Is it still viable for the retail investor to mine?
While everyone has been focused on the constant price movements of Bitcoin and other Cryptocurrencies, mining is a topic that has rarely been mentioned in recent times.
And for good reason.
Mining was no longer profitable during the year-long bear market of 2018, with Bitmain, one of the mining companies, firing 50% of its workforce.
The retail investor was better off buying Bitcoin on the secondary market than joining mining pools to get Bitcoin. Altcoin prices were dropping relatively faster than Bitcoin, and mining them was even more unattractive.
Looking back, had you mined Bitcoin or select Altcoins during the bear market, you would have made substantial gains if you sell your tokens now.
While hindsight is always 20/20, where does the retail investor stand now with mining? Read on to find out!
What Is Mining?
Before we look into the profitability of mining, let us recap what Bitcoin mining is.
The results of mining are two-fold. Firstly, mining releases more Bitcoins to the miners for each block mined, depending on the time of mining.
Releasing new Bitcoins to miners who successfully mined a block is a form of incentive for miners to continue putting in resources to mine.
Secondly, mining secures the Bitcoin network by verifying transactional information through solving computational math problems. Hackers will have to hack into 51% of the mining network to take over the Bitcoin network.
As a massive amount of computational power is required to take over a network, the Bitcoin Blockchain has not been hacked before.
The Current State Of Mining
Mining secures the network, miners get rewarded for their services and are incentivized to continue mining. The network is secured as long as miners continue mining. This cycle ensures that mining is a key component in Blockchain and will remain so in the future.
However, mining is expensive, especially if you are a retail investor with limited resources to invest. In addition, Bitcoin mining is the most expensive.
Increasingly Difficult To Mine Bitcoin
As seen in the snapshot below, the difficulty of mining a block has steadily increased over the past 6 months.
Image was taken from Blockchain.com
The bullish run of Bitcoin in the year 2019 has contributed to the increase in mining activity. Furthermore, the mining difficulty is adjusted based on the amount of computing power in the network. This increases the level of mining difficulty as more computers join the network.
Therefore Bitcoin mining for the retail investor is (most likely) no longer profitable and will be less so as the price continues to increase.
Mining Altcoins In 2019
“Altcoins”, a term used to refer to Cryptocurrency other than Bitcoin has faced a harsher year than Bitcoin. We see few altcoins recovering at the same levels as Bitcoin.
This has generally led to lower levels of interest in mining altcoins, as Bitcoin continues to dominate the market capitalization of the industry.
Moreover, many altcoins have insufficient trading volume, making it difficult to cash out profits after mining.
“Be fearful when others are greedy, and greedy when others are fearful”
In any bear market, there are always undervalued assets whose prices drop together with the rest of the market. Altcoins are no exception. By choosing the correct altcoins to mine, profits can still be made.
Possible Mining Solutions
Use Monitoring Solutions
Different altcoins have a different set of factors that affect mining profitability. However, there are a common set of factors that we can monitor to maximize profits from mining altcoins, such as the following.
- Market Price
- Trading Volume
- Mining Algorithm
- Hashrate Charts
- Power Consumption
And many others that have not been listed here! Sounds complicated?
To make your life easier, it is recommended to use a monitoring solution that helps to monitor all these metrics and present them in a single dashboard.
One such solution is minerstat, where you can calculate the profitability of mining particular altcoins with their mining calculator. There are many other similar solutions in the market that you can explore as well.
Number Of Exchanges Listed On
It is no use mining a large number of tokens if you cannot sell them for a profit.
When choosing an altcoin to mine, it is important to note which exchange has listed this token and on how many exchanges is this token listed on.
Exchanges that have a history of “pump and dump” should be approached with caution, as the tokens that you mined may be close to worthless over a short period of time.
Furthermore, tokens that are solely listed on Decentralized Exchanges have low liquidity in general. Hence listing on Centralized Exchanges is still the better option.
Selecting an altcoin to mine is not an exact science. There is a multitude of factors to consider in addition to those mentioned above, such as their Whitepaper, the project team and their community size.
Even if a project fares well when measured against these factors, the market may not respond accordingly.
While mining for Bitcoin is still the closest option a retail investor has to secure a profit, the current price increases require you to be more resourceful. However, one thing is for sure.
Mining is still here to stay and will continue to stay in the future.