Cryptocurrency mining is a procedure that is used to validate cryptocurrency transactions and, at the same time, to create new units of the cryptocurrency.
Cryptography is how digital currencies and the blockchain technology secure transactions. Mining is also the only way to obtain new coins (also called virgin coins) and inject them into the system. The term mining is adopted as a reference to the limited supply of coins and to digitally mimic the processes of physical mining of precious metals such as gold.
For most cryptocurrencies, there is a final number of coins that are or will be issued and work must be done before more money can be created into the system. This is an attempt to solve the problems of excessive money printing and inflation with cryptocurrencies, from which, traditional fiat currencies frequently suffer.
So, while mining is definitely a highly secure way to validate transactions, there are some disadvantages associated with it. The technology is still new, and every cryptocurrency uses a somewhat different process in an attempt to provide a better and more efficient solution. However, there are many aspects to it that are inconvenient, like for example, high electricity usage.
The math problems that miners need to solve get progressively harder and harder requiring more powerful computers and more electricity for the work. While at the beginning of the lifespan of a cryptocurrency this is manageable, as more and more miners join the network, tasks get harder and harder to be solved.
Despite all of this, the most famous and the most widely used cryptocurrency, Bitcoin, uses more electricity than 160 countries in the world to be mined as of early 2018, and, by 2020 it’s expected that Bitcoin miners will need more electricity than the whole world uses today!
So, while mining Bitcoins is profitable today, it’s questionable how profitable it will be in the future because electricity prices, as well as computer hardware prices, will probably be pushed higher by the increasing demand.
If you are considering to build your own mining rig to join the cryptocurrency hype, then those are things you will definitely need to consider first. While Bitcoin is the most famous of them all, there are other cryptocurrencies as well, many of which require far less powerful computers to be mined. So, a thorough analysis of all the cryptocurrency options will be definitely helpful before investing anything.
Related education and FX know-how:
Trusted FX brokers
Haven't found what you're looking for? Contact us!
Forex Education - Basics:
Free Forex eBooks:
Forex Education - FX Brokers:
Forex Education - Technical Analysis:
Forex Education - Money Management:
Forex Education - Psychology:
Other trading tools: