How mining Cryptocurrency become so Expensive?
Cryptocurrency is a digital currency in which transactions are verified and records are maintained by a decentralized system through the use of cryptography rather than by a centralized authority. It is a collection of binary data which is designed to work as a medium of exchange. And mining is a process of creating new crypto coins by solving complex mathematical equations.
Normally when somebody invests in a cryptocurrency, the details of that particular investment are entered on a distributed ledger which is known as the blockchain. After that miner verifies the transactions as legitimate and then the process is complete.
Crypto currency mining is a very meticulous process as it is being done very carefully and takes a lot of time and effort. Mining has a magnetic appeal for all those investors who are interested in cryptocurrency because miners are rewarded for their work with crypto tokens.
Cryptocurrency supply and demand: “If the demand increases faster than supply, the price goes up”. Here the demand principle applies to cryptocurrency. It means that if the demand goes up then the price will go high and the supply will go down.
Cryptocurrencies are based on blockchains. In turn, blockchain needs miners to verify transactions and maintain their integrity.
Cryptocurrency mining is a very expensive process as it requires a lot of equipment and time in its completion. And the miners are also being paid as the auditors. Since the entire records are being maintained digitally, there is a risk of copying, counterfeiting, or double-spending the same coin more than once. Mining solves their critical problems by making it extremely expensive and resources intensive to try to do one of these things or otherwise hack the network.
The Cryptocurrency market has continued to witness a boom despite a global pandemic wreaking havoc on all significant economies on the planet.
Cryptocurrency market capitalization fueled by bitcoin’s growth recently crossed the $1 Trillion mark.
Here are some reasons described for the expensiveness of Cryptocurrency mining:
Cryptocurrency Halving is driven scarcity: it is well known that most of the Cryptocurrencies are having limited supply in the market, like Bitcoin. When the Cryptocurrency supply becomes limited, the demand goes up and also the prices go up. So this is one of the main reasons Cryptocurrency mining has become so expensive.
Institutional adoption: In the market volatility and inflation, some of the Cryptocurrencies are now being considered as a safe-haven assets. In the current societal and economic climate, a situation has been created where people hold less cash and stay hedged against market swings.
In recent days, a new trend has been introduced where public companies are converting their cash treasuries into Cryptocurrency.
Easy accessibility to the public: Cryptocurrency is a digital currency that can be used as both, i.e. a store of value and a mode of exchange. While it has just started to gain attention as a legit payment method, it has established itself as a new asset class over the past decade. Many people want to convert their cash into Cryptocurrency, even if they are not willing to transact in it. Because they believe that its deflationary nature makes it a better store of value and a hedge against market swings.
Acceptance from the center: Governments are also working on Cryptocurrency. Global governments are working towards creating their digital currency. This kind of government interest in Cryptocurrency makes it more secure and trustworthy among the people.
Before investing in Cryptocurrency, you should always gather all the important information regarding the investment process and the possible risks in it as by mining, you can earn cryptocurrency without having to put down money for it. The Bitcoin miners receive Bitcoin as a reward for completing “blocks” of verified transactions, which are added to the blockchain. Mining rewards are paid to the miner who discovers a solution to a complex hashing puzzle first, and the probability that a participant will be the one to discover the solution is related to the portion of the total mining power on the network. You must have either a GPU (graphics processing unit) or an application-specific integrated circuit (ASIC) to set up a mining rig. Another important thing that should be taken care of by an investor is to prevent their coins from double-spending, which can be done through the help of the miners.
For a detailed study about Cryptocurrency and its mining, you may also subscribe to the “MIT Technology Review Magazine“.