you know how to read and process reports of how profitable mining a certain crypto coin is, go ahead! Setting up your mining rig properly and doing deep research before beginning can greatly increase your chances of profitability, making crypto mining a possibly viable source of passive income. However, due to the very nature of crypto mining, this article does not serve as financial advice, and we would strongly recommend you do your own research before making such a big decision.
Thanks for reading this article, and have a great day ahead!