When we talk about making money with bitcoin (BTC), new users are usually advised to start by buying a few hundredths of the cryptocurrency and wait for its price to increase in the future. However, there are other ways to earn profits with cryptocurrencies, such as trading and mining.
Although trading can be complex and risky, a strategy Disciplined trading can generate large profits in a short period of time. This tempts more and more cryptocurrency users, who wish to dedicate themselves to buying and selling bitcoins or derivatives of the asset in the market.
Those who are not comfortable with the risks involved in trading, can decide to make an investment of their money by participating in Bitcoin mining. Any user who acquires and installs a machine specialized in processing and confirming transactions, has the possibility of earning a reward for their work on the network. An activity that not only gives monetary returns, but also contributes to improving the security and processing of the Bitcoin blockchain.
In this article we will explore the pros and cons of both activities. The idea is to understand and determine which practice benefits each user the most depending on their level of difficulty, capital investment and their potential financial risks.
Trading
Se known as “trading” to the activity of buying and selling financial assets, including cryptocurrencies. The main objective of this activity is to generate profits, so those who are dedicated to trading often develop trading strategies to maximize the return on their investments and control possible risks.
Pros
Large percentage (%) of profit: One of the main benefits of trading that seduces more and more bitcoin users, is the fact that buying and selling cryptocurrencies can reach to be a highly profitable activity.
In the last 10 years, bitcoin has registered an average annual return of more than 200%. This is much more than a trader who trades stocks can earn, for example, where indices like the S&P 500 average only 10 or 11% per year.
The volatility of the The bitcoin market, and cryptocurrencies in general, can play in the favor of traders. And, with the right strategy, a trader can generate huge profits with a few purchases and sales of crypto assets.
Variable capital investment: In the world of cryptocurrency trading, you don’t need a large capital to start trading. Unlike an investment fund or in the more traditional markets, exchanges do not require that the user have a bank account full of dollars or that they start buying a high amount in bitcoins.
The reality is that exchange houses accept that you buy a minimum of 5 dollars in bitcoin. In this sense, the trader can decide how much he wants to invest and how. You don’t need to be rich, or an accredited investor, to become a trader. In this sense, anyone who has some money can take their first steps in the market.
You only need one device , Internet and money: Bitcoin trading is also an accessible activity. Anyone, from anywhere in the world, can start buying and selling cryptocurrencies if they have a computer, internet access and a capital that allows them to acquire the asset.
Unlike other activities such as mining, traders do not need specialized devices or equipment to carry out their activities. The indicators and graphs necessary to carry out a market analysis can be consulted from the web or by downloading an application.
Cons
Constant financial risk: Before starting to trade cryptocurrencies, it is important to keep in mind that there is a high possibility that market volatility puts traders’ capital at risk . Bitcoin can register daily fluctuations that, on occasions, have exceeded 15%, both in movements upwards and downwards.
Traders operate based on a trading strategy, where they speculate that the Asset price will behave in a certain way. However, the hypotheses that we have of the market are not always fulfilled, and when this happens, no profits are received and the investment may even be lost.
As if that were not enough, trading can be an activity that affects the emotionality of the operator. The market moves thanks to the greed or fear that its participants have when buying or selling new assets. If a trader gets carried away by his emotions and decides to stick with a strategy, even when it has been proven wrong, he also faces financial risks.
Lack of stable regulation: One feature that makes bitcoin trading cumbersome is the lack of clear regulations. Although financial laws vary depending on the country, internationally, few governments have decided to promote a stable regulatory framework for the cryptocurrency market.
In this sense, there is little legal protection for traders of bitcoin, who are exposed to scams, fraud and cyber theft. Also, as not all financial authorities monitor the behavior of this market, it is difficult to obtain compensation or even declare taxes on your activities.
Knowledge and experience: Buying and selling bitcoin is a simple activity, but making it your main livelihood is not that easy. As we have said before, traders do not always win. Worse still, if you do not know the market in depth, nor do you know how to analyze it or create strategies, you will most likely lose money.
Traders have to have a lot of knowledge about the asset they are in investing to do a good business. Experience and knowledge make the difference between “trading” or simply betting blind.
Due to this, the most veteran traders often recommend that, before investing your capital in an asset, it is better research on the behavior of your market, the possibilities of growth, your annual profitability and the characteristics of your network; just to mention a few items.
Mining
Mining is an activity typical of blockchain networks that work under the Proof of Work (PoW) scheme, such as Bitcoin. Through this process, the network manages to verify, store and secure the transactions made by users. In turn, thanks to its service, those users who dedicate themselves to this work receive a reward in bitcoins and the commissions paid by users.
Pros
More stable earnings: The returns generated by bitcoin mining may not always be as juicy like those of trading, although they are generally more stable. There are, of course, exceptions and seasons in which the industry has produced up to $ 60 million a day. For each block mined, miners receive a reward of 6.25 BTC, which will only vary until another halving occurs in the network that reduces this amount by half. An event that occurs approximately every three years, so the next time is expected to occur in mid-2024.
Likewise, miners receive the total commissions paid by users to process their transactions. That is, the pay is assured if you manage to mine a block. Of course, having an ASIC machine does not ensure that you can make money immediately. Due to the high competitiveness of Bitcoin mining, a group of miners (pools) have been created that concentrate their processing power in order to process as many blocks as they can.
When a block is mined , the pool is responsible for dividing the reward among all those miners who participated. In this way, they ensure that they consistently earn profits from their mining activities.
Controllable investment risks: Mining also has less investment risks than trading, since all the expenses made by its participants are planned and must be taken into account before connecting a device to the network.
For example, to start mining the Bitcoin network needs a specialized computer (ASIC) to process transactions. Likewise, installation, maintenance and electricity costs are also incurred. In this sense, miners can calculate how much money they have to invest per month or per year to stay operational. In addition, they can deduct how much they need to earn daily to replenish their investment as soon as possible and stay profitable.
That is, the income of the miners depends on more stable variables than trading. With the cryptocurrency market, traders assume that the price will remain in a certain pattern or change its behavior. However, until this happens it is not known whether the operation will generate profits or losses. In mining, it takes more time to cover the main investment, but the returns can be assured if you do the calculations well.
Mining increases the value of the network : Although it does not have to do directly with personal earnings, it must be taken into account that the more miners are connected to the Bitcoin network, the more valuable it can become.
Mining is not only used to process transactions and confirm that double payment is not being made. The more miners are connected to the network and there is greater decentralization in this industry, the greater the security that Bitcoin has against spam attacks or 51%.
A more secure network is also a more valuable network. This, in the long term, has the potential to be reflected in the price of bitc oin and your demand. Therefore, participating in mining is also an indirect way of contributing to the value of the community and the price of its currency.
Virgin coins without traceability: Another beneficial feature of bitcoin mining is that thanks to this activity new coins can be issued to the network. Because of this, the bitcoins that miners receive are totally virgin, have no transaction history and have not been owned by other owners.
This can be very convenient if you do not want to manage between your active holdings possibly tainted, which come from sources such as scams, theft or money laundering. For example, it is said that some BTC charged to victims of the Ryuk ransomware are freely traded on exchanges such as Binance, where traders usually trade daily.
If you do not want to have bitcoins that have in your history an illicit origin, cryptocurrency mining is an option to keep your wallet free from speculation. On the other hand, if you don’t want them to monitor your transactions and check your exchange history, then the newly issued BTCs are coins without any information of this type.
Cons
Constant expenses and change in profitability: As mentioned above, mining is not without expenses. Miners must invest money from time to time to buy new equipment, since ASICs have a life cycle and can become obsolete due to constant demand and competition within the same ecosystem.
Similarly, the Electricity, equipment cooling and facility maintenance are recurring expenses that must be taken into account if you want to mine optimally. As a result, although the profits from mining are constant, the expenses to stay operational can put many miners out of the game.
Likewise, mining can also be affected by the behavior of the market and unexpected events. For example, when bitcoin enters the bear season, some mining equipment does not produce enough profit and is no longer profitable. Because of this, miners have to make the decision to disconnect their devices.
A power failure, regulation change or some disaster natural that affects the facilities (farms) can be fatal for the miners. The introduction of new miners and state-of-the-art ASIC equipment also makes it difficult to generate profits, because they tend to have greater computing power and increase the difficulty of mining, while taking those miners who are not as up-to-date out of the competition by reducing their profitability.
Need for experience: Everyone can learn to mine, but you have to be honest. It is not a simple subject and some may feel overwhelmed by all the information that must be handled to understand how and why a blockchain network is mined. In other words, it takes time, dedication and patience.
If, in addition, you decide to supervise your own mining equipment, then you will also need experience. ASIC devices do the work automatically, but it is necessary to monitor that they are working in optimal conditions. For example, equipment needs to be exactly temperature and not dusty, so cleaning and ventilation is essential.
Installing a cryptocurrency miner can also be tricky. These computers can be very noisy, so residential areas are not the best place for them to operate. In the same way, they are devices that can generate a lot of heat, so a constant cooling and monitoring system is needed so that they do not become a nuisance.
The location of the miner is important: If mining expenses are crucial to determine if your activities will be profitable or not, you also have to take into account that the location of the miner makes the difference.
Certain countries and communities have better electricity rates, so it is more profitable to assemble your equipment or rent miners from farms located in these territories. To save on cooling, some miners prefer to install their equipment in very cold areas where they only need a ventilation system.
The country’s regulation regarding mining is also crucial when deciding whether it is a good idea to go mining. Not all countries have laws that regulate this activity, but some nations are strict in terms of paying taxes, special electricity fees or even completely veto the possibility of mining in their territories, as is the case in China.
Conclution
When comparing both options, it can be seen that trading is one of the most profitable activities in the short term. Users who are dedicated to trading with bitcoin can generate huge profits if your strategy is successful. Likewise, they do not need to make a large initial investment to start operating in the market, so it is easy to start dedicating themselves to this practice and grow little by little.
However, you also have to have Note that trading is a highly risky financial activity, especially for the crypto asset market. Just as a trader can receive large income from his activities, he can also lose all the capital he invested if his strategy fails and he does not carry out good risk management.
On the other hand, although the Mining can have setbacks in its profitability and does not generate as much profit as trading right off the bat, the income earned by miners is more stable than that of a long-term trader. When a miner is affiliated with a pool, they will receive a percentage of the reward depending on how much computing power was provided to mine that block.
Despite all these benefits, mining also has setbacks in your profitability when there are price fluctuations or constant maintenance costs. Similarly, to start mining it is necessary to buy specialized equipment (ASIC) that can be very expensive and put the investor in debt; so at the beginning you will have to recover your investment before receiving profits properly.
