What are the main advantages and disadvantages of mining, trading or holding cryptocurrencies?
Mining: pros and cons
The main disadvantage Mining is definitely that you have to invest a lot without having the slightest guarantee of profit.
This only applies to cryptocurrencies based on Proof-of-Work (PoW), such as BTC the sky ETH while those based on Proof-of-Stake do not require mining.
The mining process using PoW as a consensual algorithm is actually a competition in which those who spend the most money, both in terms of equipment and electricity, collect the most.
A miner who wants to make a lot of money has to invest a lot, but since it is a competition where one opposes all the other miners, the value of what he earns does not necessarily have to be greater than the capital invested in equipment and spent on energy.
The advantage is that as long as electricity costs are kept low, it is possible to get BTC or other cryptocurrencies for much less money than buying them on the market. However, this advantage only applies if market prices are high; when they fall, it can also turn into a disadvantage.
Some see the fact that mining contributes to the functioning of the network as a kind of “advantage”.
Hodling: advantages and disadvantages
The simplest alternative to mining is hodling, ie. purchase of cryptocurrencies on the market and their long-term storage in the wallet.
Among the main benefits Hodling has simplicity: you simply place a purchase order on the exchange, collect it, and then simply wait until the right time to resell it at a higher price.
Another advantage, often unfairly underestimated, is the fact that in addition to securely storing the tokens you buy, you have no worries other than the risk of declining value.
The biggest disadvantage there is a risk of loss if the value falls. To be fair, this is a common risk for all those who own cryptocurrencies, but at least in theory it can cause particularly serious damage in the long run if the price falls a lot, especially for those who choose to hold on indefinitely.
Another disadvantage that is often underestimated is that hodling is probably the method that generates the least income, but with the least risk. Many novice investors prefer to limit themselves to holding because it is simple and has lower risks than to take higher risks in pursuit of higher returns.
Trading: the most risky
Trading is probably the most complex and risky system of all. The merchant’s goal is to buy at a good price in the hope that you will sell again at a higher price as soon as possible.
The main advantage is that if done well, it is probably the investment strategy that allows the highest returns, mainly due to the high volatility of cryptocurrency prices, which allows speculation with many fast trades in a short time.
The problem, however, is that while trading can theoretically lead to higher returns, it inevitably forces you to take potentially even greater risks than mining if you use significant capital or borrowed money.
The main disadvantage there is therefore a consistently high risk.
Unfortunately, most traders usually turn out to be loser because it is difficult to trade successfully and in the vast majority of cases they simply fail.
On the one hand, high trading risk theoretically leads to higher profits, but on the other hand it often leads to higher losses. In general, it can be said that only experienced professionals or those who know the financial markets very well can trade successfully.
Hodling is easy and involves less risk, but generally yields lower returns. Mining is much more difficult, requires large investments and is riskier, but can generate higher returns.
Successful trading is very difficult, so much so that most amateur traders incur losses, but due to the higher risks, they theoretically offer the possibility of much higher returns.