A question that often comes up in the community is whether or not it is better to mine Bitcoins, hold them as an investment, or trade them for other crypto-currencies. There are many factors to consider when deciding which method is most profitable, so before you can come up with a conclusion about this topic, let us delve straight into the matter and explore each option available.
What is Bitcoin Trading?
Bitcoin trading is a process that can be thought of as buying and selling Bitcoins for the current market price to profit from the trade. Typically, traders buy and sell Bitcoins on an exchange. These operators collect a fee for their services built into the bid-ask spread. Most exchanges charge some fee and take some percentage as commission for trades completed.
They provide live data regarding open orders, quantities available at specific prices, etc. You can start trading on the Bitcoin Prime app for a better trading experience.
Advantages of bitcoin trading
- Liquidity:Due to many exchanges, the bitcoin trading market is very liquid. You are more likely to be able to exit your position at or near the price you want.
- Convenience:You can trade 24/7 unless there is an event in China regarding their currency controls.
- Execution speed: A block takes about 10 minutes, so most trades occur within this window. This is not true for Forex markets, where trades take place milliseconds apart and sometimes even slower if it’s a holiday or weekend in one of the countries involved in the trade. This allows high-frequency trading (HFT) firms to execute arbitrage trades by taking advantage of shifts in prices on different exchanges.
What is Bitcoin Mining?
Bitcoin mining is creating new units of cryptocurrency and verifying transactions. This process involves solving computational problems and attaching blocks (each block is a group of individual transactions) to those that have gone before, forming what we know as the blockchain. The miner who successfully attaches the next block gets 12.5 bitcoins.
This whole operation requires tremendous amounts of computing power to solve increasingly complex math problems – more than any normal computer can provide on its own since it has to do so much number crunching, something called mining farms have been set up where thousands upon thousands of computers work together on these calculations and split the reward between themselves.
If you want to use your personal computer to mine bitcoin, it will take literally decades before you successfully mine a block and get your reward. That’s why it’s so much more lucrative to trade bitcoins instead of mining them.
Advantages of Bitcoin Mining
No commitment: You can quit mining at any time, and nothing stops you besides knowing that it takes time to stop and your subjective value of money now vs. in the future.
Free marketing: Mining gives Bitcoin more security than trading as all traders are always active, whereas some miners may be offline depending on different factors (price, energy costs, hardware upgrades/failures, etc.).
Bitcoin Trading vs. Mining
Mining has two advantages over trading: 1) Mining remains profitable even when the BTC value drops (unless your electricity costs are too high); and 2) Mining secures the network. The actual draw for trading is that there is no commitment required to do it – you can quit at any time without losing much money, but you may miss out on potential gains in the future if you act too early.
Of course, this requires knowledge of when to pull back/quit, which comes with practice. If one wanted to be involved in Bitcoin through non-traditional means, they could also offer services or goods for BTC rather than “mining” or buying/selling them.
The Bottom Line
Bitcoin Trading is more profitable than Bitcoin Mining at the current exchange rate. This reflects a few factors, including the cost of mining and the relative prices of Bitcoin to fiat currencies.