Crypto mining or trading?
There is much more volatility in trading than mining, however, both are subject to the volatility of the market. If you mine Cryptocurrency A, and the value of it drops, and you are holding that crypto, then you will lose out on money. On the other hand, if you are trading with Cryptocurrency A, and the price drops by 10%, you have the ability and control to immediately sell the coins and minimize losses.
Mining has a lesser chance of multiplicative gains but also has a much lower chance of losing everything (i.e., less volatility/risk). A miner would need a hardware failure in order to lose absolutely everything.
With mining, one has an initial investment that one has to recoup indirectly – you buy the mining rig (usually one buys the parts and then builds the mining rig), use it to mine crypto, then have to make an informed decision of when to sell your mined crypto on the marketplace, to recoup your investment and take profits.
With trading, one’s initial investment is what one is risking. It is a more volatile situation, with higher risks, which means higher rewards as well.
Trading has a much smaller entry barrier than mining, and one may start trading with as little as $100. A dealer’s trading balance can be increased over time as they develop knowledge and expertise.
Crypto mining and its methods
What is crypto mining?
Crypto mining is the process by which new coins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger. It is performed using very sophisticated computers that solve extremely complex computational math problems.
How much does a Crypto mining rig/machine cost? What are the additional costs associated with the mining process?
A mining rig also called a GPU (Graphics processing unit) costs approximately $3,000.
Generally, 40% of the value of coins mined is your expense in the form of
equipment costs, electricity costs, repairs, and rented space.
A Few Mining Methods:
Cloud mining is a process where you rent a mining rig, which is owned by another party or large corporation. They mine the coin for you, collect rent for their machine and other expenses, and the remaining amount is transferred to your crypto wallet in the form of coins earned.
(Coins mined – rent + other expenses = net coins mined & transferred to your wallet).
Cloud mining involves minimized risks and lesser costs.
CPU MINING (Central Processing Unit)
Particular rigs with certain specifications are needed to be purchased. Mining coins using a regular laptop or computer might damage the machine due to overheating. This is a slow and costlier process considering the high electricity, rent, & cooling costs involved.
GPU MINING (Graphics Processing Unit)
GPUs are designed to mine coins using graphic cards. It includes a Processor, Motherboard, Inbuilt Cooling unit, Rig frame, and 2-8 graphic cards. It is cost-efficient and relatively cheaper compared to CPU mining.
How is Cryptocurrency mining revenue taxed?
Just like other business operations, an income statement is prepared for crypto-mining activities. Income equals the value of coins when they were mined (Daily rate of coins earned multiplied by the quantity of coins mined on that date & time).
Expenses like electricity, rent, & cooling costs are written off against income earned in the form of coins. Mining rigs are reported as long-term fixed assets on the balance sheet which can be depreciated over a period of its anticipated life span. Most assets have an estimated life of 5 years which can be applied towards mining rigs.