Why Should I Mine Cryptocurrencies?
5 key reasons.
I originally wrote this as a presentation for small meetup I’ve set up in the Crypto space, but I felt it worthwhile publishing a post on medium since I haven’t written here for a while..
So…why should I, or you, or anyone be mining cryptocurrencies??
There’s a hundred different reasons why someone might decide to mine cryptocurrencies, and those reasons are individual to everyone.
In saying that, there are some more “general” reasons which apply to most people, so we’ll cover a few of them here:
This is probably the main reason people choose to build / run “miners”. When adding computing power to a cryptocurrency network, you’re rewarded by the network in the form of it’s digital currency.
For example, if you’re “mining” on the Ethereum network, you’ll be paid in Ether when you either (a) directly or (b) cooperatively (within a pool) discover the nonce that completes the next block in the blockchain.
Without getting too technical, what you’re in effect doing is trading electricity (computing power) for digital currency. And with current the price of most cryptocurrencies, you can make a significant profit in relation to the amount of power being used by your computer - so much so, that people are building dedicated computers (a.k.a Mining Rigs) to purely add power to their crypto-network of choice & thus generate income.
It is currently (and potentially more-so in the long term) a very intelligent way to earn extra income at your office or in your household.
It’s relatively easy to sell your mined crypto using online brokerage services, which means you can literally “print money” using your computer/s:
Step 1: Mine Crypto
Step 2: Convert Crypto → Fiat
Step 3: Spend Money
A lot of households need extra money. At current rates, a Bitcoin Miner or alternative set up could add $10k — $20k per annum to your household income. For many people that can mean the difference between struggling & living comfortably.
2) Supporting the Network
A more altruistic reason, but very valid & important nonetheless.
For blockchain / crypto networks to propagate & support users, they require computing power (in the form of the general breadth of the network, and in the form of brute hashing power).
When you “mine”, you are supporting the network and thus helping to build stability in the network, which ultimately becomes an upward spiral.
In return for your efforts, you’re also rewarded (hence point 1 above), although your primary driver may not be the income.
If you’re thinking about the long term opportunity with Bitocin and/or other cryptocurrencies, then the accumulation of the actual currencies may be your strategy / reasoning.
There is speculation that Bitcoin might hit $20k or that Ether might be worth $1000 — $2000 in the coming 12–24mths. That’s a 5 fold increase from today’s price, and for someone who is merely mining to accumulate, it could mean a significant boost to their net worth at some point down the track.
Mining is much more consistent & stable than always “buying” the currency itself. You don’t need to worry about price fluctuations, and wether or not you purchased it too high or sold some too low, etc.
With Mining, your rigs do their thing, irrespective of the “fiat price” and you continue to accumulate crypto in your wallet.
What you do with it later is totally up to you. Some people are using this strategy to set themselves up with a nest egg, long term, whilst also accessing (4) and preparing for (5) below.
4) Accessing other Cryptocurrencies.
When you mine one of the more “major” cryptocurrencies such as Bitcoin and ever Ethereum, you can then use it to easily access other cryptocurrencies on exchanges (such as Bittrex / Poloniex, etc) and you can also (especially in the case of Ether) use it to access up & coming ICOs (if that’s your thing).
There is nothing more annoying that having to screw around trying to buy crypto using fiat (normal) money when you’re trying to trade into something else, or access an ICO that has a time-limit associated with it.
Since mining has become the main avenue for access to my personal crypto, missing out on opportunities (in my case to accumulate / multiply by BTC holdings) is no longer a concern. In fact, this strategy is one of the most sound reasons for mining. You’re always building up a war chest of your primary crypto, and thus always ready to execute / access another cryptocurrency that you believe might show promise — or that you’d like to leverage to multiply your BTC holdings.
This is the last reason I’ll cover, and it applies mostly to something like Ethereum moving from Proof of Work (PoW) to a Proof of Stake (PoS) model.
In very, very simple terms, PoW models require some form of actual hardware computing to take place. This means there is “work” being done in order to validate blocks on the blockchain, and because work is involved, there is a cost (i.e.; electricity). This was the original solution to the Byzantine General’s problem by Satoshi Nakamoto (creator of Bitcoin). I won’t go into what that is here, but suffice it to say, it’s the reason “mining” exists.
PoS on the other hand is a different model. It doesn’t require mining (in the general sense of physical computing), and instead attempts to solve the Byzantine General’s problem via a different set of crypto-economic methods. Again, I won’t go into these here, or whether or not it’s actually proven or functional (I haven’t done enough research), suffice it to say, in order for you to participate in the PoS model, you will require Ether (for Ethereum that is).
And the more Ether you hold, and use to participate in the PoS model, the more you’re rewarded in more Ether. The difference here is that you’re not using “work” to validate the blocks on the chain; it’s your stake / holdings.
Some might say this is a bad thing for mining, but that’s not true. PoW is not going anywhere, and there is always going to be a digitial currency that requires physical mining, and with the hardware you accumulate, you can keep adding power to whichever network you want.
Crypto is a very exciting space. It’s currently where the internet was in the early 90s. A lot of the population has “heard” about it, but only a small fraction are participating, and an even smaller fraction of those actually understand wtf it is.
Getting involved now will most definitely pay dividends over the long term, and not just financially.
Wish you all the best in your mining endeavors!
@AleksSvetski on Twitter & LinkedIn.
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