Is It Better To Mine or Purchase Cryptocurrencies?

By Prashant Jha

To answer the question about whether one should be buying and investing in cryptocurrencies or mining them themselves, it is imperative to take into account who the user is. If it is a layman crypto enthusiast we’re talking about, it would naturally be more convenient for the user to simply purchase bitcoins or altcoins instead of delving into the rigorous depths of crypto mining. However, when we talk about people who do have a substantial knowledge about crypto and the propensity to mine them as much as purchase them, the problem gets a little more complicated.

Where does mining lose out to purchasing?

Recent times have seen a fall in the rewards for crypto miners, with news outlets around crypto world reporting the significantly lowered profit levels for crypto miners. Moreover, mining is not an easy feat. The fixed cost that goes into carrying out this complex operation is immense and if mining profits are low, it might become extremely difficult to offset them. The traditional process of mining process requires the miner to make heavy investments.

One needs a computer hardware committed to it, armed with a GPU (graphics processor unit) and an ASIC (application-specific integrated circuit) chip. In addition, the computer must remain connected to a sufficiently strong internet network and use a software package for mining. The miner must also be a member of online mining pools and cryptocurrency exchanges. Mining rigs with noisy host machines worsen the scenario. With the fixed cost already piled up so high, adding the labour cost of having to decode complex mathematical problems makes it even more expensive. Even when the payoff is significant, such a huge investment would be rather difficult to sustain, especially if we consider the fact that the difficulty level of crypto mining keeps rising as the resources committed to it increases.

In terms of price and market cap, the top cryptocurrency of the market is Bitcoin (BTC). For mining, the consensus model that BTC follows is a Proof of Work algorithm,that, simply put, makes it easier for those miners to earn rewards who’ve committed the most resources and machine power to it.

While this sounds fair, it also makes it untenable to continue with crypto mining in the view of falling profits.
In contrast, buying and investing in cryptocurrencies is comparatively hassle-free, with users mostly having to focus on securing their wallets well and carrying out due diligence adequately before making a purchase.

However, all these points that indicate the difficulty and unsuitability of crypto mining do not completely negate the merits of the process.

What makes it better to mine cryptocurrencies than purchase them?

When it comes to purchasing cryptocurrencies, the profitability factor is highly dependent on the market prices. Given how unreliable the market has been lately, with the market first exhibiting pre-bullish tendencies and then collapsing into an unfathomable slump, it goes without saying that speculation profits are largely dependent on market factors beyond one’s individual control. Expert research has recently also proven the unreliability of crypto purchase vis-a-vis mining.

Scholars from the University of California and the Princeton University made a presentation at the Financial Crypto 2018 conference that showed how mining was more profitable. They compared the two with reference to 18 altcoins, such as the AuroraCoin, RonPaulCoin and so on. The results indicated that mining cryptocurrencies, right after it has been newly listed, earns one more profit than purchasing and speculating on it. The returns were found to be about 7-18% for mining and 5% for speculating. Besides, the problems of traditional mining in terms of resources can frequently be bypassed by use of mobilemining services such as the DroidMiner or MIB, making crypto mining somewhat viable, despite the drain on mobile devices.

Therefore, having compared the various aspects that make purchasing coins better than crypto mining or vice versa, it is safe to conclude that the answer would depend on the nature of engagement the user is trying to achieve. If one has long-term goals in mind, it becomes possible to sustain mining and earn a good amount of profit through fees. On the other hand, if one has short-term plans with cryptocurrencies, purchasing, with proper due diligence and having gone through market analysis and understood risks thoroughly; may be a better bet.