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September 28, 2020
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Is cryptocurrency mining safe? |

The title question asked two decades ago might as well have been “are ATMs safe” or “are phone transfers safe”. All new industries are accompanied by low social trust and a large dose of doubts. That is why it is worth explaining to our readers what the risk of investing in cryptocurrencies is. In today’s article, I will describe the risks, problems and challenges faced by digital miners on a daily basis. We know that investing in cryptocurrencies carries a high risk of losing money, mainly due to the lack of knowledge, skills or appropriate experience.

Customers are afraid of technology they don’t know

The biggest challenge for consumers, investors and private individuals interested in the cryptocurrency market is keeping up with the pace of technology development. Just like on the market of smartphones, TV sets, household appliances, what is considered new and modern today will soon be replaced by a new generation of equipment with better parameters. The situation is similar on the cryptocurrency market, where producers offer more and more interesting technological solutions.

The victims of the technology race are customers who, in the maze of information, do not know which equipment to choose and give up their interest in this industry. Tracking news, monitoring the market, supplementing technical knowledge requires devoting almost all your free time to it or treating it as a profession. Consultants, companies that make up the cryptocurrency industry, but also the media have a key role to play in this situation (nods to Spidersweb for being interested in the topic!). The latter, instead of scaring the new industry, should educate and explain the principles of its functioning. A funny analogy is that Poles were once threatened with transfers from telephones and withdrawals of virtual cash from ATMs. Today, in traditional banking, both activities are commonly used without fear of losing funds.

Customers do not see how much they will pay for electricity

Electricity prices currently range from PLN 0.53, up to PLN 0.67 per kWh. Not all of us know that the price of electricity also has several components. These are, among others: distribution price, selling price and transmission fees. Often we are only communicated with two of the following, but after receiving the bills, we notice that the reality is different. In Mazowieckie and Wielkopolskie voivodeships we will pay the least, PLN 0.51 per 1 kWh, while in Warmia and Mazury we will pay much more, as much as PLN 0.59. Less than three years ago, the price level was very similar in Poland (an increase by 3%), but in the following years 2020-2023 we can expect drastic increases, even up to 40%! The main reason for the rising prices are EU directives that are to limit CO2 emissions to the atmosphere in countries most polluted with this element. As we all know, one of the alternatives to high bills is investment in renewable energy, which we strongly encourage you to do!

Customers cannot see cryptocurrency rates on TV

Another bane of “crypto miners” is undoubtedly the rapidly changing exchange rate of digital currencies mined by miners. Compared to traditional financial instruments, cryptocurrencies show much greater volatility, which can be seen by following the stock market charts, available e.g. on Coinpaprika. A common mistake when calculating the return on investment is the lack of a fundamental and technical analysis of the currency whose transactions we intend to verify.

It is also worth taking into account upcoming events, regulatory changes or announcements of new partnerships. A positive change for the entire market would be the regular publication of cryptocurrency rates in the media, as is the case with, for example, the Euro or the Dollar.

Clients no longer earn money on deposits but still have not discovered profits from cryptocurrencies

Many novice investors treat cryptocurrencies as an opportunity to make a “quick shot”, easy and big profit. Meanwhile, an investment in cryptocurrency miners is a long-term investment. In the long term, it gives a chance for a better profit than a traditional bank deposit or investing in real estate. If we realize this, the whole thing is no different from any other type of investment.

Just like in banking, the Advisor-Consultant will play an important role as he will help us choose the device, advise on how to organize the rooms and what decisions to take when it comes to electricity. The threshold for entering this investment, apart from finances, requires overcoming certain mental barriers, i.e. trust in a new technology and industry that operates legally and in a moment (in our eyes) will become an important part of the economy.

The more machines on the network, the lower the profit

This results in an increase in the difficulty of extraction, and thus a decrease in the profitability of your device. This means that each participant in the Bitcoin or any other network contributes to the verification of the transaction by providing the computing power with which it is “endowed”. Therefore, it receives remuneration in proportion to the amount of work that was performed by the integrated circuits in the devices. If devices are added to the network, the reward will be paid to the larger number of “employees”, which reduces the payout.

Clients need professional guides in the world of cryptocurrencies

One of the greatest threats to our investment may be the upcoming changes in the currency structure. Hard Fork is a chain division forced by updating the network, which, for security reasons, must be split into two separate chains. A good example is the Bitcoin hardfork that took place on October 24, 2017. Due to the increasing share of ASIC devices in the Bitcoin network, developers decided to meet the expectations of miners equipped with GPU cards. Thanks to this division, Bitcoin Gold was created, the blocks of which can be verified only with devices based on graphics cards.

Halving, on the other hand, is a reduction of the agreed remuneration based on the guidelines contained in the manifest of a given project (whitepaper). In the case of Bitcoin, the split occurs approximately every four years. The last change was noted on May 11th this year. The remuneration then fell from 12.5 BTC to 6.25 BTC for one verified block. This means that all devices that “mine” Bitcoin every 10 minutes receive a remuneration of 6.25 BTC, in an amount proportional to the computing power transferred.

Phew! The information quoted is clear to the industry experts, but the ordinary investor did not understand a word of it. It is the role of us advisors to be able to talk about these concepts in a simple and understandable way. Just like the banks have learned to tell us what WIBOR is in a simple way.

Summary

Investing in cryptocurrency miners is highly attractive considering the profits that individual devices offer, but when buying, we have many risks that we must avoid. In order to safely start the adventure with cryptocurrency miners, you need to pay attention to all the above factors, i.e. halving, hardfork, energy prices and the difficulty of mining. Are you interested in buying, repairing, optimizing cryptocurrency miners or building your own computing center? Contact us, we will provide the necessary advice and tips for free.

Author: Michał Stryjewski / Unlimited

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