With cryptocurrencies gaining more and more traction, it’s no surprise that people want to get in on the action. However, it isn’t as simple as we might think, with more than a few of us left asking: which is more profitable between mining vs. trading cryptocurrency?
The thing is, while this question might be easy to answer for the experienced folk, it’s a little trickier for people who’ve only ever heard of mining or trading. That’s easily solved as we look at how one differs from the other.
Advantages of Bitcoin mining
Let’s start with Bitcoin mining. Mining, in simple terms, is when people use computer hardware to solve for new units of cryptocurrency.
Another function of crypto mining is to verify transactions facilitated through the crypto network, making this one of the more essential components of the development and maintenance of the blockchain ledger.
Some advantages of entering the crypto market through crypto mining are:
It’s relatively low risk
“What about the costs?” you might say. Since you’ll be deciding when to mine, what to mine with, and how much to mine, it’ll be easy for you to measure how much risk you’ll be taking.
You have direct control of the crypto coming in
Similarly, since you will be the one deciding when to run your hardware, you are in total control of the crypto coming in. This might only work for you if you want to mine while you’re physically present, but it’s a great way to make sure that you will always be on top of things.
You can easily move your crypto around
While it’s true that you can’t mine without a crypto wallet, being a crypto-miner will still have its perks—one of those is the ease of access you have to your crypto. This means that if you decide to sell or trade your mined crypto, it should be as simple as clicking a few buttons.
Disadvantages of Bitcoin mining
Now that we’ve discussed the advantages, let’s take a look at what might turn you away from crypto mining. In general, people see these as problems with crypto mining:
Expensive hardware and equipment
Bitcoin miners are solving mathematical equations in order to mine the cryptocurrency blocks. For you to compete with other miners you’re going to need some pricey equipment.
We saw how this impacted the PC gaming industry last year when the then-current batch of graphics processing units (GPUs) from NVIDIA were bought in bulk by crypto miners, causing a drastic increase in GPU prices.
High energy costs
While the environmental impact and energy consumption of Bitcoin mining may have been blown out of proportion, what remains to be true is the expense you’ll be facing once operations begin.
It doesn’t matter if you have the latest and greatest in computing technology—you will still need to consume power if you want to mine Bitcoin. This is why a lot of crypto miners end up moving to crypto-friendly countries (i.e. countries with cheaper electricity and faster internet connections) just to reduce costs.
Slow rate of profit
Bitcoin halving could be the bane of crypto miners’ profits. Bitcoin halving occurs every time 210,000 blocks are mined, meaning that subsequent miners will only get half of the coins that they might have earned.
That’s not even talking about the difficulty of mining in the first place. As we said earlier, unless you have a large capital to work with, using substandard equipment will make this an even slower process.
Regulatory concerns
It’s no secret that Bitcoin and, consequently, other cryptocurrencies have been surrounded by controversy in the past.
From being used in purchases on black market platforms on the dark web to the instability of its price, more than a few governments have introduced regulations on cryptocurrencies. China, for example, has banned crypto mining and cryptocurrency transactions in the country.
Advantages of Bitcoin trading
Now, we’ve arrived at Bitcoin trading. If we want to take a look at mining vs. trading crypto, we have to understand what trading entails.
Currently, the crypto trading market is much like the traditional stock market. The only difference is the decentralized nature and the presence of decentralized exchanges (DEXs), where there is little to no monitoring of trading behavior. Here are some reasons why trading Bitcoin can be advantageous:
High potential for profit
This is the reason why so many people have been curious about cryptocurrency trading. Like in the stock market, financially savvy people can expect big gains in their trading. High-risk will likely mean a high reward in this scenario.
Yields immediate results
Unlike crypto mining, where miners have to wait for verification that they were the first to mine the block on top of the wait implied by the computation phase, crypto traders will immediately see the fruits of their actions.
This is why a lot of people enjoy crypto trading, especially day traders. It’s a habit that’s easy enough to develop with fast results, giving users a lot more drive to follow through.
It’s easy to get into
As an extension of the decentralized nature of Bitcoin, it has now become a highly accessible venture for people from different backgrounds. This goes further for peer-to-peer platforms where even underbanked areas are free to participate.
Disadvantages of Bitcoin trading
Of course, crypto trading is bound to have its own flaws. Even if you’ve read up on ways to make money trading Bitcoin, you are still facing certain risks in the market.
Involves high risk
Crypto trading is just like the traditional stock market with possible gains? Just like the stock market, the crypto trading market is one where you could also lose a lot of money.
We’ve talked about this before, where certain trading behaviors can impact the effectiveness of your trades. This can be avoidable but will entail following the next point.
Requires intensive research
Cryptocurrencies are still somewhat alien to some. After all, Bitcoin was only introduced in 2009. That said, there are a lot of resources online where you can learn from other people’s experiences and mistakes.
But that also means you have to go through them diligently. No, we aren’t talking about skimming through. This will require you to have an understanding of what’s going on.
Needs constant monitoring of crypto markets
Any sort of trader will be able to tell you just how much time they spend staring at the screens just to get an idea of what’s happening to the market.
If you’re planning on becoming heavily invested in cryptocurrencies, it might be time to start practising. Of course, there are ways around this, with some people using crypto trading bots to help them track specific patterns.
Crypto mining or trading: Which one should you choose?
People with capital and technological know-how can dive right into crypto mining, while others might prefer the more manageable pace and faster results of crypto trading. Each person will have their own preferences with how they want to make money.
Making the choice between mining or trading cryptocurrency should be determined once you’ve assessed your financial situation and you’ve done your due diligence.
*The content of this article is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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source:paxful.com
Making the choice between mining or trading cryptocurrency should be determined once you’ve assessed your financial situation and you’ve done your due diligence.
