These days, everyone is looking to invest in the crypto market. There are two methods for cryptocurrency investors to increase their wealth, mining and trading. This article looks at the more popular ways individuals and institutional investors enjoy fluctuations in this turbulent market.
Mining is extracting precious elements or minerals from the bottom of the sea or inner layers of the Earth. Crypto mining is almost similar, in which miners achieve a valuable reward through a complicated and costly process and encryption algorithms.
At first sight, it’s expensive because miners require electricity to work, a proper ventilation system to keep machines in the recommended temperature range by the OEM, and sufficient space to install units. Still, when it comes to Bitcoin, 6.25 BTC is worth it.
Good knowledge about financial markets, being skillful in reading candles, and predicting future behaviors of cryptocurrency prices in the market are necessities for staying on the winning side as a crypto trader. A trader mostly takes a financial position on the price movements of currencies, including crypto-fiat or crypto-crypto pairs.
There are three ways of profiting from cryptocurrency price action:
- The first option is Going Long on coins that you believe will rise in price in the future.
- The second is Going Short on coins that traders believe will crash.
- The third option is Holding, a strategy in which investors don’t actively trade cryptocurrencies because they believe their investment will increase the value of their assets. However, nothing can guarantee the highly volatile crypto market moves in our interests.
Drawbacks of Cryptocurrency Trading
Volatile markets: cryptocurrency prices are incredibly volatile. The value of cryptocurrencies against an index such as USD, EUR, and GBP can move upward or downward in a few hours. Sometimes the market behavior can be against the interests of the traders. Successful investing demands a highly focused person who can follow a particular strategy in the long term.
Who knows if the value of a particular cryptocurrency will surge or fall?
The price of any asset could move toward zero in a short period. Investing as a trader, taking long and short positions, and using leverage is a complicated activity, even for professionals. Still, this market has an alternative investing method: mining cryptocurrencies. Like other investing strategies, this method requires an initial fund to allocate a place, providing necessary instruments and equipment such as power distribution units and cooling systems. Purchasing mining machines is an essential part of this adventurous voyage.
Bitcoin mining is the procedure in which mining devices verify and validate a new block by solving several complicated mathematical equations and adding the newly mined block to the chain of previously mined blocks of that particular blockchain. The computer that successfully solves a cryptographic problem first receives the reward for adding its newly mined block of transactions to the blockchain.
As much as cryptocurrencies become more popular, the number of miners grows, which increases the network difficulty. It means that traditional methods for cryptocurrency mining, such as PCs, laptops, GPUs, or CPUs, have lost their efficiency.
The computational power of mentioned devices is no longer sufficient to compete with more powerful, application-specific machines specifically designed for mining. Each miner has a computer system and powerful GPU and can successfully mine a new block by solving complicated numerical puzzles. The reward of the blockchain block has changed due to a phenomenon known as halving. Over time, this phenomenon has reduced the block reward for miners.
For example, in the early days, the reward in the Bitcoin blockchain was 50 BTC for each block. Due to the halving, the number of earned BTC for each mined block is 6.25 BTC now. After the next halving that will happen in 2024, the reward of each block will be 3.125 BTC.
As this article mentioned, neither mining nor trading will bring guaranteed profits from cryptocurrency. Each has substantial risk involved, and it’s essential to fully understand it before investing in the crypto market via trading is relatively risky given the cyber thefts. On the other hand, Bitcoin mining is an excellent choice for anyone interested in a long-term connection to the blockchain network.