If you want to make money on the Bitcoin market, you essentially have three choices. You can trade on an exchange, buying low and selling high in much the same way as you would with Forex or shares. You can hold on for dear life, a strategy known as HODLing, which means buying your digital assets and hanging on to them like a long-term investment. Or, of course, you can mine your very own Bitcoins from scratch.
HODLing has created Bitcoin billionaires in the digital currency’s early years, but today, is more likely to create controversy and derision. Trading is the activity of choice, and the arrival of user-friendly digital platforms for the smartphone age like Crypto Engine has opened this activity up to amateur traders and investors everywhere.
That leaves mining. The activity has a reputation for demanding high-end and costly hardware, although once you have it up and running, you can essentially set it and forget it. The question is, with the next Bitcoin halving event coming later this year, would miners be better spending that money on one of the other strategies?
A few words about mining
In case you’ve always seen mining as some techy activity that you really don’t need to know about, here’s the quick and dirty on how it works. Miners use their expensive hardware to solve complex mathematical computational problems in what is called the proof of work mechanism. This achieves two objectives. It effectively brings new bitcoins into existence and at the same time strengthens and “verifies” the blockchain.
What’s halving got to do with it?
Miners essentially receive bitcoins as a reward for the work they do on the blockchain. This is known as the block reward, and every 210,000 blocks, this amount is halved. It happens every four years, so the block reward has steadily dropped from 50 BTC to 25 BTC to 12.5 BTC. This year, it will drop again to 6.25 BTC.
More work for less reward
In the early days, Bitcoin miners were a small group of people using personal computers. Over the years, they have multiplied in number and technology has advanced at a similarly exponential rate. Mining in 2020 is big business. China has become a powerhouse in this area, and the top miners use hugely powerful and expensive equipment. Keeping up with the competition means investing more in terms of time and money – yet the block reward is dwindling.
So is it worth it?
Of course, there is no simple yes/no answer to that question. Mining has evolved into a multi-billion dollar industry that is dominated by major players. Having said that, there are still thousands of individual miners out there who are continuing to make profits.
Nevertheless, the overall environment for Bitcoin mining, taken in combination with the forthcoming halving event means that this is not an activity that is likely to attract many newcomers. When you look at it that way, it is unsurprising that when it comes to making money from Bitcoin, trading platforms are by far the most popular tool in the amateur’s armory.
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I am an entrepreneur and a writer with a bachelors degree in Computer Science. I manage the blockchain technology and crypto coverages at Coingape. follow me on Twitter at @arya_achal or reach out to me at achal[at]coingape.com.