Cryptocurrency mining is the process by which new cryptocurrencies are created. For the last 10 years, this method has remained the most common way of acquiring new cryptocurrencies. Cryptocurrency mining applies processing power to perform multi-faceted mathematical problems. This mathematical problem involves completing blockchains and receiving returns in form of cryptocurrencies. In the early days of cryptocurrency, mining was never recognized. Instead, prospective traders knew words like minting and forging. Following the introduction of internet, this process was later slanged mining. The logic behind usage of the term mining is because cryptocurrency is an asset compared to gold. This is because cryptocurrencies are limited, thus implying that they must be extracted.
Cryptocurrency investors have a verification stage for their transactions that gives assurance that movement of funds within the blockchain is flexible. This reveals that the mining process and cryptocurrency miners constitute an integral part of the cryptocurrency ecosystem. The mining of bitcoin and altcoins can be performed using specialized equipment that varies based on mining protocols and algorithms they use. GPU’s can be used to mine Monero and Ethereum but it is not appropriate for Bitcoins that require high processing power.
Over the last few years, the value of Bitcoin has appreciated at a high rate, indicating the fast pumping demand of these cryptocurrency coins in the market. In the last 9 years, the value of Bitcoin was just $5.02, whereby it appreciated to the current $7658. This cryptocurrency has emerged as the top trading globally with the largest volume of daily trades . The past and current value of cryptocurrency is enough evidence that the future value of Bitcoins and other cryptocurrencies will be profitable.
Major Problems Experienced by Cryptocurrency Miners
Since establishment of cryptocurrency, there have been some challenges that affect the mining activity and cryptocurrency miners in general. These problems include;
High Equipment Cost
The major problem that cryptocurrency miners face during day to day operation is the rising cost of equipments. The devices used (ASIC) are worth thousands of dollars, while the cost of GPUs is also high. The increasing costs of GPUs also affect gamers, who are obligated to purchase graphic cards at a higher price. To mine cryptocurrency, multiple ASIC equipments and GPUs are combined together, hence increasing the overall cost of mining.
Large Power Consumption
Almost all cryptocurrency miners experience the problem of substantial power consumption. Since mining requires high processing power, a large amount of electricity is needed to sustain this. During mining process, a lot of heat is usually generated by the equipment, that arises the need for cooling. The cooling machines also consume power that may end up increasing total electricity cost.
In most occurrences, government may set favorable or unfavorable regulations that may affect activities of miners. For instance, countries such as Germany have enacted that exempt mining of cryptocurrency from taxation. On the other hand, some world nations such as United States have regulations that will tax the return obtained from a given mining project. The Chinese government has occasionally restricted activities of miners by enacting different laws and even regulating their power. As a cryptocurrency trader, you should check activities and regulations provided by your government that have impact on cryptocurrency mining system.
The Future Cost of Mining Cryptocurrency
Based on different problems experienced while mining cryptocurrency, it will be difficult to decide whether to mine cryptocurrency in coming years. Mining for business purpose is exposed to the dangers of cryptocurrency, even though the return is more profitable. To illustrate this, the amount of profit earned in 2017 is equal to the amount earned in 2018. Mining, in this case, became profitable since the price of individual currencies appreciated between the year 2017 and 2018.
For cryptocurrency traders thinking to venture in mining, the best decision making option is to evaluate risk versus reward. You can opt to use a cryptocurrency calculator to determine the overall mining cost and the period it will take to begin making profits. The future of mining Bitcoin is more likely to be profitable, especially after obtaining appreciation in cryptocurrencies from analysts. The value of Bitcoin is predicted to be about $22,721 and $27,505 in 2019 and 2020 respectively. This massive growth gives essence and outstanding significance to mining Bitcoins in the future.
What will happen next in the cryptocurrency market? The speculative nature of Bitcoin and Altcoins is usually ignored, especially through adoption of the belief that minority countries having fiat currency might adopt these digital coins in future. Currently, there are multiple companies, individuals and business using Bitcoin and Altcoins to fund their development projects. The impending possibility is that this practice will turn into rea. It is expected that in the next several years, countries will begin legalizing cryptocurrency and boosting its spread in different parts of globe. Even though researchers indicate that the future of cryptocurrency remains completely unpredictable, many people are waiting to see it pump upwards, hence favoring different digital industries and businesses.