We’re in the middle of a Bitcoin boom. The popular cryptocurrency has steadily increased in value – reaching a record value of over $4000 this year – and showing no signs of stopping.

While Bitcoin is the highest profile example of cryptocurrency, there are plenty of alternatives on the market. If you’re interested in getting involved in mining cryptocurrency, this blog will discuss the different options available – and how to find a currency that balances costs and revenue.

The competitive mining markets

Before choosing a cryptocurrency to start mining, it’s worth brushing up on the competitive nature of cryptomining.

All cryptocurrencies are validated against a distributed, peer-to-peer blockchain ledger. Miners that discover new blocks can then add them to the chain, and receive some units of the cryptocurrency in return.

But only the first person to identify and add a new block gets the pay-out, making it a race between all miners to be the first. And for currencies like bitcoin with a finite amount – it means there is increasing competition in the mining space. This can make it very challenging to get started mining big cryptocurrencies like Bitcoin, Ethereum or Ripple.

Balancing competition, cost and risk

Lesser-known and upcoming currencies may not see the same level of competition found in Bitcoin mining – but they also potentially lack the longevity of more established currencies, and may not offer the same revenue opportunities.

More competitive mining environments, on the other hand, offer much bigger revenue potential – but much greater risk as well.

That’s because the cost to power a mining operation can be vast. Between the cost of dedicated hardware, the power and cooling needed to support it, and the connectivity needed to contact cryptocurrency networks, there’s a balance to find between the costs of mining and the potential gains.

The rising cost barrier

Due to the volatility of the cryptocurrency market, I can’t offer any concrete suggestions on what currency you should mine – the information might be out of date next week. But what I can do is offer a suggestion of how to balance cost and potential profit.

All cryptocurrency mining will require some kind of upfront investment. But as the mining environment becomes more complex and competitive, so the cost of entry rises.

If you choose to mine a lesser-known and less competitive cryptocurrency, for instance, you will be able to do so with fairly meagre processing power – and fairly meagre requirements for power and cooling. On the other hand, for something like Bitcoin, your mining equipment will need to be significantly more powerful to keep up with large and powerful groups already mining, demanding much higher purchase, power and security costs.

Overcoming cost constraints

If you want to chase the high profit potential of better known cryptocurrencies, you have two options:

  1. Get more investment capital together to overcome the high entry cost
  2. Find a way to bring the cost of entry down

Option 1 may not be possible depending on your current circumstances, and may not be advisable depending on your appetite for risk.

Option 2, however, is not only possible, but easier than ever with hosting options like colocation.

Embrace the cryptocurrency opportunity with colocation

Colocation involves hosting your mining hardware in a shared data centre managed by a third party. With dedicated facilities manned by expert engineers and maintenance teams, colocation offers several cost benefits over hosting hardware in your own facilities:

  • Lower power costs – data centres are designed to handle massive energy requirements in the most efficient way possible
     
  • Stable, low-latency networking for less – data centres offer enterprise-class internet with significantly higher uptimes as a standard part of their service
     
  • Comprehensive security as standard – data centres can provide a myriad of security measures, ranging from CCTV and guards, to comprehensive DDoS protection – often at no extra cost

A colocation data centre can help you significantly reduce the power, cooling and security costs of your mining operation. By bringing the costs down, you can enter more competitive mining environments, and work on cryptocurrencies that can offer you the greatest revenue opportunities.

To find out more about more about cryptocurrency, and how colocation can transform mining profitability and risk, take a look at our cryptocurrency mining white paper.