Crypto Mining or Trading: Which is More Profitable in 2022?

The ultimate guide to decoding the more profitable source: crypto trading or mining, their advantages and drawbacks.

 

Key Takeaways

  • Cryptocurrencies offer ways to earn passive income through trading or mining.

  • Mining is a process of solving complex computer-generated algorithms to verify transaction blocks in a blockchain network.

  • Crypto trading is the process of earning profits by purchasing and selling cryptocurrencies.

Explore these article sections

Crypto mining vs trading

There are two main players in the crypto market – traders and miners. Cryptocurrencies are one of the best ways to earn passive income especially if you have some know-how of the crypto market and how it works.


Many new traders often get confused about whether to participate in crypto mining or trading and which is more profitable. Here, in this article, we are going to learn and evaluate what is crypto mining and trading and know which is the best possible option for investment.


What is crypto mining?

Mining is a process of solving complex computer-generated algorithms to verify transaction blocks in a blockchain network. Miners must have a high-power GPU system to mine or solve the complicated codes. Each miner competes with other miners and adds blocks to each new transaction on the blockchain network. The first miner who solves the code gets a block reward or compensation.


In the earlier times, Bitcoin was the only cryptocurrency. So, the demands were lesser and very few miners were operating and competing against each other. The mining rewards were higher and they were generated fast.


Gradually, the blockchain network became more complicated and new cryptocurrencies entered the market. The cryptocurrency ecosystem has boomed since then and with new miners getting into the space, supply is now more than demand. As a result, the cost of mining including the machinery cost can get really expensive.


Are you curious what are the basics needed and how much it would cost to become an independent miner?

  • Crypto mining hardware: USD 2,800 - USD 12,500

  • Crypto mining software: Free software available, some costs up to USD 250

  • Cost of running hardware: Depends on the electricity costs in your city/country

  • Costs of setting up a wallet: It is usually free

Besides equipment costs, miners must also consider electricity costs spent for mining. Countries like Venezuela, Ukraine, Belarus that have low electricity prices are good for mining.


It is important to possess basic computational skills and knowledge of mining cryptocurrencies. Instead of working independently, miners can also choose to join a mining farm to share the mining cost as well as earnings from mining rewards.


What is a mining farm?

A mining farm is a warehouse or a room to mine cryptocurrencies. The room contains big ASICs and GPUs, power machines, and big fans to cool the machines. It is a mining pool where more than one miner joins in to share the cost and the rewards.


Is Bitcoin mining profitable?

As mining involves computational skills and equipment costs, many may question whether crypto mining or investing is profitable. Here's how we break down the advantages v.s. disadvantages:


Advantages of crypto mining include:

  • Miners must have some knowledge about the crypto markets, cryptocurrencies, and miner farms. Miners can track profitable cryptocurrencies and switch farms to generate more mining rewards.

  • Mining has low risks as you can decide when and how many coins to mine. If you have incurred losses, you can always sell your equipment and recover the losses.

  • Miners have full control over the cryptocurrencies they are mining. They run their own hardware, select cryptocurrencies, and mining pools to complete the mining processes.

  • You can also sell your mined cryptocurrencies to make profits.


Disadvantages of crypto mining

  • The cost of mining is high. Crypto mining equipment required to solve the complicated codes is expensive.

  • Underlying maintenance costs such as the cost of electricity, warehousing cost, etc.

  • Mining consumes a lot of power. It adds up if miner mines in a country with high electricity and internet charges.

  • The road to making profits is slow but steady. Endurance and patience are required.

  • Understanding crypto knowledge about mining, computer hardware, and know-how about configuring and maintaining the machinery can be quite a journey.

Miner Earnings

The rewards of Bitcoin mining are halved every 4 years. In 2022, a miner earns 6.25 BTC per block. This reward will reduce to 3.125 BTC per block in 2024. Hence, the miner rewards are reduced after every 4 years.


Bitcoin miners' rewards
Bitcoin miners' rewards (Src: Investopedia)

What is cryptocurrency trading?

Crypto trading is the process of earning profits by purchasing and selling cryptocurrencies. Crypto trading is done on crypto exchange markets. Before selecting a crypto exchange, you must consider factors like trading pairs, liquidity of the market, user interface, etc.


Before investing, study the market and understand which crypto coins are trending and what is their growth rate. Then, develop a trading strategy that suits you. Buying cryptos at the lowest price is always not fruitful. One must analyze the cryptocurrency and evaluate whether it is profitable in the future. Choosing a volatile trading pair with high liquidity is the best choice to make profits. Here are a few steps to remember:

  • Open a trading account.

  • Choose the trading exchange.

  • Analyze and develop a trading strategy.

  • Transfer funds to your account.

  • Choose the trading pair.

  • Evaluate risks.

  • Calculate trading fees.

  • Closely track the crypto exchange and make profits.


Crypto trading advantages and disadvantages

Crypto trading is risky, especially for novice users. One must keep track of the market and consider all factors before venturing into crypto trading.


Advantages

  • High returns especially for big-time and experienced investors.

  • Day traders can earn immediate profits. Unlike mining, there is no need to wait for the completion of the verification process.

  • Easy to get into crypto trading. Traders can open an account easily using the internet and their mobile phones.

  • Easy deposit and withdrawal of funds.

  • Not much technical expertise is required as compared to crypto mining


Disadvantages

  • Cryptocurrency trading is a risky affair. Trading profits largely depend on the volatility of the crypto market. Traders can make huge profits as well as incur heavy losses within a very short span of time.

  • Traders require management skills as well as good knowledge of the crypto markets. They should be strong enough to assess risks and tackle emotions while trading cryptocurrencies.

  • Traders must constantly monitor the crypto markets and study the ups and downs of the crypto prices. They must be able to calculate and assess profits and predict losses. Crypto trading can be stressful especially for new traders.


Crypto Mining vs Trading

Is it better to trade crypto or mine crypto? Which one is more profitable? Honestly, there is no clear answer to this question. If you have technical expertise in solving mathematical algorithms, you can choose to mine. The ability to calculate variables and solve these codes determine the mining profitability. Remember to consider the mining costs, network operation, software, energy consumption, etc. Mining is for people who are looking for long-term profits.

Trading on the other hand is more suitable for new traders who do not have the technical know-how to mine cryptocurrencies.

They can invest small amounts such as $100 and start their trading journey. Crypto trading is risky and depends on the volatility of the market. It requires expertise to understand the market trend, develop profitability strategies, and ability to handle losses and defeats throughout the process. Many expert traders prefer trading can generate quick and big profits.


Bottom Line

There is no clear way to judge which way is the best to earn profits. Traders must assess their financial goals and expertise before deciding whether they want to mine or trade cryptocurrencies.