What are the differences between crypto mining and trading? If you want to own some crypto coins you can either mine or trade for them, provided you know the difference between the two to choose the right way to own it.
Here is an article that will let you know about it all and help you with your choice. This article goes through both these two options so that you can have a better understanding of the advantages and disadvantages related to crypto trading and mining.
Cryptocurrencies, as such, have achieved monumental growth, both in popularity and usefulness, within a span of a couple of years. The prices have increased by hundreds of percent during this period, breaking all records.
On the other hand, if you can afford or have some mining equipment already, you can go for it. You will be better off if you also have some trading skills along with it. This will maximize your profits.
7 Differences Between Crypto Mining and Trading
When you know the differences between as well as the advantages and disadvantages of mining and trading, it will be easy to make your mind as to which process you should follow to obtain some crypto coins.
Ideally, due to the increased complexity of crypto mining has resulted in lower profitability and as a result more and more miners are now becoming crypto traders failing to acquire the necessary skills of crypto mining.
Which is better for you will however depend on how you define ‘better,’ what are your preferences and more. Read on to know about it all.
1. The Risks Involved
Trading cryptocurrencies however will need you to follow specific strategies to minimize the risks involved in this process. You can either store your crypto coins in a digital wallet online or offline.
However, offline storage is more preferred because online storage is unsafe, vulnerable to attacks, and also subject to scams since cryptocurrencies are not regulated in most of the countries yet.
There are also other risks involved in crypto trading that you should be well aware of. There may be exchanges that offer leverages on opening long or short positions.
Though it is good to go long if you believe in the potential and future prospects of the technology, it may turn out to be a wrong decision in a specific timeframe. This can happen especially when you trade with small and new crypto coins since the speculators and traders will influence its price.
On the other hand, crypto mining could be riskier than crypto trading in comparison. This is because, during the process of mining, your mining rig can be damaged since it has to run on maximum power constantly. This means that you will need to have an adequate number of standby options.
In addition to that, you will also need to know about the team and the company behind the coin so that you can calculate the fair price of it and sell it at the time when the price is inflated. However, this is quite impossible because crypto coin companies hardly follow any disclosure regulations.
When it comes to crypto trading, you will need to stay up to date with the latest happenings in the crypto circle in order to trade successfully.
This is because governments are trying to impose regulations on this market now and this has had a radical and immediate impact on the price of the crypto coin. Therefore, you will need to go through several websites dedicated to crypto news and events to gain more knowledge about the current trends in the market.
Other than that, crypto coins are highly volatile regardless of their market capitalization. Therefore, extensive research is essential to be a knowledgeable and successful crypto trader.
However, on the other hand, mining will become difficult in the future because the crypto market does not believe in the ‘bubble’ concept and nobody can accurately predict its progress and its future.
Though this is true, it does save you from doing extensive research to gain knowledge about the crypto coins. You just need to mine well to make the best of the advantages that it offers at present.
The only exception is when you mine Altcoins, especially those pump-and-dump coins that have no real value in the market. In that case, you will need to research a bit to know the exact market timing to sell them off since it is very risky to hold these coins for a long time. However, this, in fact, is related to crypto trading.
3. Time and Stress
If you are a technical person, mining can be your first choice and a good one because it will prove to be less stressful and time consuming. This is because the entire mining process goes basically on autopilot once you set up your mining equipment right.
If you are into GPU mining, you may have to update the software occasionally especially when there is a fork. And, if, in case, the rig goes down, you may have to restart the system. This is in fact a passive income that takes less time and effort.
On the other hand, while crypto trading you will need to put in a lot of time and effort watching the movements of the market and the prices of the crypto coins.
Though you will get to use a lot of charts and signals to help you in this regard and a lot of tools that will help you to automate the process, crypto trading will take a lot more time of yours in comparison to crypto mining.
With the constant price fluctuations and the risks involved, crypto trading is not at all for those with a faint heart, especially if it involves large volumes and amounts.
4. The Cost Factor
Typically, for crypto mining, experts say that you should have at least four mining rigs for successful and continuous crypto mining. Want to know the cost of it?
In addition to that, these mining rigs will consume a lot of electricity during the process which once again will add up to the cost significantly if the region you live in has high electricity cost.
In comparison, crypto trading does not need any expensive hardware. You can trade your crypto coins using your computer and it will not even consume a great deal of energy because the hardware does not need to be extremely powerful, and thereby expensive.
Moreover, you can start trading by making a low deposit as well, depending on the trading platform you choose. You can start crypto trading with as little capital as $10 or less and with minimal technical expertise. Once you get the feel of it, you can gradually raise your stakes.
5. Variety of Options
In crypto trading, you will have a large variety of crypto coins to choose from. In fact there are tens of thousands of different types of cryptocurrencies available as of now in the market with which you can trade.
This is because your system will not limit your options tying it to a particular algorithm or coin. However, not all coins are created equal. Some do not come with a high value and others do not have a high earning potential.
Therefore, you will simply need to research a bit to know the trading volumes, its prospects, and price movements of the particular crypto coins you want to trade with. Even then, if you simply go with the good ones with low price fluctuations, the number can exceed hundreds.
However, that is not the case with crypto mining. You will need to stick to one or a few of the crypto coins only due to the limitations imposed by your mining hardware.
This limitation however will be a bit relaxed if you are into GPU mining rather than CPU mining. However, for that, you will need to keep a proper track of the crypto market to know about the more profitable and relevant coins to switch farms.
Moreover, mining different coins at a time is nearly impossible because you will need several mining rigs and a lot of energy that will add to your cost significantly.
6. Earning Potential
In terms of earning potential, it is huge in the case of crypto trading. If everything goes well and is in your favor, you can earn quite a lot of money in both the short term as well as in long term trading, provided your trading strategies are correct.
Since your investment will be much less as compared to crypto mining this will provide you with a high ROI. In fact, you can make as much as 3 to 5% on an average day and up to 10% or more on an exceptionally good day while crypto trading, even if you are not one of the greatest crypto traders in the world.
Though it is not an easy and a quick way to get rich and there is always a risk of losing all your money, provided you play safe, crypto trading is quite profitable. If you do not make any wrong decisions, there is no significant risk in crypto trading and you can earn quite a lot.
Moreover, if you can analyze the market trends correctly and blend them perfectly with your trading skills, you may even see potential profits in the range of 500 to 1000% every year.
It all depends on the buying price, your long or short trading positions, your mentality, and your ability to manage the financial risks involved in crypto trading.
On the other hand, crypto mining is not as profitable as crypto trading. Even if you mine at better times and with one of the most powerful mining rigs, you will not be able to break even before 4 to 6 months. This is because it involves a lot of money and investment.
Therefore, forget about doubling the money in a month or so while mining, as you may in the case of crypto trading. Moreover, it is very important that you buy your mining equipment at the best cost possible and at the right time.
This will prevent negative impacts on its earning potential if the demand for it increases the supply. In here, you will not be able to make the best out of the rate swings as you may in crypto trading.
Ideally, the earning potential of crypto mining depends on specific factors such as product creation, the long-term activity of the network, refinement of the algorithm, and growth of the cryptocurrency market.
The profitability can be just 60 to 100% but then the risks involved are minimal, provided you do not sell your coins at a price lower than what you bought them for and protect yourself from the fluctuations in the exchange rate.
7. Pros and Cons
There is also a significant difference in the advantages and disadvantages of crypto mining and trading which is good for you to know as well in order to choose the best option.
As for crypto mining, the upsides are its risks that are not as high as in crypto trading, complete control over the investment, and facility to withdraw profits daily.
As for the downsides, it includes extensive technical knowledge about computers and hardware along with configuring and maintenance of the components. It also requires frequent, if not constant, monitoring of the mining rig, keeping track of the crypto market and low profit though it is steady.
As for crypto trading, the advantages of it include higher return in reasonably quick time, easy to start trading with low equipment and capital requirements, and quick deposits and withdrawal.
As for its demerits, crypto trading will need proper and precise financial management skills, and a better emotional control, significant risk appetite. It also needs an immaculate trading strategy to follow to make the venture more profitable because it is quite difficult to evaluate the potential profit in crypto trading.
Which is Better – Crypto Mining or Trading?
Put in simple words, it all depends on personal preferences and choice, which differs from one person to another in the first place.
Crypto mining can be a perfect choice for those people who want to do it in a unique way and crypto trading is a process for those people who do not mind creating positive results for another user or crypto coin.
This also generates new crypto coins on that particular network. For mining, you will need to have a highly powerful computer system with a powerful Graphics Processing Unit to solve the complex numeric puzzles.
If you can solve these puzzles first, you can receive compensation. This compensation may come in the form of a block reward.
Therefore, crypto mining involves some cost in the form of the computer equipment, which is expensive, as well as the electricity bill.
In addition to that, you will also need to invest some time and effort into verifying the blocks of transactions as well as solving the numeric puzzles.
It is due to these cost factors that most of the miners today are moving from solo mining to group mining creating small mining pools or farms.
In the past, you could mine crypto coins yourself using your own notebook or a PC and make hundreds or even thousands of coins in a single day.
However, over time, more and more people are taking part in it and therefore the price as well as the difficulty in generating crypto coins has risen dramatically.
If you want to mine crypto coins, you should be ready and have the money to compete with the big mining farms built in Iceland and China with thousands of GPUs and coolers.
You will need a powerful ASIC or an Application Specific Integrated Circuit miner for that matter. It is for this reason that it is quite impossible for an average person to start crypto mining nowadays and make a profit.
Most importantly, you should do it from a place where the electricity cost is low in order to see some profits.
However, the most significant advantage of mining is that you will get the right to vote on any development proposal or changes required in the network, depending on the computing power.
Crypto cloud mining is however another feasible way to get engaged in this process. This involves low cost and is also a much safer option to invest in the crypto market.
All you have to do is pay a small percentage to the cloud mining service provider in order to get a linear reward.
In the process, you will not have to buy and own an expensive mining rig, worry about it failing when you need it the most, and look for locations where electricity cost is low.
However, a lot of research is required to find a reputable and reliable company that has the best gear and extensive safety measures in place, and no scams.
Mining today, however, is still profitable. This is because new coins and crypto market trends are emerging constantly such as the Decentralized Financial app market.
This has had a significant impact and boost in Ethereum mining and the growing volume and frequency of it have resulted in more profits in crypto mining rewarding every miner for their resources invested and job done.
Potentially, the future profits will be more if you invest more in such mining.
On the other hand, crypto trading is a process that involves low cost, time, and effort as compared to crypto mining.
The advantages offered by trading are abundant and you can do it easily by using some of the best automated trading sites.
These sites come with advanced artificial intelligence technology. This is the most significant reason that automated trading systems are becoming popular with each passing day.
Apart from the possibilities of gaining a high return on your investments, these trading sites also charge low or no registration fees, need minimal deposits, and do not need the user to have extensive technical and crypto trading knowledge.
However, you will always need a good strategy to follow and be steady and informed to minimize the risks involved in crypto trading as well as follow the rules for money management.
Do not trade more than you can afford to lose and make sure that you place your orders just at the right time after thorough research to make the most out of the digital currency boom.
In comparison, crypto mining, on the other hand, is a good option if you are looking for long-term involvement with the blockchain network.
It can be said to conclude that mining is good but will become less profitable as more and more people get into this act and if you cannot afford it.
On the other hand, trading cryptocurrencies is quite profitable since it is becoming similar to stock and forex trading. Traditional rules apply to it to some extent which makes it a much safer and a more lucrative option.
Therefore, no matter whichever option you choose to gain more crypto coins, consider all of the above facts while making your decision and base it on the cost and your financial goals as well.
As you can see, both crypto trading and mining have their own pros and cons. Therefore, it is needed to make the right move. Knowing the difference between the two is the first step, which you have taken successfully now, hopefully.