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Wednesday, 22 November 04:45 (GMT -05:00)



Foreign exchange market

Cryptocurrencies: Investing or Mining?


Over the last few years, more and more people around the globe have been joining the continuously growing international community of cryptocurrency users, especially when it comes to Bitcoin – the world’s first and biggest cryptocurrency. Most of us have at least heard that cryptocurrencies allow you to make online purchases, pay bills, and even make money. So, in this article we are going to dive deeper into the subject and try to figure out how to benefit from all this.
 

 

 

 

These days, you can find tons of posts on the Internet saying that cryptocurrencies let you make a fortune almost overnight. We can see the ups and downs in the market, we know that cryptocurrencies are getting popular worldwide, we ca see Bitcoin set new all-time highs but we don’t know how long this rally is actually going to last. Now we are afraid to invest in something that has been growing in price over the past 6 months since no rally can last forever, and there is at least a retracement further down the road. The only question is when.
 
Another thing we know is that we don’t have to buy cryptocurrencies since we can mine them. Basically, anyone can become a miner these days provided that they have a powerful PC, or better yet, a mining farm, which is a type of very powerful hardware designed to mine cryptocurrencies.
 
By the way, miners are the ones that keep on sustaining really high demand for GPUs, which is why those pieces of hardware may grow in price rapidly due to a considerable deficit. So, why do miners need GPUs? We’ll answer this question later on. For now, let’s find out the pros and cons of cryptocurrencies from the standpoint of an average Internet user wanting to benefit from this.
 

Investing in Cryptocurrencies. Pros and Cons

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Not so long ago, Bitcoin used to cost under $2800. Later on, the cryptocurrency broke above the $3000 threshold. A couple of days ago, bitcoin set another all-time high, well above $4000.
 
According to several online sources, since early 2017, the entire market of cryptocurrencies altogether has gained over 1000%. Ethereum is number one in terms of market cap growth. Since early 2017, it has grown by 12300%, which is 123 times! At this point, its market cap is equal to 34 billion dollars, which is more than half of Bitcoin’s market cap. Litecoin went from $4 in January 2017 all the way up to $47 today. Most experts believe that the most popular cryptocurrencies will keep growing at least until the end of 2017, which is why it’s still not too late to get in, they say.
 
 
On the other hand, we should keep in mind that cryptocurrencies are rather volatile. For example, TaaS doubled in value over the first 5 weeks but then followed a 2-day 35% crash. By the way, the recent Bitcoin drawdown was around 20%.
 
If those rollercoasters don’t make you scared, then you are probably asking which cryptocurrency is better to invest. According to the market research by CoinDesk, 94% of the 110 respondents assume that Ethereum is now the most promising cryptocurrency for international investors.  49% of them also believe in Bitcoin. According to the founder of Virtual Capital Ventures, Ethereum may well catch up with Bitcoin in terms of market cap if it keeps on growing at the same rate.
 
At the same time, international experts name a bunch of factors contributing to the current and future growth of cryptocurrencies:
 
1. First of all, it’s all about investment attractiveness. The thing is, the international market of cryptocurrencies has been attracting thousands of new investors every single day. Yet, most of they have been trying to buy as much of those crypto currencies as possible, and this is what keeps on pushing their market capitalization and exchange rate higher and higher. The deficit of Bitcoin is another driver. Out of 21 million Bitcoins mined, 16 million of them have been sold. Every single day, the amount of spare Bitcoins declines.
 
2. The second factor is that pig-scale players have been loading up on cryptocurrencies. More and more banks, hedge funds, and investment firms have been joining the market and influencing the exchange rates. Some banks are already busy making cryptocurrencies legal. For example, the Bank of Japan has recently made Bitcoin a legal payment means. Instantly after that decision, Asian exchanges say Bitcoin and some other digital currencies skyrocket to new all-time highs. By the way, South Korea and Australia are on their way to approving Bitcoin as well, which is likely to send the exchange rate higher.
 
3. The crowd. While watching big players loading up on Bitcoins and other digital currencies, private investors start doing the same. Higher demand pushes the price higher.
 
4. Decentralization, anonymity, no regulation and control, and some other factors make digital currencies so popular.
 
However, cryptocurrencies, as any other financial asset out there, are subject to volatility. With that said, before investing in them, you need to consider possible drawdowns, which is something few investors can actually tolerate.
 

 

How and where to invest in cryptocurrencies?

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Actually, buying Bitcoins and other cryptocurrencies is easy. You can do that by going to any cryptocurrency exchange out there. There are over 170 of them all around the Internet, including top-ranking ones like BTC-e, LiveCoin, LocalBoitCoins, Cex.io and IndaCoins. All you need to do is sign up and make a transaction by exchanging your money for the equivalent amount of the chosen digital currency. You can sell the currency later on and earn a lot of money from if the exchange rate goes up.
 
For example, those who bought Bitcoins earlier this year for $1000 can sell them now for more than $4000. However, you should keep in mind, that Bitcoin saw a couple of crashes in the past. So, you have to be ready to tolerate such drawdowns.
 
What if you don’t have enough money to buy 1BTC for more than $4000. 1BTC can be split into smaller parts known as satoshi. 1 satoshi is 0,00000001 BTC. At the same time, alternative digital currencies are much cheaper at this point and therefore are more affordable.
 

 

Mining Bitcoin for Profits
 

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Buying digital currencies is not the only way to invest in them. Actually, you can mine them and sell them. To start mining, you need powerful hardware and certain knowledge. For those of you how don’t know, cryptocurrencies are based on the so-called block chain technology. It functions and makes transactions at the expense of the computers registered in the system. That’s why the owners of those computers get rewarded with Bitcoins. This is what mining is all about. It’s something like torrent trackers. The users can store data locally, exchange the data with others and download something from others. The most generous participant who is constantly online and using more powerful hardware gets higher rating and higher reward.
 
Block chains are all about powerful hardware since this requires a huge amount of highly sophisticated calculations non-stop. That’s why thousands of computers are united into the cloud where those calculations actually take place. As a user you don’t have to do anything special. Just turn your computer on, go inline, and get connected to the system, and that’s about it. Just leave the computer on. More powerful computers get a competitive edge, which is why users create mining farms and pools to collectively gain this competitive edge.
 
If you want to mine cryptocurrencies on your own you’ll have to invest in powerful hardware, especially GPUs (video cards). GPUs are essential when it comes to mining digital currencies.
 
Mining farms are obviously more powerful than any powerful standalone PC at home. That’ why the owners of mining farms can and do mine more Bitcoins than their competitors. However, mining farms are expensive, consume tons of electricity, and are rather noisy.
 
That’s why most miners unite into pools which is basically clouds. Everything is processed by the entire cloud as a whole unit rather than isolated hardware units, which makes those pools successful. The mined coins are distributed between the participants depending on the share of their contribution. If there are owners of a mining farms among those participating in the pool, they usually get the biggest reward.
 

 

The bottom line is, literally anyone can make money by investing in cryptocurrencies or mining them directly. However, along with windfall profits there is a risk of major drawdowns. Anyway, digital currencies have created a whole new sea of moneymaking opportunities for everyone.

 

You are free to discuss this article here:   forum for traders and investors

 

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