During your initial research into Bitcoin and cryptocurrencies, you have likely encountered two aspects of investing via mining. You’re wondering if upgrading your computer to join a mining pool would be more profitable than buying Bitcoin outright. Likewise, you may want to know if buying mining power is an equally worthy investment.
Explore two aspects of cryptocurrency mining and see which one is best for you. Additionally, discover if buying cryptocurrency on exchange would be preferable over mining.
Bitcoin Mining Pools: Could They Get You Rich?
So many new Bitcoiners ask, “Should I join a mining pool? Will a high-powered graphics card earn me more Bitcoin in the long-run?” Bitcoin mining is a highly involved process that requires great technical prowess.
The average person is not ready to start Bitcoin mining, and getting set up to do so may delay their investment significantly. If you spend a few weeks setting up your mining rig, the price of Bitcoin might have gone up and limit your return on investment compared to buying Bitcoin upfront and instantly.
A mining pool appeals to many because you’re pretty much guaranteed to get some Bitcoin in very small amounts. That’s because a mining pool contains dozens, hundreds, and thousands of computers connected to the same node. When the pool finds a new block reward, it splits it among all its members based on contribution.
The more processing and mining power you have, the more your cut of the reward will be. If your pool finds several blocks in a row, the profits can be quite impressive. This is the exact reason why mining pools are so popular; few people have encountered great success by finding blocks with so few people and earning significantly more Bitcoin had they just bought it with cash.
However, mining takes power. It requires a high powered graphics card (or several) and it soaks up energy like a sponge. If you begin mining from home, you’re sure to see your utility bill double or even triple depending on the strength of your rig. Therefore, when considering mining from home, take into consideration the increase in your utility bill.
Mining will almost always reward you the same as or less than if you purchased Bitcoin for the same cost of your mining hardware. This is pretty much added hassle, time, and stress to reward you a similar amount of Bitcoin as if you mined up front.
Should You Mine Bitcoin By Yourself?
You might look at the block rewards, and your eyes might become star-struck when you see the current reward of 12.5 or 6.25 Bitcoin per discovery. Many new Bitcoin entrepreneurs liken mining to gambling by saying, “If I mine by myself, I might be that lucky someone to find the next block reward and claim that dozen Bitcoin for myself!” Has it happened before?
Absolutely; some people have gotten incredibly lucky and snagged a block all for themselves. They became wealthy overnight. However, the chance of this happening based on how many computers are currently mining, you may have better luck winning the top prize in a scratcher.
Even if your Bitcoin mining set-up resembles the Death Star, you’re not very likely to claim a block reward for yourself. That’s why mining pools are so desirable. Your extra processing power is guaranteed to earn you more fractions of a Bitcoin than relying on your lonesom to find the next block.
However, that doesn’t mean that mining pools are the best way to earn Bitcoin over time. Use online mining calculators to see for yourself an estimated return on investment. After factoring in the hardware costs, the mining pool fees, the utility bills, your excitement may turn into disappointment.
Should You Rent Mining Power?
Rentable mining power is a very recent option when it comes to mining. They are also called “mining contracts” because you lock yourself into a contract that pretty much guarantees you a pre-set amount of processing power. Consider mining contracts like renting a portion of space in a warehouse. Companies such as Genesis Mining and HashFlare are comprised of hundreds/thousands of servers isolated somewhere in the world where energy is abundant.
Customers who rent mining space are simply portioned to receive a certain percentage of rewards that this server farm acquires. You’re not renting physical processing power; you’re renting a percentage of the rewards the servers receive. Think of it like a gambling contract. Let’s say you put down a sum of money to a casino, “I am renting a portion of the casino’s earnings for the next hour.”
Any money that the casino receives goes to you. You might get lucky and get a lot of the house was lucky. Or you may be unlucky and only get enough to barely pay off your initial investment. You’re not renting the physical blackjack or poker tables; you’re making an agreement with the casino that you’d like to receive a percentage of their earnings in exchange for a flat fee.
The Hidden Dangers of Mining Contracts: Mining Difficulty
Mining contracts appeal to you by showing you how fast your initial investment will return. For example, if you sign up for a two-year contract, a mining pool might say, “Pay off your investment in 6-8 months!”
This is dangerous because the fast ROI depends on the price of Bitcoin (AKA the mining difficulty) staying the same. Because Bitcoin and cryptocurrency as a whole goes up over time (despite many smaller ups and downs) the mining difficulty increases. This returns you fewer and fewer coins over time. Mining contracts look favorable on paper, but you’ll find your ROI shrinking as that 6-8 month mark approaches.
The amount of power you purchased, for example, used to get you 0.0001 Bitcoin per day, but now you find it returning 0.000075 per day, and less over time. Yes, mining contracts are very likely to return your investment – and even more – but these returns will likely not be as significant as if you had just purchased Bitcoin (or any other coin) up-front with the mining contract fees.
How to Approach Pools, Contracts, and Direct Purchases
It may be quite the experience to sign up for a mining contract! One thing is for sure; they are very fun to take part in. They all offer very flashy graphs and ‘profit over time’ charts that make your rented mining power very interactive. However, they are not recommended as a sole form of investment.
If you wanted to play it safe, you could commit 10-20% of your investment in the form of signing a mining contract, and commit the rest into purchased cryptocurrency off an exchange. To see how each one favors you, keep track of your spending and, after the contract ends, see which one performed better. Remember, there is absolutely no guarantee which will perform better! You might find that this advice returns you less than if you had purchased a majority in mining power. Either form of investment is entirely dependent on the market.
What about mining pools? As mentioned earlier; mining pools are the tech-buff’s hobby project. Unless you’re renting out mining power or unless you have a significant portion of un-used powerful graphics cards laying around, it’s best to approach self-mining slowly.
Consider buying a sum of Bitcoin/cryptocurrency up-front and taking your time to start mining. As mining proves its return on investment, you can devote more money and resources to increasing your mining power.
Whatever you decide to do, approach your Bitcoin investments with critical thinking and research.
No matter what you decide upon, you’re sure to earn some coins – whether up front as you press that “purchase” button or over time as your mining pool/contract starts delivering your returns.