The bedrock of blockchain technology is decentralisation. In simple terms, blocks serve as an amalgamation of information collected from products that thrive on a blockchain and this information exists on a decentralised public ledger. Decentralised means this information is not verified by a single body but a number of verifiers, also known as nodes. When these nodes agree on the authenticity of a transaction, a block is created. Though the intent of blockchains remains similar across multiple networks – currently there are 1000 blockchain networks – the way in which blocks/transactions are verified within a network differs. Proof-of-Work (PoW) and Proof-of-Stake (PoS) are the two most popular consensus mechanisms that blockchains use. The former leads to mining cryptocurrency and the latter leads to the minting of a cryptocurrency. In this article we are going to talk about the difference between crypto mining and crypto minting and whether these ventures are profitable in 2022.
Cryptocurrency Mining Through Proof-of-Work Blockchains
Bitcoin popularised the PoW consensus mechanism and today most of the blockchain networks use it to verify blocks as it is considered most secure. Let’s do a rerun of how this works. So there are three components of PoW consensus mechanism – miners or validators, electricity and hardware (also known as rigs). Let’s understand each of these roles.
Miners/validators - Each blockchain has its node prerequisites, so read them before becoming a validator for the blockchain. For example if you want to run a bitcoin node, you need to install a bitcoin node software first. Then you connect your hardware to the core software to begin the validation process.
Hardware - When you become a blockchain validator, you ideally connect your computer’s hardware to the network. This computer should have special capacity to solve a complex mathematical problem that gets generated whenever a new block needs to be approved. For bitcoin, one block is generated every 10 minutes. The complexity of the problem increases every time a new block gets added. So, your computer(s) in all probabilities is not going to be the one solving the problem every time a transaction needs to be approved, which makes cryptocurrency mining a difficult venture.
Read this blog to understand which type of hardware you need to become a cryptocurrency miner.
Electricity - You need to run your hardware for a long time to make the venture of crypto mining effective. Plus the computational power uses a lot of energy. You need to keep your device(a) cool, so air-conditioning is another addition. In short, crypto mining consumes sufficient energy. Therefore, you may have to take permission from your local administrative body before building the entire infrastructure, not to mention paying the fees.
When your computer solves the mathematical problem, as a validator, you broadcast the news to the network for other validators to provide their consensus. Only then the information gets added and forms a new block. Likewise you get rewarded in cryptocurrency. That’s how crypto mining works. Now let’s see if it is profitable to mine cryptocurrency, (we will take the example of Bitcoin here) in 2022.
Is Bitcoin Mining Profitable in 2022?
With each passing year the amount of Bitcoin you earn for mining gets slashed. Does that mean cryptocurrency mining is no more a profitable venture in 2022? Not really, even though the rewards have reduced, the value of Bitcoin has grown significantly from what it was in 2018 and will continue to grow in the future. Therefore, even with the rewards diminishing, a fraction of BTC that you receive through mining would be of more value than what it would have been earlier.
In 2019, a validator would earn 0.0005 BTC per day amounting to USD 4 with a GPU hardware. At that time the dollar value of BTC was USD 8000. At the moment, 1 BTC hovers around USD 40,000. So, at the moment, the same validator would be making USD 20 a day. Depending on the volatility of BTC, the earnings can range from USD 15 to USD 35 a day given the current value of BTC. An average crypto miner will wish to mine USD 5000 worth of Bitcoin in a year, but there's guarantee that the target will be achieved because the problem solving mechanism is randomised. There are several nodes in the network that are continuously working to solve the mathematical problem and the number of times your device will manage to solve the problem is a matter of luck. Additionally, there is also a consideration for breaking even. A basic ASIC device costs USD 500, however the overall cost can go up to even USD 10,000 considering infrastructure, electricity and other paraphernalia. So you might have to wait for a year or more before you break even.
Joining a crypto mining pool is another way of mining Bitcoin. You contribute to the network by offering the hashing power that comes with your hardware and as you have probably guessed other validators are also connected to the pool. Therefore, you can reduce the overhead cost of buying an ultra high-end ASIC computer and get a share of the rewards. However, bear in mind that the rewards in this case will reduce significantly.
Crypto mining is more secure than the Proof-of-Stake consensus mechanism. Hence, a lot of blockchains use this method for verifying transactions. However, it is also very energy intensive, and the barrier to entry is quite high. So, if you are not comfortable with the cost or the idea of being a part of a venture that is not super environment-friendly, crypto mining is probably not the best idea. With that said, let’s discuss the Proof-of-Stake consensus mechanism.
Cryptocurrency Minting Through Proof-of-Stake Blockchains
In a proof-of-stake (PoS) consensus mechanism cryptocurrencies are not mined but are directly minted by the validator. Basically, the modus operandi of PoS is simple. A person joins the network as a validator by staking a number of tokens as collateral (may or may not be predetermined by the blockchain) and locking them up for a certain period of time. Then if this person is chosen to approve a transaction on the blockchain (the selection is done randomly), he/she receives a portion of the transaction fees generated by the platform.Therefore, he/she mints and not mines a cryptocurrency. Any malicious intent on part of the validator results in the slashing of his/her stake as the consensus still needs to be reached and the majority of the validators must approve a transaction before a new block is generated. Though validators are selected at random, with most blockchains, weightage is given to validators with the highest amount of stakes.
Popular blockchains that use the PoS consensus mechanism are Cardano, Avalanche, Solana and Polkadot with Ethereum soon to join the club. It addresses some of the pain points of a PoW validation mechanism like latency, energy-inefficiency and a high barrier to entry.
Is Cryptocurrency Minting Profitable in 2022?
Tricky question. To be honest, though you do not need a high-end rig or pay high electric cost to become a PoS validator, you should have spare storage of around 250GB and 8GB RAM on your computer. Plus, some blockchains would require you to stake a certain number of tokens to become a validator. Therefore, before choosing to become one, please read the validator prerequisites. Solana, for example, does not predefine the number of tokens for staking. However, they have some specific hardware requirements and a certain amount of SOL for sending a vote transaction for each block. Check the full details here. Validators on the Ethereum network need to stake 32 ETH (USD 90,000) to get even started, so for most becoming a validator on the Ethereum network is out of question.
Your profitability depends on the percentage of the transaction fees that the network will pay you for validating a block and usually validators with the highest stakes get chosen with some amount of randomness sprinkled in between. We feel you can definitely give it a shot if you are okay with having your crypto locked up for a while. The time you will take to break even also depends on these factors.
A platform you can stake with in case you are considering PoS seriously is KuCoin Pool-X. It rewards its stakers daily and you can also mint its native token POL (Proof of Liquidity) which comes with certain benefits along with the daily rewards.
Invest in Cryptocurrencies for Better ROI
You can also invest in cryptocurrencies in general in the spot market. This is an ideal way to get into the cryptocurrency space without much risk. C-trade is a cryptocurrency exchange that supports both spot and crypto derivatives trading. Crypto derivatives provide you the opportunity to bet on the rising price of a crypto asset without buying the underlying asset. C-trade offers lightning fast transaction speed so that you don’t miss out on a lucrative trading opportunity. Place your bets on the world’s most popular crypto perpetual derivatives and enjoy the profits. Read our guide on the best crypto trading strategy.
At C-Trade, a crypto derivatives trading platform supporting lightning fast transactions, you don’t need to put in big stakes, investments or spend on electrical power, as is the case with crypto mining or crypto minting, to win rewards. All you need to do is buy a crypto derivatives perpetual contract of your choice at a fraction of the cost that you require for mining or minting cryptocurrency. Additionally, you can increase your leverage by 125x and increase your profits. With our advanced trading view, know where the market is moving and predict correct market moves with C-trade’s in-built crypto indicators. Join today to win trading bonuses and rewards.
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. C-Trade, its affiliates, agents, directors, officers, or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.