Crypto Trading vs. Crypto Mining, Which is Best?
Some believe that mining with specialized hardware is the only way to get into cryptocurrency trading. Others say that buying individual coins from exchanges is much easier. There is no clear winner between them. Both options come with their pros and cons.
Cryptocurrency has become an increasingly attractive investment option. The number of new investors is growing rapidly, especially in light of its recent price jump. Nevertheless, there are some questions regarding the security of these investments. Are they secure? How long does it take to earn profit? Can you trust the exchange where you trade? And what about the risk of fraud?
To answer those questions, let’s look at both ways of investing in cryptocurrency. First, we’ll explain the difference between mining and trading. Then, we’ll dive deeper into each approach and compare its advantages and disadvantages. Finally, we’ll share our recommendations on how to choose the best method for beginners.
What Is Cryptocurrency Investing?
Investing in cryptocurrency means putting your money in a digital asset or coin which can be used as a store of value. With cryptocurrencies, you will often find yourself spending more than you originally invested since most are traded against fiat currencies like USD and EUR. However, you should keep in mind that this is not a guaranteed return since crypto prices are volatile.
The advantage of investing in cryptocurrency is that it allows you to diversify your portfolio by spreading your money across different assets. You won’t lose all your hard-earned cash if one currency loses value while another one gains. Because of this, many people argue that the future of finance lies in decentralized currencies such as bitcoin and ethereum. When a large group of people invests in something, the collective interest causes demand to go up. This leads to higher prices and creates opportunities for profits.
Mining: What Is It All About?
If you have been following the news lately, then you probably know that Bitcoin’s popularity has skyrocketed over the past few years. At first, the idea of a decentralized peer-to-peer network was almost impossible to grasp. However, once the blockchain concept was introduced, the world began realizing just how useful this technology could be.
Today, the term “mining” refers to the process of verifying transactions in the ledger of a distributed database. Every miner tries to solve mathematical equations using his/her computing power. Whoever comes up with the solution gets rewarded with newly minted bitcoins. In other words, miners compete to add blocks of data to the blockchain. Miners receive compensation in the form of transaction fees paid by users who want to send funds to others via the blockchain.
Pros of Crypto Mining
The pros of crypto mining as opposed to traditional mining include lower energy consumption, ease of use, and reduced environmental footprint.
We will explain each of those points one at a time.
i. Uses Little Energy
Traditional mining requires huge amounts of electricity, which contributes to climate change. Crypto mining uses less power because the computers performing the computations are usually turned off when they aren’t being used. Since no physical components need to be heated, cooled, or run constantly, the energy requirements are much lower.
ii. Easy To Use
Another benefit of crypto mining is that it is very easy to utilize. Unlike traditional hardware, the mining equipment can easily be integrated into any computer that is connected to the internet. Therefore, anyone interested in participating in the cryptocurrency economy doesn’t necessarily need to buy expensive mining rigs.
iii. Reduced Environmental Footprint
Using virtual machines and cloud servers to perform crypto mining eliminates the need to build new mines that would otherwise cause damage to the environment.
Cons of Crypto Mining
i. Highly Competitive
Crypto mining is highly competitive. As more and more people join the network, the chances that someone else will win the processing competition decreases. According to some estimates, a single coin may cost hundreds of dollars to mine.
ii. Expensive
A significant downside of crypto mining is that the price of digital coins can fluctuate wildly. In addition, there is a barrier to entry, one needs to purchase both hardware and software before he/she can start earning. Another issue is that it can take months or even years, to obtain enough profit from mining coins to pay for the initial investment.
iii. No Guarantee of Income
Unlike conventional investments where companies guarantee a fixed rate of return, cryptocurrencies offer no guarantees about their future earnings. Some may never become profitable. However, this has not stopped many individuals from investing large sums of money in crypto mining.
Trading: Why Do People Choose That Approach Instead Of Mining?
There is nothing wrong with mining, but it requires a lot of technical expertise in terms of computer knowledge and electricity consumption. For example, to mine a single Bitcoin, you would need to run multiple servers 24 hours per day, 7 days a week. Depending on which country you live in, you may even pay taxes on the electricity consumed.
Additionally, mining has a reputation for being very costly due to maintenance costs. As a result, there are only about 1,000 companies that operate mining facilities around the globe today. On top of that, these companies are generally only interested in selling their products to large corporations rather than individual investors who might be looking for an alternative investment option.
In contrast, trading offers much less risk and is easier to understand compared to mining. Traders buy and sell cryptocurrencies based on current market dynamics without having to mine them themselves. Most exchanges also offer their token (like Binance Coin) which represents a portion of the total volume traded on their platform. Unlike mining, trading does not require any specialized equipment and you don’t have to deal with high operating costs. Therefore, it’s easy to get started and anyone can do it.
How Can I Start Trading Cryptocurrencies?
As mentioned above, you can build a successful crypto portfolio in just a matter of weeks or months instead of years. Once you have made your decision, you will need to decide where you want to learn more about the markets. There are many ways to gain information on the subject including books, videos, blogs, forums, chat rooms, social media platforms, etc. Ultimately, what matters most is what type of approach works best for you. While some methods work better for certain individuals, they might make no sense at all for someone else.
Pros of Crypto Trading
i. Wide Variety of Investments
Crypto trading provides a wide variety of investment options. You can trade stocks, commodities, indices, forex pairs, shares, and other traditional financial assets as well as tokens like Bitcoin and Ethereum. This allows traders to diversify into different asset classes and stay away from over-reliance on any particular asset class.
ii. Low Costs
While cryptocurrency may seem expensive, it’s important to keep in mind that its value often rises significantly within a short period. When combined with low spread and commission fees, cryptocurrency trading can lead to significant savings. Also, while you won’t find any brokers offering free trades, most platforms charge relatively small amounts to execute orders.
iii. Easy Access From Anywhere With Mobile Apps
You can access this form of investing from anywhere via mobile apps. These apps are available for both Android and iOS devices meaning you’ll always be up to date with the latest news and trends. Not only that, but you can also connect directly to your account through the app so you won’t have to wait until you’re back home to check your portfolios.
iv. No Minimum Deposit Requirements
If you don’t have any money to invest in cryptocurrencies, do not worry. The minimum deposit requirement on most online exchange platforms is usually under $100. In fact, some platforms even allow you to open accounts with zero balance.
Cons of Crypto Trading
i. Lack Of Regulation
The lack of regulation means that there isn’t much protection for investors. If something goes wrong while trading, there is little chance of recovering lost funds. However, regulators are taking steps toward increasing awareness of the risks associated with cryptocurrency trading.
ii. High Risk
Due to the nature of cryptocurrency trading, there is a higher risk involved than most other forms of investing. Market volatility is one of the biggest challenges faced by new users who aren’t experienced enough to take advantage of fluctuations. It is advised to keep a close eye on your balances to avoid losing too much capital to unexpected events.
iii. It’s Hard To Keep Track Of Portfolios
Because of the decentralized nature of blockchain technology, keeping track of your digital investments can be a challenge. Some platforms automatically update your portfolio values according to market fluctuations, but others require manual intervention.
iv. Difficult For New Investors
Cryptocurrency has gained popularity among millennials due to its ease of use. However, newcomers are sometimes overwhelmed when trying to navigate the complexities of cryptocurrency trading. Cryptocurrencies are still very new and there is a lot of confusion.
In conclusion, when choosing between mining and trading, remember to consider your personal goals, preferences, skills, time frame, and resources available to you. If you are ready to start investing in cryptocurrency, you should seriously consider taking the plunge and learning everything you can about both options. With this guide, hopefully, you now know enough not to choose one over the other from the outset.
