Many cryptocurrencies (like Bitcoin) have an automatic, decentralized mechanism that generates crypto tokens out of thin air. This is crypto mining. These tokens act as rewards to miners for mining blocks of transactions and adding them to the blockchain. Inevitably, this resulted in mining becoming a booming business venture. All it takes to start is a few high-speed computers/ASIC miners, and access to electricity. With that, anyone anywhere in the world is able to essentially print money.
During the first few years of Cryptocurrency’s existence, mining was a godsend for any small time entrepreneurs. However, competition increased, and the mining business changes. Miners began purchasing insanely powerful computers all while upscaling their mining operation in order to stay in profit. At the time, risks seemed low. The original Bitcoin core software would account for any drops in Bitcoins valuation making it easier to mine. This ensures that there will always be enough miners to process all Bitcoin transactions; even if the number of remaining miners on the network drops.
— Altsignals (@Altsignals_io) January 21, 2019
However, once the Bitcoin price crash came, everything changed. The ability for miners to generate crypto and stay in profit was severely limited. It became apparent that there were a couple problems with the Bitcoin network. For example, people began noticing inefficiencies in bitcoin’s PoW algorithm. As well as this, the market pressure on Bitcoin transaction fees increased. These fees were to partially compensate miners for their work. This led to a bottleneck for people trying to mine profitably. Nowadays, legal crypto mining at the current market rates is becoming increasingly more feasible if you’re paying for electricity. For example, even in countries like Iceland with incredibly low electricity rates and the right temperatures for data centres filled with hot computer systems, turning a profit isn’t easy.
So what other options are there?
In Washington State, USA, hydroelectric power generates far more electricity than the state is able to consume. Because of this, the crypto mining industry is booming there.
The region’s five huge hydroelectric dams, all owned by public utility districts, generate nearly six times as much power as the region’s residents and businesses can use. Most of the surplus is exported at high prices, to markets like Seattle or Los Angeles. This allows the utilities to sell power locally at well below its cost of production. – Politico journalist Paul Roberts
However, by 2015, the Bitcoin mining craze in Washington began to wear off. Roberts adds:
Margins grew so thin—and, in fact, occasionally went negative—that miners had to spend their coins as soon as they mined them to pay their power bills
In Iran, very interesting cases pop up. For example, Mohsen Rajabi, Iranian blockchain expert states:
I recently set up a rig for a middle-aged customer who was not tech-savvy at all and had simply heard of mining and its potential profits. He wanted to start with ten devices installed at his factory because it can legally use extremely cheap industrial electricity.
Obviously, cutting the cost of electricity out of the picture completely is a great way to improve your mining profits. While it’s not always possible, and often highly illegal, electricity costs play a large role in cryptocurrency mining. In Bitcoins early years, college students were known to plug their mining rigs into dorm room sockets in an attempt to steal free electricity from their fraternity friends. Nowadays, stealing electricity for crypto mining is big business. So much so in fact, many people have gone to jail for it.
An example of this is Xu Xinghua, a man from China.
A Shanxi Datong [China] man named Xu Xinghua stole power from the poles near the West Second Plant of the Kouquan Railway, which was borrowed from November to December 2017, The coin ‘mining machine’ and three electric fans were operated for 24 hours. Xu Xinghua mined a total of 3.2 bitcoins, earning 120,000 yuan [$17,700], and the electricity generated by the stolen electricity was 104,000 [$15,340] yuan
Xu Xinghua was sentenced to three years and six months in prison for committing theft. He also got a fine of 100,000 yuan [$14,750]
In addition to this, he also had to reimburse the electric company for the power he stole, as well as turn in all of his mining equipment. While this story does sound rather crazy, it’s one of many. This is a common occurrence, and thousands of instances of this are out there, unreported.
Another popular method of stealing electricity (Even if it was potentially unintentional); Set up your own mining operation, take the profits, then claim bankruptcy and go out of business. While this may not exactly be popular, it is the story of one of the Washington State mining companies, GigaWatt.
U.S.-based bitcoin mining firm Giga Watt has declared bankruptcy with millions still owed to creditors. Creditors include the utilities provider in its Douglas County [Washington] base, having a claim of over $310,000, and electricity provider Neppel Electric, which is owed almost half a million dollars.
While these fiascos are always usually bad news, there is a silver lining; there’s a possibility that all of the utilities that fell victim to this could potentially get some money back. GigaWatt raised over $22 Million during its ICO period, and there’s no way these scammers were able to either clean or spend all of their proceeds before bankruptcy shut them down.
Cryptojacking is the most popular cybercrime targeting enterprise since 2018, overtaking ransomware. The essence of ‘cryptojacking’ is to get mining software on to the target victim’s computer system in order to use their processing power and electricity to mine crypto for the hacker. All without the victim even knowing (unless he notices his computer running slower than usual whilst doing regular tasks).
Despite the volatility in the value of various cryptocurrencies, the trend of illicit cryptocurrency mining activity among cybercriminals shows no signs of abating,
One of the reasons cryptojacking is steadily getting worse is because the malware that executes these attacks is getting better. For example, Rocke.
Talos assesses with high confidence that Rocke will continue to leverage Git repositories to download and execute illicit mining onto victim machines,
If you didn’t know already, Git repositories are home to many of today’s software developers. It’s where they store and manage their source code for websites, apps and many more. As a result, attacking user’s computers through Github could patch the hacker through to a work computer on a lucky day. Be that as it may, Github isn’t the creators of Rocke’s only target.
It is interesting to note that they are expanding their toolset to include browser-based miners, difficult-to-detect trojans, and the Cobalt Strike malware [malware that leverages Cobalt Strike penetration testing software].
An unspoken primary business model for crypto mining, evading sanctions is highly popular in developing countries around the world. To better understand this model, let’s look at the case of 2 Iranian Bitcoin miners.
At the time we bought the mining device, the rate of the US dollar in Iran was still quite high, so we figured we would make about $90 to $100 a month. The cost of electricity is relatively low in Iran, so the math seemed viable. – Ali Hosseini
Hosseini’s cousin, Pedram Ghasemi also gave some input:
Foreign exchange rates and Bitcoin prices have fallen and our profits have been cut, but we’re not seeing losses yet. According to my calculations, the US dollar must drop below 110,000 Rials [about $2.60] and Bitcoin must be down to $2,000 for us to really lose.
But I couldn’t mention Iran without bringing North Korea into the conversation. Former top National Security Agency (NSA) official, current Director of Strategic Threat Development at Recorded Future, Priscilla Moriuchi, estimates that North Korea potentially earned around $200 million in 2017 by mining cryptocurrencies. Now, you’re probably thinking; “How could North Korea turn all of that crypto into fiat currency?”.
North Korea has such extensive criminal networks. They have been well-established for decades to facilitate illegal activities. If Pyongyang were able to cash out into physical currency, it would be relatively easy for them to move that currency back into North Korea and to buy things with the physical currency. I would bet that these coins are being turned into something — currency or physical goods — that are supporting North Korea’s nuclear and ballistic missile program. – Priscilla Moriuchi
Many miners are mining at a loss just to build up their crypto portfolio, going contrary to common sense. While this is the furthest thing from a rational business model at face value, many miners that support their favourite cryptocurrency just want to help verify transactions on the network. Regardless, cryptocurrency is essential for dark web operations. Many organized crime syndicates depend on cryptocurrency as their means of exchange for contraband.
In the event that cryptocurrencies shed enough value that no one will be able to mine at a profit, there’s a possibility that crime syndicates will take over with mining operations. They will always need cryptocurrency, and mining is the best way to get brand new coins with no prior transaction history.
At this point, it’s very hard to turn a profit with crypto mining unless you’re either in a developing country, or you’re not paying for electricity and got a great deal on your mining hardware. While crypto mining may not be as lucrative as it once was, trading is always a great option. With the volatility of cryptocurrencies on the market, day trading and arbitrage trading are completely viable if you want to make a profit.
Are you currently mining? If so, what cryptocurrency? Let us know in the comments below!
This article is intended to educate and should in no way be seen as investment advice or an enticement to use the ice3x.com platform. Bitcoin is highly volatile with big profit opportunities but you should also remember that you could lose part or all of your investment whenever you take part in any high risk investment. Bitcoin trading is not a regulated industry in South Africa, which in itself carries additional risks. IF YOU ARE NOT AN ASTUTE BITCOIN TRADER, SEEK INDEPENDENT FINANCIAL ADVICE BEFORE MAKING ANY INVESTMENTS.