Mining or cryptocurrency speculation, that is the question.

History always repeats itself in a surprising way. The general public is always easily persuaded and guided to participate in the speculative wave of the times again and again. This popular mass enthusiasm is usually triggered by some new discovery, or historical and revolutionary innovation. For example, the California Gold Rush in 1849, the Internet bubble at the end of the 20th century, and the Japanese real estate bubble.

Compared with the hot cutting-edge technology industries in recent years, including AI, 3D printing, and the Internet of Things, Bitcoin is a decentralized information ledger application that can be quickly imitated and promoted. Moreover, it has a natural reward mechanism, which other emerging technologies do not have. Although Bitcoin, as a virtual currency, is still isolated from the traditional financial system, it has gained widespread global recognition and close attention with its innovative technical concepts and rapid value growth.

As an ordinary person, it is probably difficult to personally practice in high-tech fields such as artificial intelligence and the Internet of Things, let alone enjoy the dividends of the industry. However, Bitcoin is different. It enables everyone in the world to have the opportunity to participate in it through the mechanism of "decentralized peer-to-peer network" and "personal computing power".

Purchasing computing power for mining and virtual currency trading are the two most common ways for the public to participate in the Bitcoin industry.

The pros and cons of mining and cryptocurrency trading

The mining process is simply that miners buy mining machines and use the mining machine chips to continuously run specific algorithms, thereby contributing computing power to compete for the right to record Bitcoin blocks. If the accounting is successful, they can obtain Bitcoin income. This type of people who participate in mining are called miners. They will comprehensively evaluate factors such as mining machine costs, daily income, electricity costs, Bitcoin price expectations, etc., to derive a rough payback period and expected profits, and finally make an investment decision to purchase mining machines. This process is simply a math problem, but in fact it includes the miners' comparative considerations (comparing cryptocurrency speculation, comparing different mining machines, etc.), and many variables are separated from this problem, which constitute the biggest uncertainty in mining, such as electricity costs, Bitcoin price trends, and mining difficulty.

Among these variables, the one that hides the greatest risk is the price trend of Bitcoin . However, if the price of Bitcoin drops too much, it will cause unpredictable losses to both investors who participate in mining and cryptocurrency speculation. Therefore, when explaining the advantages and disadvantages of these two investment methods below, the risk of falling price is temporarily excluded.

Risks

There is a saying in the industry that the risk of mining Bitcoin is far less than the risk of speculating in cryptocurrencies. This saying is based on an objective premise of digital currency, which is violent volatility. The nightmare of A-shares falling by 10% in one day in the stock exchange is happening in the cryptocurrency world in minutes. Although high risks are accompanied by high returns, most investors have extremely weak loss resistance. They are unable to resist a big drop and are forced to sell at a loss. How can they have the capital to bet on high returns?

The fantasy of getting rich overnight has induced many leeks to become risk-seeking people, but they do not consider their own risk resistance. They only see the thief eating meat, but not the thief being beaten. If investing in Bitcoin is "seeking wealth and honor in danger", then investing in altcoins can be said to be "snatching food from the tiger's mouth". Due to the large variety of altcoins and the small amount of funds dispersed, the banker can easily control a currency, set up a so-called "market value management" team, and easily harvest leeks.

The decentralized design of Bitcoin makes its transactions naturally unregulated by institutions. There are no price limits, no rest days, no financial reports, no background and qualification review of the issuer, and no suspension of trading for reorganization. Who are the counterparties? Who are the main participants in the market? How many chips do the big dealers have? We have so little information to learn, and trading risks are most likely to arise from asymmetric and insufficient information.

If you compare cryptocurrency trading to investing in stocks, then mining is more like investing in bonds. As long as your machine is running normally, you can get a certain amount of Bitcoin income every day. One investment, long-term income, and continuous income. When the price of the currency rises in the later period, and you have accumulated a certain amount of coins, you will have enough chips to redeem this bond in excess.

Therefore, whether to mine or speculate in cryptocurrencies, one must consider one’s investment capacity and risk resistance.

Investment cost

First of all, the cost of production materials . The threshold for cryptocurrency trading is relatively low. You only need a smartphone or computer with Internet access, which is not a problem for most people nowadays, and you don’t need to purchase additional equipment. However, mining requires you to purchase a mining machine first. The price of a first-hand mining machine is usually not less than that of a home computer. If you wait until the Bitcoin market rises sharply, you will still face the problem of exponential price increases and out-of-stock mining machines.

The second is the operating cost . If you choose to mine, you need to pay electricity fees to the mine management regularly to ensure the continuous normal operation of the mining machine. The operating cost will be adjusted accordingly with the scale of your mining machine and the electricity fee level of the mining farm. If you are speculating in cryptocurrencies, the exchange will charge you a transaction fee, which depends on your transaction amount and transaction frequency.

The second is the time cost . Compared with a few years ago, the current mining industry has formed a complete industrial chain, from mining farm hosting to mining pool services, to digital wallet management, each link has greatly saved the time cost of ordinary miners. Compared with mining, the time investment in cryptocurrency speculation is huge. It is normal for cryptocurrency speculators to watch the changes in the market within a few minutes day and night with trepidation. Many investors can only "quit their jobs to speculate in cryptocurrencies" because cryptocurrency speculation not only takes up a lot of investors' time, but also consumes a lot of energy. If you really quit your job to speculate in cryptocurrencies and lose your normal income, then this part of the loss should also be calculated into the cost of cryptocurrency speculation.

Income stability

If the price of the currency rises, miners can invest money in time, control costs well and form a certain scale, the profit of mining is very considerable. Similarly, speculators can also make steady profits from the rising market. If leverage is added, the profit will increase exponentially. The situation varies from person to person and cannot be quantitatively evaluated.

On the other hand, for mining, if the price of the currency rises too quickly, it will attract more people to enter the mining industry, and the computing power will increase accordingly, resulting in a decrease in the average income of miners within a certain period of time.

If the market is in a period of shock and adjustment, speculators may be able to obtain rich returns by relying on a short-term surge. On the contrary, who can guarantee that after a surge, they will be spared from a sharp drop? "90% of retail investors lose money" has become a law in the investment circle. Miners pay more attention to the long-term accumulation of the number of bitcoins in their digital wallets, and will not easily change their investment decisions due to short-term shocks. They generally believe that Bitcoin will appreciate steadily in the long run. As long as they can afford the time, they can wait until it rises and then sell it to make a profit.

From this perspective, if we ignore the market crash, the stability of mining income is significantly higher than that of cryptocurrency speculation.

In terms of mechanism rules, compared with cryptocurrency speculation, mining has a very stable "instability" . It has a mechanism setting that the mining reward is halved approximately every 4 years. At that time, the mining income of miners will be reduced by half. Miners can either increase investment to improve computing power, or they can only accept the fact of declining income.

Through the above comparison between cryptocurrency speculation and mining, no matter which investment method you choose, you need to rely on independent judgment to objectively evaluate your risk resistance and investment ability. From the perspective of investment cost, the threshold for cryptocurrency speculation is lower, and it is easier for retail investors to invest. For investors who focus on risk and stable returns, mining is a more stable investment method.

Finally, every investor should have his or her own way of distinguishing values ​​and investment principles. The Bitcoin market is full of speculation, impetuousness and noise. If you just blindly listen to the judgment of others, then the money you earn will be lost sooner or later.