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Is it wise to invest in crypto mining?

06.20.2022 · Posted in Finance Articles

Crypto mining is colloquially defined as a process to generate new crypto coins on PoW blockchain network. But, that’s not the entire story. Crypto mining, essentially, refers to a process that aids to validate fresh transaction blocks before adding them to the blockchain. The process updates the whole blockchain ledger and improves its security. Crypto miners are the folks who perform the validation process aka crypto mining. If they are successful, the blockchain network rewards them with new crypto coins. So, is crypto mining profitable in 2022?

Well, the post below will discuss the profitability quotient of crypto mining as of 2022 and beyond. But, before that, let’s have a quick look into the concept of crypto mining, how it works, and the methods of crypto mining.

How does crypto mining work?

First of all, crypto mining is exclusively reserved for the blockchains that are backed by PoW (Proof-of-Work) consensus mechanism. In other words, crypto mining is essential to mint those cryptocurrencies that operate on PoW blockchains. The best example is Bitcoin. Ethereum 1.0 also runs on PoW blockchain currently but it will soon shift to PoS (Proof-of-Stake) after the Merge upgrade in August 2022. Other cryptocurrencies that are generated through crypto mining are altcoins like  Zcash, Monero, Litecoin, Ravencoin, Grin, and so on. Read more about Multibank – Blockchain Technology: Everything You Need to Know

The mining process

Crypto mining refers to a process where miners have to solve complex computations for verification of fresh transaction blocks. These difficult mathematical equations are called Proof-of-Work. Now, you not only have to solve the equation but be the “first” one to solve it to attain the blockchain reward. The official term for the right answer of the mining equation is “hash”. It’s a 64-digit-long hexadecimal figure.

How do you execute crypto mining?

Crypto mining is executed through mining rigs. These are specialized hardware or computer setups that help to solve the crypto mining equation. There are different kinds of crypto mining rigs.

CPU-based mining

Traditionally, crypto miners used the regular CPU of their desktop/laptop to solve the complex equations for crypto mining. But today, the growing influx of miners has created a cut-throat competition in the crypto mining scene. As of 2022, mining mathematical equations are way more challenging than they were back in 2010. Such a high-voltage situation calls for a more powerful mining rig than the regular CPUs.

Having said that- it must be stressed here that some blockchains have been equipped with specific algorithms to accommodate CPU mining even today. Some good examples would be Monero, Zcash, and Bytecoin blockchains. The idea is to let low-budget small-range miners have a chance at mining amid big-range institutional miners.

GPU-based mining

Miners have long shifted from CPU-based crypto mining to GPU-based mining as the latter assures more efficiency and faster speed. Also, GPUs allow more flexibility to mine more variety of cryptocurrencies. It’s to note here, different crypto blockchains have different mining algorithm requirements. One particular CPU used for mining Bitcoin might not work to mine Monero. But, thanks to increased flexibility with GPU units, miners might be able to use the same GPU rig for mining multiple types of cryptos.

ASIC mining

ASIC (Application-Specific Integrated Circuit) machines are dedicated crypto mining rigs. In other words, these rigs have been exclusively developed for mining cryptos. As a result, ASIC rigs are way more powerful than GPU rigs. On an average, an ASIC rig will be around 200x more efficient and powerful compared to regular GPU rigs.

How to conduct crypto mining?

You can conduct the crypto mining independently in your own warehouse. In that case, you will have to invest in your own mining rig and related setup. These high-performing mining rigs consume a huge volume of electricity- if it’s an independent setup, make sure you can afford it.

You can also join a crypto mining pool where you will compete for the reward in collaboration of multiple other miners globally. But, since it’s a “pool”, the reward earned will be distributed among all participating miners.

The other option is cloud-based crypto mining. In this case, you will take part in the process “indirectly” by buying the mining service from the cloud provider.

Would crypto mining be profitable?

Well, crypto mining can only be considered profitable if you can attain a higher price while selling a crypto than what it had cost to mine it up. So, the first task here is to take into account all the major factors associated with crypto mining and their related costs-

  • Cost of buying and installing mining, if it’s an independent setup
  • Electricity and power consumption
  • Hashrate for mining speed of rig
  • Maintenance charges for mining rigs
  • Block reward
  • If you are joining a pool, consider pool fees and the share percentage of reward to be provided by the pool
  • Difficulty level of mining equation
  • Market value of your chosen crypto, both when you will mine and you will sell

Much to the convenience of miners, there are even crypto mining calculators today. You will have to put in the different factors associated with crypto mining into the calculator- such as energy consumption, hash power, pool fee etc. Based on your input, the calculator will reveal an estimate of your profit from crypto mining.

Is it still profitable?

The crypto world is divided in its opinion of mining profitability. One group is saying, mining in 2022 won’t be as profitable as it was in 2010. The group is citing three main reasons- increasing competition, halving of Bitcoin block reward after every 4 years, and requirement of higher-performing and exorbitantly pricey rigs for solving increasingly difficult equations.

According to the other group, while all these factors mentioned above are true, it’s also undeniable that most of the cryptos have grown massively in value over the years. So, you will receive a higher price if you sell the cryptos today than what you could have got 10 years back.

To conclude, crypto mining could be profitable if you opt for a cryptocurrency that shows immense growth potential in the coming months. Then, you will have to find a way to reduce the instalment and maintenance cost of the mining rigs. A mining pool will be a viable option here but look for pools that do not charge exorbitant fees.

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