Buying vs. Mining Bitcoin: What Is More Profitable in 2018?
Bitcoin has never been as popular as it is now. The media, news outlets, financial experts, and investors are all concerned about Bitcoin’s fate in the year to come. In case you haven’t been keeping up with the news, Bitcoin’s price has hit an all-time high of $20k in December 2017, and dropped down to roughly $11k by the end of the same month. Such impressive growth in a short period of time has attracted lots of people into the niche. More people than ever are now trading and buying Bitcoins – but what is the more profitable way of getting your hands on it in 2018?
There are two ways of obtaining Bitcoins – either buying from an exchange or another person or mining them using your computer. As the market price of Bitcoin is still pretty high, few people can afford to buy it, especially if they don’t have a lot of money to spare (remember never to invest more than you can afford to lose.) On the other hand, mining Bitcoins is not as easy as it used to be. While before, you could literally put your home computer to work and earn some Bitcoins, now you need specialized hardware that can set you back a few thousand dollars.
What is Bitcoin mining?
Mining refers to the process of decrypting and verifying Bitcoin transactions and transforming them into blocks of information that are then added to the blockchain. The first to decipher a block of information is rewarded with a number of Bitcoins – 12.5 BTC at the moment of writing. That is how all Bitcoins have been brought into the world – as rewards for the proof of work provided by the computers in the Bitcoin network.
Bitcoin is based off an algorithm called SHA-256, which generates 256-bit signatures that can be decrypted using computers. Here’s where the problem starts. Whereas before, you could mine Bitcoin using GPUs, the nature of algorithm makes it possible to create Application Specific Integrated Circuit (ASIC) computers that specialize in decrypting SHA-256 functions. Nowadays, the Bitcoin mining niche is 100% controlled by the production of ASIC processors, which has turned many people away from it. Not only has Bitcoin mining become a more centralized process because of ASICs, but it has also become extremely competitive. The price of a brand new ASIC is well into the thousands of dollars, and the pre-order lists are filled out for months in advance. Moreover, the difficulty level of each block is increased after every 2016 blocks found by miners, which means that a processor considered powerful today might become just as worthless as a GPU a couple months later.
Besides that, other expenses will add up – mainly the energy consumption you need to keep the miner running 24/7. You will also have to deal with quite a bit of heat and noise from your rig, and might even need to keep it in the basement or garage so as to not bother others. Lastly, there’s the issue of joining a pool.
A pool is a group of miners who agree to join their forces in order to increase the chances of finding a block. The reward is then split among the members according to the pool’s policy. The competitiveness has made it impossible for a person to mine Bitcoin on their own, as the chances of finding a block (even with the most powerful of rigs) are close to 0. However, with pools, you will have to consider even more extra fees – the registration fee, the payout fee, and the withdrawal fee, to name just a few.
The bottom line on Bitcoin mining is: don’t put your hopes up too high if you don’t have $5k+ to spend on an ASIC. Even if you have the money, the chances to break even and make some profits in one year are pretty low. But if you’re on a budget and still want to try mining Bitcoins? You could try cloud mining for a couple months – you will still have to pay some fees, but it will definitely not come to the price of an ASIC rig. A trusty company like Hashflare could help you with that.
How to buy Bitcoin?
The other option is buying Bitcoins. You can either purchase them from an exchange that owns a certain amount, or from another person on a P2P exchange. Here are a few things you should consider before buying:
Although the current market price of Bitcoin is very high, it’s much easier and quicker just to buy an amount you can afford than to mine it. If you’re buying from an exchange, you’ll have to consider their fees, which can be a flat fee or a proportional one based on the number of Bitcoins you’re buying. You should also consider the payment method fees, which will be charged according to your bank or credit card issuer’s policy. You can also purchase Bitcoins from a P2P exchange, and sometimes you can even find better deals on these websites. However, beware of scammers, as these P2P exchanges will usually not disclose any of the personal info of whoever you’re dealing with, so you can never trust someone 100%.
Another thing you need to consider when buying Bitcoins is getting a secure wallet, especially if you plan on putting them on ice. Keeping the coins you bought on the temporary exchange wallet makes you an easy target for hackers that might infiltrate into the website’s database. Hardware wallets are considered the safest, but you can also start with a free software one if you’re just testing the waters.
As a conclusion to all above said, buying Bitcoins seems the easiest way to get your hands on the currency in 2018. Even with all the fees plus the price of a hardware wallet if you’re really serious about it, it will not add up to the money you’ll have to put down before you even start mining. Whichever of these methods you end up going for, make sure you’re only investing a reasonable amount that you can afford to lose.