- It's natural to look back at the early days
of an opportunity that becomes successful
and wish you'd invested early.
Those that get in early and prosper have either
remarkable insight or enormous luck.
For those that mined Bitcoins in its early days
and held onto them and their private keys
were able able to realize exceptional gains.
In July 2010, a single Bitcoin was worth 8 cents.
By November 2021, 11 years later,
the value of one Bitcoin had reached a staggering $67,000.
That kind of value appreciation is rare.
Even the most prescient investor
could not have anticipated such growth.
As Bitcoin shot up in value,
more miners jumped into the mix.
And as expected,
the cryptocurrency difficulty increased too.
More and more computer processing power would be needed
to have any chance of earning the Bitcoin incentive.
Most small-time miners using their home computers
or mini rigs were effectively shut out as big players
threw millions of dollars in building warehouses
full of mining power.
Today, mining Bitcoin with a small rig
is largely a fruitless endeavor.
That said, however, cloud mining or joining a mining pool
offer alternatives worth exploring
for enthusiasts and professionals.
Obviously, buying and simply holding Bitcoin,
the most popular participant choice,
is another investment strategy.
What I've described so far is the story of Bitcoin.
Today, fortunately, there are thousands of alt coins
and new ones emerging all the time that are still
ripe for mining for all types of users.
Note, assuming they use cryptocurrency difficulty
in their consensus mechanism,
all mining becomes more restrictive
as the respective crypto appreciates in value.
The challenge is to pick cryptos early in their life cycle
and mine them when their value is low.
But we have to be sober in our expectations.
Most all coins will fail.
All your efforts and costs expended will be lost
without a return.
That said, pick a few winners,
and the rewards could be outstanding.
The bottom line here is that the current
cryptocurrency marketplace is risky and volatile.
As crypto difficulty increases with successful
proof of work cryptocurrencies,
the amount of energy needed becomes higher and higher.
Mining Bitcoin now consumes the equivalent
of the annual carbon footprint of Argentina.
Without a doubt, it's highly energy inefficient,
and it's the target of significant criticism.
By consuming so much energy, much of it still carbon-based,
from massive mining rigs all over the world,
it's fair to say that Bitcoin and other popular cryptos
are contributing to the climate crisis.
The answer to eliminating the energy problem lies in
alternatives to the proof of work based consensus mechanism.
Ethereum, the second most popular crypto, is well advanced
in preparing to migrate to a proof of stake system.
Simply stated, proof of stake is a process where
crypto owners, called validators, offer substantial cryptos
as collateral, called staking,
for the chance to validate blocks.
Validators are selected randomly to mine a block
and receive a crypto reward.
No doubt crypto and blockchain technology will continue
to evolve and innovate in the years ahead.
This will mean greater efficiencies and optimizations.
We shouldn't lose sight of the fact
that we're only a decade into the cryptocurrency phenomenon.
Another challenge for crypto participants and miners
is that while they've enjoyed over a decade
of largely unrestrained freedom, evidence is growing
that regulations and laws are coming.
For example, many countries are now beginning
to tax crypto profits just like any investment.
And this has crypto participants scrambling
to figure out their obligations.
Some nations have even outright banned cryptocurrencies.
I discuss different country approaches in a later video.
Finally, with crypto, blockchain, and mining,
there continue to be many security risks.
From private key theft to fake crypto scams
and exchange hacking, anyone who participates
needs to be highly diligent.
Cryptojacking, for example, is when a cyber criminal
assumes control over your computer and uses it for mining.
While the threat of cryptojacking has subsided
because it's just not as lucrative as it used to be,
it is showing signs of returning.
Any time we explore new technologies and ideas,
risks and challenges are elevated.
The best way to approach these uncertainties
is to proceed with your eyes wide open.
Know the risks and act accordingly.