What is Mining?
● Crypto Mining is the act of receiving cryptocurrency in exchange for providing computational power to maintain a variety of public Blockchains.
● Mining enables the secure trading and storing of cryptocurrencies utilizing decentralized distributed ledger technology.
● There are many types of mining, the largest and most secure of which being Proof of Work which is an essential part of decentralized currencies.
The Basic Economics of Mining
● The cost of mining equipment + electricity cost to run equipment = The production cost of the cryptocurrency.
● The open Market price – Production cost = Net Profit.
● The less you pay for electricity and equipment the more you make.
● Competition in the network varies according to the value of the cryptocurrency incentive offered to miners.
● Ensuring your mining setup is more efficient than the average operation on the network is paramount to sustained profitability.
Own the “Means of Production”
By investing in mining hardware you own the “means of production”. Every coin currently available for purchase on the open market has gone through the mining process. Mining is simultaneously the means of production for new cryptocurrency and the securing of the network. Mining represents the first time in history that private companies can deploy the power of seigniorage “the difference between the value of money and the cost to produce and distribute it”. Simply put, an optimized mining operation will never be creating bitcoin for less than they can sell it for, whereas the same cannot be said for those who simply purchase the coins outright.
The Power of Compounding
The ability to create liquid profit daily allows investors to utilize their money more effectively. By purchasing a digital asset outright, money is sunk into the asset, functionally inaccessible until the open market price of the asset increases. By investing in mining infrastructure, investors can begin utilizing the result of their investment almost immediately, allowing for further reinvestment in other money-making entities or back into further expansion of their mining capacity. Additionally, the ability to predict and utilize these returns allows for a less risky avenue of investing into the underlying asset and building wealth.
Hardware Resale Value
By investing in physical computers, investors not only own the means of production but also a tangible asset. Specialized mining computers (ASICs) are designed for the purposes of crypto mining. While new machines are most profitable when first released due to their increase in efficiency over competing miners on the network, the physical machines retain some amount of resale value well after the most profitable portion of their lifecycle. Savvy investors can choose to sell off physical hardware at different times in the product’s functional life cycle in order to recoup some of the initial cost of hardware purchase, further adding to the overall profitability of their mining investment.
Types of Mining
Proof of work
PoW networks such as Bitcoin, Ethereum and Zcash reward network participants who allot computational power to uphold their networks in the form of network rewards and transaction fees. This process allows for the most robust and resilient networks in the world.
Proof of Stake nodes or Masternodes incentivize consensus amongst parties by making users stake funds for the right to validate transactions in exchange for a small transaction fee or block reward relative to the amount of funds they hold.
The same multipurpose hardware utilized for many smaller Blockchain networks (GPUs) can be allocated to other computing intensive tasks such as render farms, compute and A.I. Applications.