Investing into cryptocurrency mining – here’s what to know | Matjaž Škorjanc
Cryptocurrency mining is grabbing headlines worldwide. Matjaž Škorjanc explains how to invest into crypto mining safely and profitably…[Matjaž Škorjanc, Founder and Mining Manager of NiceHash, the world’s leading cryptocurrency mining services provider and coin marketplace.]
Cryptocurrency mining is grabbing news headlines all around the world right now.
From China’s governmental crackdown on cryptocurrency mining because the power’s running out, to Ukrainian police seizing 5,000 mining rigs from an allegedly illegal operation, people everywhere are debating crypto mining and the technologies facilitating it.
The cryptocurrency sector is standing at a crossroads. Both from a coin investment point of view and coin generation point of view (i.e., mining). Just take at looks at last week’s news on the market crashing due to El Salvador beginning to now accept Bitcoin as legal tender.
While it’s becoming more widely accepted and understood, in the same sentence, cryptocurrency mining is also coming under much more scrutiny. Most criticism in the news centres around the negative environmental impact of crypto mining the coins of the biggest players, such as Ethereum (ETH) and Bitcoin (BTC). Crypto mining and crypto investments are increasingly under the spotlight.
And it can’t be denied that the sheer computing power necessary to keep these massive blockchains running is damaging. According to Digiconomist’s Ethereum Energy Consumption Index, together Bitcoin and Ethereum consume more energy than the 90 million strong population of Thailand. Elon Musk cited this as the reason behind his company Tesla withdrawing from Bitcoin mining and transactions.
You may have read in the news, that Ethereum plans what it calls ‘the Merge’ sometime next year, which will shift the network’s blockchain from the current ‘proof of work’ system to a new ‘proof of stake’ system. This new approach to securing the blockchain will eliminate the emissions problem – a potential sign to regulators to perhaps begin to accept Ethereum as legal tender.
Furthermore, according to Ethereum company founder Vitalik Buterin, who has been pushing for this change since he launched the blockchain in 2015, the switch to proof of stake will ensure that the biggest challenges facing cryptocurrency mining will disappear thanks to a hugely reduced carbon footprint.
You may also have read about the significant increase in crypto mining stocks recently (indicating more and more people are investing into crypto mining). In July, shares in six crypto mining firms leapt in value by up to 40%, following a substantial rise in the popularity of crypto market, which is exactly why investors need to understand far more about crypto mining and how to utilise it to boost their income.
Back to basics: what is crypto mining?
Think of it as the process followed to create cryptocurrencies through the processing of individual transactions. Crypto mining is integral to the security and validity of the decentralised blockchain technology that powers cryptocurrencies.
Cryptocurrency mining necessitates using high powered software and hardware to solve complex calculations. Crypto mining serves two purposes:
o Miners verify each transaction made between two people on the distributed ledger, which creates a secure network.
o The process of mining creates new tokens for the cryptos.
When it comes to mining the biggest and most valuable cryptocurrencies, such as BTC, the competition is intense. To reach the reward in the form of a trickle of tokens, the user must solve the computational problem. Many years ago, individuals could do so using relatively low power computers.
Today this process, known as ‘proof of work’, takes enormous amounts of energy due to the computational power needed.
Why are people investing in crypto mining?
Crypto mining stocks usually mirror the cryptocurrency market itself.
This allows investors to make money from the cryptocurrency market without investing in the currency itself. The cryptocurrency market is notoriously volatile, with jumps in value of BTC frequently soaring and plunging, according to comments on social media from Musk and Dorsey.
When BTC or another crypto leap in value, other cryptocurrencies and crypto stocks also surge. The major factor driving crypto-mining stock is the value of the major cryptos. But investors must also consider where the mining is taking place – if it’s in China, they can expect much more volatility due to fears over more shutdowns. Chinese prosecutors has made it clear that they want to eradicate cryptocurrency, which will inevitably impact the stock.
Many cryptos are shifting their mining operations out of China and into places like the US. Other countries such as Kazakhstan and Russia will be key regions also. Personally, from speaking to Nicehash Users, I feel Russia and US are more long-term viable options in terms of key regions. All these crypto mining companies need capital from investors to enable their high-power operations. The complexity of mining will only continue to increase, which will command wider investment.
What drives the profitability of cryptocurrency mining?
The rise in crypto mining is increasingly shutting out individuals who don’t have this major investment behind them. The main factors driving the profitability of a crypto miner are:
- Hardware costs.
Miners need a lot of capital to plough into high-end semiconductors (however we talk about low-cost alternatives for you to get into mining below). Right now, of course, there’s a global shortage, and prices are rising. As gamers are also trying to acquire these scarce semiconductor chips, there is even more competition and even more costs involved.
Of course, you will have to also consider investing into the relevant security software to mitigate any cyber-security threats. Cryptojacking , i.e. malicious crypto mining used by a hacker where cyber-criminals hack into personal computers via malware attacks and botnets.
- Price of energy consumption.
As a crypto miner you can expect to need vast amounts of power to run the computations.
Naturally, you want the cheapest source possible. As China offers sporadically low-cost renewable energy, mining in China allows the use of ESG friendly solutions, which could offset some of the concern about its environmental impact (not that I suggest you move to China). However, as we know, the mining story in China appears to be all but over. Additionally, according to the data released by Cambridge Centre for Alternative Finance, just 40% of crypto miners use renewables.
- Value of cryptocurrency.
As I’ve touched on – the value of cryptocurrency is linked to mining stock.
Opening up a global market for investment into cryptocurrency mining
While crypto mining can be done from anywhere, around two thirds of it is based in China. This is now changing due to China’s high-profile crackdown on crypto mining, with over 1,100 Chinese nationals arrested for illicit mining activities which they dubbed as ‘money laundering and bank fraud’ by the Chinese authorities. I wouldn’t be surprised if China began using their defence intelligence. Around 10% of the global mining market is currently based in the US. This will change due to crypto miners now wanting to move out of China and into a more welcoming country of the concept (perhaps not Malaysia though, where another significant raft of miners were arrested and face prosecution).
And when there is change, opportunities are discovered. The US could be the country with the ability to fill the gap China will leave in the global mining market.
Demand for crypto mining is rising all the time. At the start of this year, the collective value of all cryptocurrencies reached more than $1 trillion for the first time. Since then, the market has naturally fluctuated as it always will. Only last week the market plummeted in millions due to the El Salvador news. However, even when the market declines, it’s still maintaining higher values across the board than it did just a few years ago.
It’s stronger at its core, thanks to cryptocurrencies becoming more mainstream, again a stronger sign for potentially investing into mining.
How should you get involved with cryptocurrency at low-risk investments?
We’ve established that the cryptocurrency market and the crypto-mining market have enormous potential for investors. You can either invest in the currency itself or into the crypto-mining software that provide the infrastructure service for the system itself.
Cryptocurrency investment is high risk and extremely volatile, and for this reason, it’s not attractive to investors who want more of a safe bet. But investing into a crypto mining is a more stable and simpler entry into the market (creating better control within your crypto investment).
Crypto mining also offers those who are interested in creating a side hustle to make income using the computing power you own already.
For those who aren’t interested in mining directly, you can also lease your computer components that will increase your hash power and push you ahead. In many ways I see this as the next generation of cryptocurrency mining and allows anyone with enough CPU power to make money from it.
Mining through leasing CPU power to bigger miners is easy for you to do. Software is available where you scan your hardware, select the most appropriate algorithm, then add your computer’s power into a pool.
Professional miners can then borrow from that pool. Be sure you are using legitimate hash power software from verified and trusted vendors (be careful of illicit companies and potential malware botnet).
Online crypto mining portals offers you a potentially easier way to invest in crypto mining and cryptocurrencies without you having to invest into costly crypto-mining rigs. You are paid for your power usage, and this is in the form of crypto, leading to a steady flow of income without the volatility of trading directly. There are very few downsides to this, with only a minimal increase in energy bills for users. While it does slow the computer, it’s possible to carry out most tasks.
The mining can be stopped and started at your convenience, and you can cash out from as and when you want to benefit and get paid from the profits. These can be taken out in cash or reinvested back into cryptocurrency.
You are in control of the money they make from crypto mining and have ultimately more control over your own investment choices (rather than riding the ever-changing wave of coin market volatility).
You should ask yourself these questions before entering the market.
The kinds of investments that are available within cryptomining vary, depending on what you are going for. However, returns from crypto mining are roughly aligned to the ups and downs of cryptocurrency value.
Investing directly in cryptocurrency is volatile, and it is risky. Millions continue to leave and enter the coin market daily. However, by investing in crypto mining, many of the risks you could encounter with coin trading can be mitigated. But to go in as a new investor, it’s essential to understand the market, how the tech works and just how exactly you can make returns as a user of mining equipment or rented software
Do your research thoroughly
Before you decide to invest in cryptocurrency mining, consider whether you have enough insight into the market. If you don’t, then spend some time learning about blockchain, mining, how coins are created, the risks (mining security including malware protection, botnets, and identity theft) and the challenges the market presents and, of course, the enormous potential it has.
Ultimately, the decision you make as an investor into the cryptocurrency market depends on your risk appetite and your interest in following the evolving ups and downs of this potential-packed sector.
I would also recommend reading as many areas of expertise as you can (not just one Slovenian expert) and reaching out to mining professionals in the industry
About Matjaž Škorjanc and NiceHash
Matjaž Škorjanc is co-founder and Mining Manager of Slovenian company NiceHash, the world’s leading cryptocurrency mining services provider and cryptocurrency coin marketplace. Škorjanc founded NiceHash in 2014 after spotting a gap in the crypto mining market for a user-friendly free exchange for NiceHash users to bid against each other openly.
Based in Slovenia, both Škorjanc and NiceHash are vocal advocates for decentralization and the potential of crypto (not only in Slovenia but for users worldwide). NiceHash believes in a blockchain and decentralization, where everyone has equal access to a new financial standard. Matjaz Skorjanc is a Slovenian expert in block chain tech, operating systems, mining software, defence intelligence and networks.
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