Is Crypto Mining Still Effective in 2023?
Discover if crypto mining is still an effective method of getting ahead with digital assets.
Is Crypto Mining still in play? Well, to understand if Crypto Mining is still profitable in 2023 we need to dissect how it works, and how the future of its legality will play out. Proof of Work Cryptocurrencies require miners to verify new blocks on the blockchain.
This process is done by having computers solve complex mathematical problems, the miners all compete to solve the problem and the fastest computer to solve the question gets rewarded in BTC, while validating the next block.
As of September 15th Ethereum Miners are no longer participating in block validation as ETH has officially updated to a Proof of Stake consensus protocol
Thinking About Mining BTC?
Today, it is practically impossible to run an independent BTC mining pool, as competition is so steep it requires warehouses full of computers in order to compete. Independent traders looking to mine BTC can join an existing Mining Pool, which is a network of miners that are geographically separated but working together to compete with the largest mining farms.
The entry costs associated with joining a Mining Pool should always be factored into your decision on whether it makes sense for you financially. Most BTC mining pools charge fees to participate, your mining fees could be anywhere from zero to four percent. The size of your mining pool also affects your payout, as the larger the pool the smaller the rewards.
The cost of the mining equipment, electricity costs should also be considered as well when determining its profitability. It is important to also do your own research on each mining pool, as there is no guarantee your mining pool will actually distribute your rewards.
While BTC is not the only PoW cryptocurrency, the demand of other PoW like Ethereum Classic or Bitcoin Cash are largely speculative and likely only profitable during an “alt season” during a bull run.
Many of these Generation 1 cryptocurrencies may never come close to their former ATH (All Time High’s) as the markets have matured and the demand has been replaced by Smart Contract Layer 1 chains like Ethereum, Solana or Cardano.
Lastly, Mining BTC or any Proof of Work cryptocurrency may become illegal in the United States. Per White House Sources the US Congress may introduce legislation to formally ban mining. In addition to the potential outlaw of the practice, the 2nd largest cryptocurrency by market cap, Ethereum just abandoned PoW for PoS on September 15th.
Staking, An Alternative to Mining
While mining isn’t officially dead, staking opportunities are much easier and cheaper to participate in. Staking is an alternative to Proof of Work that requires significantly less electricity. It allows users to lock their assets for a set time in order to help validate blockchain transactions.
By locking your assets and participating in block validation you can earn passive interest on your crypto assets. Anyone on Coinbase can immediately earn 4-6% staking rewards on their Algorand without having to lift a finger. With other currencies like Solana or Binance Smart Chain users can transfer their funds to delegated staking pools and earn interest without purchasing any hardware.
With Staking you must consider the price volatility of the given asset. When locking your assets to a protocol you are unable to withdraw your assets during a price crash. Even if you are earning 6% ADA rewards by locking your ADA into a pool, you are losing money if the value of ADA has fallen 80%.
Which is why it is important to understand the utility of any given asset you invest in. Meaning what is the purpose of using this particular coin/token and what will cause further demand for it? Two coins can do the same exact thing, however the coin with more adoption and real life use will generate higher demand, and thus higher price action.
Staking can also generate profits within hours as long as the asset price has not decreased. When I had a larger holding of Algorand, I was earning about 10 dollars worth of ALGO per day, without having to purchase any equipment or spend more on my electric bill. Most centralized exchanges offer a variety of staking opportunities, giving most users a safe and accessible entry point.
It is important to always do your own research and learn about the staking rewards of each asset. For instance in 2021 Coinbase did not offer ADA rewards for staking, but if you were to withdraw your ADA to an ADA Wallet you could manually join a staking pool and earn 6% ADA rewards.
Smart Contract Layer 1 and Layer 2 blockchains are the future. In order to participate in DeFi or buy NFTs you need smart contracts. All of the largest “Alt Coins” like Ethereum, Solana, Cardano, and BNB all have something in common; Staking.
While the allure of making BTC passively is intriguing, it is important to understand the fundamental technology and to hedge your investments on growing ecosystems as opposed to shrinking products (Ethereum Classic, BTC Cash).
There will never be a day where people are using Ethereum Classic to buy products at the Bodega, while projects like Solana are actively working on an Apple Pay compatible, Solana Pay. When considering which asset you are looking to stake/mine, do your own research and consider every coin’s future adoption and use case.
Is Crypto Mining Dead?
No, the largest Cryptocurrency by market cap, BTC still runs on a Proof of Work consensus protocol which requires mining.
How Do I get started with mining?
In order to mine BTC you must be willing to purchase hundreds of dollars worth of GPU hardware or find a reputable mining pool to join.
How can I get started with staking?
You can stake your assets directly on major exchanges like Coinbase or Kraken. As well as the dozens of DeFi Applications and Node Validator opportunities. You can stake major coins like Algorand directly on Coinbase.
How long will it take to be profitable? Depending on price action, staking can be profitable within hours.
Who is Cindicator?
Cindicator is a world-wide team of individuals with expertise in math, data science, quant trading, and finances, working together with one collective mind. Founded in 2015, Cindicator builds predictive analytics by merging collective intelligence and machine learning models. Stoic AI is the company’s flagship product that offers automated trading strategies for cryptocurrency investors. Join us on Telegram or Twitter to stay in touch.
Information in the article does not, nor does it purport to, constitute any form of professional investment advice, recommendation, or independent analysis.