Mining Cryptocurrency- Is it worth it?
Cryptocurrencies, which require a large amount of transactions, are on the rise. The pioneer cryptocurrency “Bitcoin” has the largest volume of transactions and has become well known worldwide as well as in Japan. As a result of this, the term “mining” is also frequently mentioned. What does this word that is so closely related to cryptocurrency really mean?
What is Mining?
The English word “mining” means to dig something up. So, what exactly does it mean in relation to cryptocurrency?
The term “mining” in the cryptocurrency industry refers to contributions made by a computer that contributes to the task of recording the transactions of cryptocurrencies such as Bitcoin, and in the process, obtains newly-issued cryptocurrencies. This process is called “mining” because it “digs up” (gets) cryptocurrencies that have not yet been issued.
What then does it mean to contribute to the task of recording sales transactions of cryptocurrency? Who is doing the mining and what is required in doing it? Is mining becoming a business? Let’s take a look at this current trend.
What is Cryptocurrency?
Before explaining what mining is, let’s briefly explain what cryptocurrency is. Cryptocurrency refers to a currency that exists on the Internet. Although it does not consist of banknotes and coins like conventional currencies such as the yen or dollar, they can be used for things like purchasing goods and services on the internet and for making payments. It is also possible to buy and sell them at cryptocurrency exchanges. Bitcoin, the representative cryptocurrency, boasts the largest circulation of the volume of all cryptocurrencies, which is currently said to be 1000 to 1500 different varieties.
Cryptocurrencies do not have a centralized administrator like the central bank. This raises the question of who is keeping the transaction records of cryptocurrencies secure to ensure that fraud does not occur.
What Does It Mean to Mine?
As previously mentioned, mining is the task of recording sales transactions of cryptocurrencies. Let’s delve into this in more detail.
The transaction records of all cryptocurrency exchanges in the entire world are recorded in a ledger called a ”blockchain” on the internet. In the blockchain, transaction records are linked like a chain according to certain rules, and this information is constantly updated. Mining refers to the act of a miner “approving” a transaction record and connecting it to the chain.
Although it seems simple at first glance, before a miner approves a transaction record, a computer processor must be used to solve complex mathematical algorithms. Then, only the miner who solved said the algorithm is given “recognition”. The system is structured in a way that allows the miner, who has been recognized for solving the algorithm, to be compensated with cryptocurrency.
In other words, for each transaction, only one miner can receive compensation. This has resulted in a competitive situation in which miners compete to “solve the puzzle faster than other miners.”
Requirements for Receiving Compensation from Mining
To be compensated for mining, you must successfully compete with other miners to solve the algorithms as quickly as possible. To do this, a computer is required. In other words, to win the competition and reap the benefits, a high-performance computer is required. Not only that, but the computers are required in large quantities.
When bitcoins first began to be issued, the existence of miners was not yet well known. Furthermore, miners were the minority. Even using only a home-use computer, it was possible to be successful to a certain extent.
However, in 2018, coupled with the soaring price of cryptocurrencies and the fact that many companies have already entered the mining business and are using a large amount of high-spec computers backed by large capital, it is almost impossible for individuals to compete.
To make earnings from mining, upfront investment is required to survive.
What is a “Mining Factory”?
“Mining factories” exist. As their name suggests, they are factories that mine cryptocurrencies. The point here is that there are already existing companies in the world that are mining using facilities as large as a “factory”.
What do these mining factories contain? They are equipped with a very large number of computers, cooling devices such as fans for cooling the computers, and emergency power supplies.
To succeed at completing mining as soon as possible, computers installed in the mining factory continuously operate at full capacity. To prevent damage to the computers from the heat they generate, and to ensure they continue to run at full capacity, cooling devices are required.
Providing power to the computers is also of great concern. A stable supply of power is the lifeline of all mining factories. In the case of an emergency, they require an emergency power supply. In addition to this, “personnel” are required to power up the systems and manage them. To win the mining game, using the latest computers and making upgrades is a constant requirement.
Is Mining a Profitable Business?
Mining comes with a high associated cost. Initial investment for computers, cooling devices, and power supplies as well as personnel expenses and electricity bills is required. Another thing is that the electricity costs required to perform mining are huge.
Profits from mining can only be made after keeping all these costs lower than the money made (cryptocurrency) by obtaining approvals for transactions.
On the other hand, the number of companies entering the mining business is beginning to increase rapidly. The more competitors there are, the more high-spec computers will be required to compete. In addition, the cryptocurrencies obtained from mining come with the risk of a high expected probability of crashing. Depending on the fluctuations of the market price, there is also a risk that the value of the mined currency will drop and create a deficit.
Companies in Japan are Entering the Mining Industry in Full Swing
Japanese companies have already entered the mining business such as DMM.com Ltd, GMO Internet Inc, and SBI Holdings, Inc.
A GMO Internet Inc, (Head office: Tokyo, Shibuya. President – Masatoshi Kumagai) press release from December 20, 2017 contained information stating that the GMO Internet Inc, had entered the cryptocurrency mining industry through its European branch. From a mining factory in the Northern Europe, GMO Internet Inc, has begun using computers to mine and has said that “in the future, we will gradually add equipment and expand our business.”
GMO Internet <9449> has mainly expanded the scale of its business in the internet infrastructure industry. It is currently involved in the Internet advertising industry, the mobile entertainment industry and the domain name registration and rental server industry.
It is believed that GMO Internet’s entry into the mining industry is an attempt to expand the scale of its businesses. To further enhance the performance of mining computers, GMO is also developing semiconductor chips and has partnered with other companies that design semiconductors to develop state-of-the-art technologies.
DMM.com and SBI Holdings Are Quickly Entering the Japanese Market.
DMM.com, a company that deals with video distribution services, has also already entered the mining business. Their press release on September 8, 2017 contained information regarding the launch of their cryptocurrency department and the commencement of the operation of their DMM mining farm.
DMM also announced that it aims to become a large-scale mining farm that will become one of the top three mining farms in the world. In addition, DMM also announced that it would provide a service called “DMM Cloud Mining”, which will allow regular people to freely participate and earn cryptocurrency from mining.
SBI Holdings <8473> is also moving quickly into the mining industry. It has already established SBI Crypto in the core of the mining industry. Although the details have yet to be clarified, it is clear that their entry into the mining industry has already begun.
In addition to the mining industry, SBI Holdings has demonstrated a plan to actively participate in cryptocurrency related projects. For example, the establishment of a remittance service that utilizes blockchain technology and a platform management system for fund procurement (ICO = initial coin offering) using cryptocurrency technology.
Increasing Altcoin and Expanding the Mining Market
The concept of a cryptocurrency was born, Bitcoin was born, and other cryptocurrencies (Altcoins) were introduced to the world with each passing day. In the same manner, the mining industry has expanded its market to cryptocurrencies other than Bitcoin. Altcoin is another cryptocurrency that can be mined to obtain compensation.
On the other hand, the mining market has already become a Red Ocean, where industry boundaries are defined and accepted, and the competitive rules of the game are known. It is expected that having a business of a certain size with a certain amount of investment capital will be necessary to penetrate the industry in the future.
This article was posted on January 22th, 2018 on ZUU online JP.