A glance at the price development of Bitcoin, Ethereum or other cryptocurrencies on the stock exchange makes your mouth water. The virtual money, behind which there is actually no material value, generates price gains that stock investors can only dream of. That’s why it’s so tempting to own Bitcoin and the like. The only question is how to get hold of it? Go public? Or perhaps create some yourself? It is possible, and with crypto mining equipment. We explain the business model.
How does crypto mining work?
The secret of Bitcoin’s success is based on blockchain technology. This is a huge database that is not stored centrally anywhere, but only in a network of peer-to-peer computers. All transactions with Bitcoins are stored in this blockchain. The coding process for this is very complex and requires a lot of computing power. For this reason, the creators of the Bitcoin, whoever they were exactly, started to distribute rewards. Those who participated in the calculation of such processes with their computers were rewarded with a certain amount of Bitcoin for doing so. Other cryptocurrencies handle this in a similar way. Therefore, IT experts worldwide used their computers to make capacity available. Many of those involved in the early days have become millionaires as a result.
The problem with Bitcoin mining, however, is that there is a kind of protection mechanism built in. The creators stipulated that there should only ever be a maximum of 21 million whole coins. To ensure that these are not all mined immediately, there is a regular increase in the cost of the calculation. Something like this: with every batch of Bitcoin that is mined, the next batch becomes many times more expensive.
In the beginning, a few PCs were enough for that. Today it’s different. If you want to generate some now, you need highly specialised crypto mining equipment for professionals. Not only for Bitcoin, but also for other currencies this is how it works. Such equipment would be, for example, the Innosilicon a11 pro 8gb 2000mh. It is there to generate Ethereum and costs around 16,800 USD – just to have an idea of the orders of magnitude.
The business plan behind it is: the more computing capacity someone provides, the higher the probability of receiving a reward for it.
Successful crypto mining – that’s what matters
Success and failure in this business depend primarily on two variables: the price of electricity and the price of the cryptocurrency on the stock exchange.
Anyone who wants to buy crypto mining equipment and get started will notice from the electricity bill that this is not a cheap undertaking. Therefore, the question is how much electricity someone can use to accomplish this task. People who live in the cold have an advantage here. They can let Mother Nature cool their servers, so to speak, which makes things cheaper for them. On the other hand, it is also possible to live in the desert and use solar cells there to save resources. Countries with high energy costs have little chance.
The other factor is the price of the currency on the market. If the exchange rate doubles and triples, this massively improves the return. If, on the other hand, the exchange rate falls drastically, the bottom line may be negative.