Do you want to get rich mining Bitcoin?
As the lure of mining Bitcoin continues to attract capital into the cryptocurrency industry, we explore whether mining is still a viable option for the retail trader.
Mining Millions – Myth or Reality?
The idea is seductive. Set up your computer to mine cryptocurrencies and sit back while the cash flows in. The reality, however, is drastically different. Since its inception in 2009, Bitcoin mining has evolved to become an extremely competitive industry characterized by factories full of specialized mining equipment known as ASICs.
But it didn’t start this way. Bitcoin mining started as an activity done by hobbyists who were genuinely interested in the technology underlying the Bitcoin protocol. These early adopters used the power from the CPU on their personal computers to mine on the Bitcoin network. Bitcoin had no value in its early existence and many of these miners were using their power to simply experiment with the network.
Once a market developed for Bitcoin and its price began to increase, it wasn’t long before more specialized equipment began to mine on the network. The next step in the hardware evolution was GPU’s. The problem with CPU’s is their functionality is too general. CPU’s can be used for a wide variety of tasks but they are not going to provide much power on any given task. GPU’s were slightly more powerful but the chip was still used for general computing purposes. After GPU’s came FPGA’s. FPGA’s only used about a third of the energy which GPU’s consumed but they required advanced programming knowledge to set up. This all happened before the end of 2011.
It wasn’t long before chips were designed for the sole purpose of mining Bitcoin. Known as application-specific integrated circuits (ASICs), these chips were designed solely to mine Bitcoin. If these chips were suddenly no longer able to mine Bitcoin, they would become worthless.
The Bitcoin mining industry is now comprised almost entirely of large enterprises running at the lowest operating costs. Although ASICs are powerful, they consume enormous amounts of electricity. The survival of Bitcoin mining companies depends on them accessing the lowest electricity and operating rates possible.
Is mining still a viable route to getting rich? The answer is it depends. If a miner has access to free electricity, Bitcoin mining is an option. If this is not the case, the harsh reality is that Bitcoin mining is better left to the large companies.
Alternative Routes to get Rich in Crypto?
Bitcoin mining may have evolved past the point where it is profitable for the everyday person. However, countless other opportunities still exist in cryptocurrencies. Trading cryptocurrencies is one route which many have taken on the pursuit of riches. This new asset class commonly experiences huge price swings, giving crypto traders opportunities to capitalize by taking long and short positions. Cryptocurrencies as an asset class are still developing and remain largely trend-driven and volatile. Volatility can be a trader’s best friend or worst enemy. Crypto traders will have many large price swings to capitalize on but prudent risk management is paramount to their survival.
Choosing Crypto Brokers
If starting the crypto trading journey, there are several routes which can be taken to speculate on the price movements of this new asset class. Cryptocurrency exchanges such as Binance and Kraken enable traders to buy and sell the underlying cryptocurrency assets. Kraken offers fiat-to-cryptocurrency exchanges whereas Binance mainly facilitates cryptocurrency-to-cryptocurrency trading.
There are also derivatives exchanges where users can speculate on the price of the cryptocurrency assets through financial contracts. These exchanges also allow users to go both long and short and use enormous amounts of leverage. BitMEX is the most popular derivatives exchange. However, BitMEX requires users to fund their account with Bitcoin which will not be suitable for all traders.
Another option available to traders who wish to go long or short and use leverage is cryptocurrency brokers. Several brokers enable their users to speculate on the price movements of cryptocurrencies through CFD trading. These brokers are regulated and authorised businesses meaning their users benefit from all the upsides of the brokers having regulatory oversight. For example, users can be guaranteed their funds will be segregated from other clients and they will also have compensation in some circumstances if the broker goes insolvent. Furthermore, these brokers allow users to speculate on the price movements of cryptocurrencies without having to immerse themselves fully in the cryptocurrency world. Traders will not have to set up a cryptocurrency wallet as they will not be buying or selling the actual asset.
With the popularity of this new asset class increasing, several brokers have begun providing trading services for cryptocurrencies. The following table lists the leading brokers providing access to the cryptocurrencies market and the instruments which they offer to traders.
| Broker | Instruments |
|---|---|
| Saxo Bank | BTC/EUR, BTC/SEK, ETH/EUR, ETH/SEK |
| FP Markets | BTC/USD |
| City Index | BTC/USD, ETH/USD, LTC/USD, XRP/USD, BCH/USD |
| Skilling | BTC/USD, ETH/USD, LTC/USD, XRP/USD, DASH/USD |
| Think Markets | BTC/USD, ETH/USD, LTC/USD, XRP/USD, BCH/USD |
| Pepperstone | BTC/USD, ETH/USD, LTC/USD, DASH/USD, BCH/USD |
| FXCM | BTC/USD, ETH/USD, LTC/USD, XRP/USD, BCH/USD |
| Forex.com | BTC/USD, BTC/EUR, BTC/GBP, BTC/AUD, BCH/USD, LTC/USD, XRP/USD, ETH/USD |
Mind Set on Bitcoin Mining?
If determined to delve into the mining world, there are alternative routes with lower barriers to entry. The system Bitcoin uses to establish consensus on transactions and maintain the security of the network is known as proof-of-work (PoW). This is the system which rewards miners for using their computing power to process transactions. Bitcoin is not the only cryptocurrency which uses PoW. Currently, PoW remains the dominant system used by cryptocurrencies to establish consensus. Other leading cryptocurrencies which use PoW include Bitcoin Cash, Ethereum, Litecoin, Zcash, and Monero. Many cryptocurrencies using PoW are not dominated by ASICs. Some even actively change their code to prevent ASICs from mining on the network. Ethereum, Zcash, and Monero are still largely mined by GPU’s. It can still be difficult to establish long-term profitable operations in mining but these cryptocurrencies are much more viable options for the retail trader delving into the world of cryptocurrency mining.
Cloud mining is another route to get involved in mining. Cloud mining enables purchasers to rent hash rate from a provider which is then deployed in the provider’s servers. The payouts from the hash rate are made to the contract purchaser with high fees typically applied. This option is advised against. Many cloud mining companies have turned out to be fraudulent and the ones which are not fraudulent typically have extremely unfavourable terms and conditions.
Next Steps…
If delving into the mining world, it is worthwhile doing some research before purchasing any hardware. Sites such as MinerUpdate.com and CryptoCompare.com can help in getting up to speed with what mining operations are profitable. If venturing down the trading route, it is as simple as picking a broker that offers cryptocurrency instruments with attractive fees. You can find reviews on some of the leading cryptocurrency brokers here.