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Pros and cons of investing in “mining” bitcoins

Pros and cons of investing in mining bitcoinsHow correctly to mine digital coins and why is it more profitable to earn crypto money than to buy?

Cryptoeconomy is on take-off: if in mid-2016 the sector of crypto-currency was estimated at $ 285 million, then in December 2017, the capitalization of this market overcame the barrier of $ 600 billion (given by CoinMarketCap).

In the wake of information populism, massive advertising in social networks and media, an ordinary private investor feels like a guest on someone else’s holiday: everyone advises not to miss the moment and invest in the crypto industry, but nobody knows how to do it correctly. The market still has an acute lack of information to make informed investment decisions.

Dmitry Ozersky, co-founder and managing partner of the first industrial mining Electro.Farm – about the features of the development of the crypto industry and the benefits of cooperation with legal miners.

Extraction of technological minerals

One of the most obvious ways to earn money on a new market is to do the mining: transferring your own computing capacity to maintain a distributed platform and creating new blocks in the blockchain, with the possibility to receive remuneration in the form of new units of crypto-currency and commission fees. Simply put, the user gives the power of his computer, receiving in return a certain number of crypto currency.

For several years, millions of people have been following along this path. At the dawn of mining, it was not difficult to generate digital coins: the user installed a special software on his computer that transferred his power to the blockchain. But the more virtual currency is extracted, the higher is its “price”: the capacities required for the production of each new coin increase exponentially.

The mining of the most popular Bitcoin crypto currency and the recently launched Bitcoin Cash today account for up to 0.13% of global electricity consumption. And this figure is constantly growing, as the complexity of the network bitcoin increases on average by 10% per month (and in some other digital currencies this growth can reach 50-60 times a month).

Today, mining on video cards is suitable for a large number of altcoyins, but Bitcoin can not be mined on video cards. The network of bitcoins is too complicated, special industrial equipment is required for work.

Modern mining requires serious start-up investments: here it is required to rent industrial premises provided with power and the Internet; purchase of powerful industrial equipment, the main manufacturers of which are in China; payment of a serious amount of allocated power capacity obtained legally, as well as payment for construction of data centers and management expertise of the team.

In addition, mining is not just an expensive, but also very complicated, organized process related to foreign economic relations (procurement of equipment in China), logistics – delivery and customs clearance of equipment, with construction – construction of data centers, equipment maintenance and security.

Risks of private investors

Investors who want to earn on mining without additional headaches and without hyperinflation, a huge number of different operators are ready to offer their services.

The main issue here is the choice. Absence of strict requirements of controlling bodies, immaturity of the market and low information transparency make the blockade an attractive sphere for scammers. Unfortunately, today a lot of non-professionals and unreliable counterparts freely offer their services to investors. And thus add to the already poorly studied blockage additional risks associated with entering the business. As a result, inexperienced investors often lose their investments even before they begin to mine.
Here are some of the most obvious threats of artisanal miners.

Non-professional mining companies import equipment illegally, they do not have direct contracts with equipment manufacturers and often purchase it from dealers. Today, in the places of work of Chinese manufacturers, huge enclaves of such suppliers operate. Their main competitive advantage is the attractive cost of equipment. On the other side of the scale is a low quality of goods and logistics risks: equipment can simply not reach its destination.
Mining is often done in poorly suitable premises for this purpose, in which there are no fire extinguishing, ventilation, security and video surveillance systems.
Teams of such firms, as a rule, do not have the necessary business skills and are not staffed with engineering personnel.
The equipment is not insured.
For the investor there is no clear and legal scheme for entering the business, everything is based on an honest word.

Therefore the most correct decision is to invest money in reliable miners, such as Electro.Farm is the first legal miner in Russia.

Mining vs buying crypts: which is more profitable?

Now we are at the initial stage of the development of the crypto industry: only 0.1% of the US population has its own cryptocools. With the arrival of more and more new users in the industry, the rate of the Crypto currency will increase, and along with it the income of the miners will increase. Of course, virtual currencies will change, but it is clear that the block will not disappear, but, conversely, will become an integral part of our future life.

Many beginning investors see for themselves two options for entering the market: the purchase of currency with its subsequent resale at a favorable rate or mining. If today an investor buys 2 bitcoins, then in two years there will be all with the same two “coins”. His winnings are the difference in rates, which (given the youth and instability of the market) may turn out to be negative. At the same time, investments in mining for the same two years allow the investor to hope not to get two, but 5-7 bitcoins. This diversifies the risks of the investor and makes his investment portfolio less sensitive to exchange rate fluctuations.

In the long run, mining is more profitable than the “buy and hold” strategy.

In addition, in the future, the structure of the incomes of the miners will change: if today 80% of their income is issued by bitcoin and only 20% by the commission, then the share of the commission fee will grow further.

Upcoming prospects

The service life of the mining equipment is two years. And in the next two years, the extraction of virtual currency, unambiguously, will remain relevant and profitable. At such a short distance, the main risk of blockage – complexity of the network – is leveled: qualified specialists are quite capable of predicting the complexity of the network for two years ahead.

An additional guarantee for investors is the possibility of using the enormous capacities of mining equipment for other purposes: for example, for data processing and encryption.

Less and less experts doubt that crypto-currencies are a new economic reality. Due to its specificity, bitcoin is likely to become a means of accumulating and carrying out large transactions in the near future. Daily payments, in my opinion, will be provided by other currencies: I would not be surprised if we start paying for our purchases with crypto-currencies such as Apple Coin or Samsung Gold, which, nevertheless, still need to be mined. Mining ensures the operability and protection of the whole detachment. With the passage of time and the development of technologies, mining will change, but, of course, it will not disappear, because mining is a kind of processing center for banks and other financial systems.

About the author
Dmitry Ozersky is a co-founder and managing partner of Electro.Farm, the first industrial mining company in Russia. From 2012 to 2015, he held the position of Managing Director of Rusnano, he was on the boards of directors of eight innovative companies. In 2004-2008 he worked in the Direct Investments Department of Gazprombank.