Is Cryptocurrency Mining Profitable? How does it work?

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It has been all over the news, and people have been talking about it too. Cryptocurrency Mining is not mining in the traditional sense with canaries or axes; it is more about trying to win a blockchain lottery with a reward to be earned at the end. They said cryptocurrency is the future of currency, the future of money, but really, we may all be wondering, is cryptocurrency mining profitable? Let’s hash it out!

Cryptocurrency, Blockchain, and Mining

In order to understand Cryptocurrency Mining, let us begin to understand the basics about Cryptocurrency first. It is said that Cryptocurrency is a digital form of currency designed to work as a medium of exchange. It is an online version of money, a digital asset to be precise.

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In 2009, the first decentralized cryptocurrency was created, and it was called Bitcoin, and numerous cryptocurrencies have been created since then. As opposed to centralized banking systems and electronic money, Bitcoin and its derivatives used a decentralized control in the role of a distributed ledger using a transaction database called Blockchain.

The Blockchain is a digital ledger of transactions which is difficult to alter as it uses a hashing concept which continuously completes blocks of information that chain to form immutable ledgers. Alteration to the data being hashed, even the tiniest bit of it, will cause the entire value to change. As transactions occur in a cryptocurrency blockchain, they are added to many private ledgers, and each of them is digitally signed for the sake of authenticity.

The blocks are created in a chain when the correct value is found, and the blocks are closed. It’s broadcasted officially and added to the blockchain of everybody, putting atop the hash of the old block to the new ledger, and the process begins again.

Meanwhile, Mining is the act of computing the correct value to satisfy the hash function in the blockchain. A reward is provided to the person who gets the correct answer when it comes to cryptocurrency.

It takes a bit of power to compute and accomplish the right value, so oftentimes, people would pool their efforts and then split the reward if they solve the correct result. There are also hackers known to have been using other’s computers behind the scenes to mine cryptocurrency while using their computing powers.

Mining cryptocurrency is the process of generating new units of the Cryptocurrency. The units available in the market should be carefully monitored since the value of the currency depends on the number of units. The more currency units exist in a market, the more its value becomes divided.

The hash is a mathematical problem that a miner needs to solve and the rate at which the issues are being fixed is called the Hash Rate. Higher network hash rate means more miners are joining the network. This means that it gets harder to mine when more miners enter the system.

Is Cryptocurrency Mining Profitable? Cryptocurrencies and How They Are Priced

The value of cryptocurrencies fluctuates a lot as of now, and the market prices of various cryptocurrencies vary a lot. Like every other service and product, the amount of a cryptocurrency depends on its need and availability. The value increases if more people need a specific cryptocurrency and it is unavailable or short in number, more units will then be mined to maintain the flow.

Bitcoins are considered the highest-rated and well known Cryptocurrency, and it has been the point of interest in its market when the rate suddenly increased. Right now, Bitcoins costs around $2500 and has a market capitalization of $42 billion.

Ethereum was introduced in 2015 and is thought to be the future of cryptocurrency as it is decentralized and could be traded for almost anything. Litecoin is what they considered silver if Bitcoin is known as the gold. Ripple’s given financial technology has been allowing banks around the world to transact with each other. A highly secretive cryptocurrency is called the Dash or the DarkCoin as it is nearly not possible for anyone to determine where it has been sent or received.

The Verdict

After a brief familiarization of how cryptocurrency mining works, we can say that Cryptocurrency is here to stay. As they say, it is the future of money, and if one carefully and conservatively invests in them, someone could be making money out of it. Although, there are still factors that need to be considered in order to reliably determine if it is profitable.

Electricity rate and power consumption are just two of the many things to think about. Operating a miner consumes a lot of electricity, and you will need to find out your monthly rate in order to calculate profitability. Each miner also consumes a different amount of energy, so it is crucial to know the actual power consumption of your miner before calculating profitability.

Also, there may be a need for you to join a mining pool in order to mine more efficiently and a mining pool deducts some sort of fee in order to maintain its operations. The earnings are divided among the pool members depending on how much performance each miner has done.

The conversion rate is another thing that needs to be considered since no one knows what the exchange rates will be in the future, thus making it hard to predict if mining will be profitable. If you are planning to convert your gains in the future to any currency, this factor will have a significant impact on your decisions.

You also have to define a time-frame to relate to when calculating for profitability, and this is probably the most remarkable and elusive variable of them all, since the more time you mine, the more you earn.

No one can foretell the rate of miners joining a network and how difficult will it be to mine in six weeks, six months or six years and this is just one reason why it is hard to have a definitive answer to the question: is cryptocurrency profitable?

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