Although not always profitable, the number of altcoins (alternative cryptocurrencies) that are emerging after nine years of bitcoin’s dominance is pretty high. So, with all the new currencies coming in, a study was conducted by computer scientists at Princeton University and the University of California, specifically to determine if trading or mining lead to more earnings.
According to the study, mining a newly-listed cryptocurrency instead of speculating and investing in it is much more profitable under certain conditions. The results were presented at the Financial Crypto 2018 conference earlier this year. The book containing the results, called “Estimating Profitability of Alternative Cryptocurrencies,” is written by researchers from the University of California.
A number of conditions were used to conduct this study, ensuring a better data set to interpret results. Returns were calculated on every dollar invested. The parameters varied, right from the time of market entry and hold to other simple and complex strategies. As per the learnings of the study, a miner whose activity started as soon as the cryptocurrency was listed did better than one who started later.
In essence, the benefits of mining an altcoin are usually less risky than the potential benefits of trading, due to the volatility in the prices of these assets.
And the study added that:
“When the market is volatile, the rewards that are received by mining or buying them can be significant. This is why altcoins attract enthusiasts who enter the market by either buying or mining them.”
The Study’s Procedure
To estimate the potential profitability of mining and trading, the computer scientists compared 18 cryptocurrencies. These were based on the blockchain protocols of cryptocurrencies like bitcoin and litecoin. However, it wasn’t these two or any other top currency that sat at the summit of the largest capitalization in the market.
On a set condition of using simulations to estimate the daily return based on an investment of $1, the scientists carried a study to check the same via mining or speculation and market analysis over seven days. The conclusion? Mining yielded a daily profit of seven to 18 percent while trading showed negative numbers of -1 to 0.5 percent.
Crypto-Mining Becoming An Industry By Itself
Cryptocurrency mining is slowly transitioning from being just a means of generating bitcoin, to becoming a full-fledged industry. In order to further boom this industry, companies such as AMD and Bitmain have innovated techniques to improve and increase the mining volumes. In contrast, this type of hardware requires huge capital, so only the ones that are ready to indulge in crypto mining wholeheartedly, should go forth with it. In addition to this downfall, mining activities are a hindrance to ecological development, owing to the consumption of massive amounts of electrical energy.
All in all, there are quite a few upsides and downsides to this activity. But one thing is for sure, mining of cryptocurrency won’t run out of business, at least for a few more years to come!
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