It’s Better To Be a Miner, Than a Speculator: Cryptocurrency Study

There can be higher profits for those, who starts mining a crypto-currency shortly after it is listed on exchanges. But a speculator who enters the market shortly after the currency is listed might potentially earn lower returns.

These are some of the findings from a study where computer scientists estimated the potential profitability of mining versus speculating for 18 crypto-currencies that are not Bitcoin and Litecoin–known under the general label of altcoin. Computer scientists also showed that returns from mining a random altcoin tend to be less risky to earn than returns from speculation.

Researchers trade data for the study. They compared mining and speculating for 18 altcoins against Bitcoin and Litecoin.

Also they created simulations to estimate the daily returns per $1 of investment, either through mining or speculating, under various conditions. They discovered that for seven days, expected daily returns ranged from 7 to 18 percent for mining and negative 1 percent to positive 0.5 percent for speculating.

The researchers presented their results at the Financial Crypto 2018 conference Feb. 26 to March 2 in the Caribbean.

Researchers computed the potential returns under various conditions for every dollar invested in mining or buying a coin, such as time of market entry and hold positions. Many tokens follow a simple bubble-and-crash scenario, while some coins offer the potential for spectacular returns.

Digital currencies have flourished in recent years, buoyed by the tremendous success of Bitcoin. These blockchain-based currencies are associated with a few thousand to millions of dollars of market capitalization.

Altcoins have attracted many enthusiasts, who entered the market by mining or buying them. But the risks can potentially be significant, especially in the volatile market.