Investing In Mining Pools Vs Buying & Holding Bitcoin?

What are mining pools?

A mining pool is a group/pool of miners who share their resources & processing power over a network and split the rewards of mining equally, based on the hash rates everyone contributes.

How do mining pools work

Members of the mining pool are rewarded a “share” for their valid partial proof of work. Simply put, you are all powering a machine that is dedicated to solve a portion of the SHA-256 puzzle and your reward is based off of how much you contributed to solving the puzzle.

Should I join?

Being a solo miner of $BTC takes a lot of power, energy, and money to become even remotely profitable. The solution to this problem was for miners to pool resources in order to generate blocks more quickly. The odds of you finding a block on your own are very slim, by joining a mining pool you will be working together and sharing the rewards. A downside to this is that they unfortunately concentrate power to the mining pool’s owner. Miners can, however, choose to redirect their hashing power to a different mining pool at anytime.

Here is an up to date Pie Chart of the most popular mining pools.

Theoretical Mining Pool Reward

“Now, let’s consider a pooled mining setup. In a fixed-payout mining pool, you get paid for each difficulty-1 share you generate. The probability to generate at least 1 share at difficulty 1, at 1000 khps in 13 days is so close to 1 that my calculator rounds it to 1. So with a pool, you have virtually 100% certainty that you will generate at least one share. You will in fact on average generate about 20 shares per day, or 260 shares in the 13 day period. A pool would pay out approximately 0.000656219899 $BTC per share, so over the 13 day period you can expect to generate about 0.17 $BTC.” Quote from Why pooled mining

Current Conditions of $BTC
Hashrate - 47,319,702
Difficulty - 5,949,437,000,000
Miners Revenue - 14,016,460
Total Transaction Fees - 14 $BTC / $95,442
Cost % of Transaction Volume - 3.778%
Cost per Transaction USD - $82

What is Hodling?

Hodl is the result of a drunken typo of the word hold. You can find the original post here.

Hodling is one of the most well known and easiest ways to invest in bitcoin; The good ole buy and hold forever strategy. This has been the preferred way for many to invest and dip their toes into the water of cryptocurrency. But how well does it fare against the more active investing activity of mining $BTC.

Hodling or holding is a proven method that has been tried and tested by many in the past. So I went on a mission for you, the readers, to bring some unique metrics about buying and holding $BTC to the table.

Thankfully I didn’t have to look far and Coin Gecko’s Q2 Report provided the graphics on $BTC. Starting off we can see the “Year on Year” (YoY) return percentage for $BTC at a staggering 153% return! To clarify, this is only buying an holding with no selling or re balancing along the way. Although it was not #1, it is still the second contender to the powerhouse $EOS; and in today’s market it is an impressive feat to still be up over 100% YoY after what the market has been through.

Take note that this chart could be subject to some bias and let me explain why. The YoY Returns chart incorporate the low and the high of the past year, and within the last year there has been incredible volatility with possibly some manipulation. This chart only puts one time frame in perspective because it assumes that you bought before the December moon. For example, anything before 2017 would have seen a much higher % gain and anything after 2018 would have seen a their return % in the red.

Comparing it to the Top 5 Coins. We see that the Year to Date returns are in the negative. This assumes that you bought $BTC on Jan/1/2018, and that was near the 20K area. The most impressive perspective is that all this was achieved by bitcoin with a 45.64% Market Cap distribution.

This chart shows the bias I was mentioning in the previous picture. A +/- 200% difference between 6 MO and 1 YR return on holding $BTC; Scary stuff.

With Crypto-Twitter (CT) being as big as an influence as it is, I really wanted to include this chart form Coin Gecko that shows the market sentiment of the coins based off of their twitter coverage. This Radar chart reminds me of my old days in Pokemon, breeding for perfect EVs and IVs.

Continuing the Pokemon example; If this overall sentiment Radar chart was in Pokemon, it is clearly seen that the orange color would be the best overall choice of your Pokemon. This radar chart shows a low level Pokemon (Sandshrew) with perfect stats. It can be said that this is the “perfect” Sandshrew. Now take a look back at bitcoins orange radar chart. The only thing bitcoin’s really missing is special attack…aka Polarity. Hopefully by comparing bitcoin to Pokemon you were able to see the significance that overall sentiment can have on the price and emotion of the investors.

BITCOIN was Caught! New Pokedex data will be added for BITCOIN

Congrats…you’ve added “bitcoin” to your Pokedex”

Take what you want from this chart but I am a strong believer that CT holds a great deal of influence on the market. This graph clearly states that bitcoin is a still CT favorite and it still ranks the best in overall sentiment, even after all the bad press it receives.

Mining Rewards vs Hodling

I believe that this battle comes down to you. Ask your self questions such as: What you want from investing in bitcoin? Do you want to be a passive or active investor? How are your technological skills? Have you ever fared in to cryptocurrency before? Can your resources support mining? How much bitcoin do you have/are purchasing? How is the market sentiment today?

Mining is not better than hodling and vice versa. It all comes down to what you capability at the time you want to invest. Weigh your pros and cons, gather knowledge, and figure out what you want. Don’t go hodl $BTC if you FOMO’d in at 20K; that’s just bad investing. You should have done some research on the market and seen that it was more than likely oversold. On the opposite side of the sword, don’t go buy a bunch of mining rigs to mine bitcoin solo because you realistically wouldn’t find a block for centuries. I can’t stress this enough because the right answer to this question is only found by you.

Personally at this moment in time, I am not mining anything due to the increase in computer strength that is required to keep up. I will have to update my technology before diving in. I do think that if mining bitcoin and other alts is interesting to you, that it could be great passive income if done correctly. For the investors that are okay with just sitting on a bag and holding it, passive investing is the way for you.