Regarding global markets, cryptocurrency mining remains a niche economic activity with economic risks. Check out the ways to make money with bitcoin without holding it. As a result, there is less need for concern over the risks of mining and transporting cryptocurrency than the risks associated with transporting, refining and distributing oil.
With that said, there are still some critical divergences between cryptocurrency and oil mining. Oil must be extracted from gas wells or oil-rich shale formations by applying high-pressure water on rocks below the surface.
As the oil is pumped to the surface, it can mix with other substances and is then transported through pipelines in quantities suitable for refining. On the other side of the transaction are cryptocurrency miners that use computer hardware to solve complex algorithms that confirm transactions and collect coins.
The difference in electrical and power consumption:
People may compare the electrical power consumed by both processes to understand some of their similarities and critical differences. For example, oil mining operations use water to extract crude oil from shale or gas wells. For paper-based currency mining operations, computer hardware such as mining rigs is used by enthusiasts who invest in computing hardware or by people who sell transaction speed and electricity usage data. A hypothetical cryptocurrency mining power station might include the usage of up to 100,000 sq. ft. of space and consume as much electricity as 1,000 U.S. households in a year.
For oil drilling operations, the amount of water required to extract a barrel of oil from shale is estimated to be about 0.2 gallons for some sources, which would require less than 3 litres per day during drilling – but still more than the average household consumption level of 0.13 imperial gallons per day in the United States.
The investment risks involved with both processes are inherently different because cryptocurrencies are designed for peer-to-peer transactions and oil for bulk trade. Investment in cryptocurrency mining comes from considerable upfront costs for hardware, software, electricity and cooling. In the last 12 months, a significant amount of energy has been required to mine Bitcoin at its current price of around $35000 per coin.
However, using that same sample as a base for comparison for investment in oil mining would mean companies would consume $4 billion worth of energy over the next year to extract one single barrel of crude oil – or nearly $3 million per day. Perhaps, more importantly, is the fact that cryptocurrency mining requires more significant fixed investment costs; however, those costs decline over time as less equipment is bought and used.
Oil and cryptocurrency miners bond over natural gas:
Natural gas is a cheap energy source for oil and cryptocurrency mining. With the rise of cryptocurrency, much energy is being used worldwide. Natural gas has a higher calorific value compared to other energy sources and can be harnessed to do various tasks. For example, people can use it for cooking, heating water, and generating electricity. Natural gas is also a critical fossil fuel source as it offers low levels of air pollution, making it economical.
In both cases, the power and the cost of transporting oil or coins to a refinery or exchange also add to the overall operating cost. In addition, cryptocurrency is mined with specialized computer hardware, while oil is extracted via high-pressure water injection and then transported by pipelines.
However, there are some notable differences between miners of digital currencies and miners of oil. Primarily this difference relates to the number of individual mining operations involved in each process, which in turn means that more parties are involved in mining cryptocurrency than extracting oil. As a result, some argue cryptocurrency mining infrastructure is more centralized than traditional oil pipelines due to its requirement for one user to control a large amount of processing power.
Paper currency vs cryptocurrency:
The mining process itself is also of a different scale. It is a simple analogue to the paper currency mining process. Paper currency is typically created from scratch and minted by governments responsible for their supply, distribution, and banks that secure individual accounts.
Various parties then verify the paper currency transaction data – the minting government, banks and local businesses that handle transactions for mutual benefit – to keep money flowing across economic borders. On the other hand, cryptocurrency mining offers no central authority on how funds flow within or between wallets; instead, it uses a distributed ledger which forms a shared public record of all transactions within the system.
Gas offers savings in the long run:
For cryptocurrency miners, that is an advantage because they can buy hardware more efficiently by using this fuel source and convert it into revenue using their computers – just like how people use consumer appliances to generate electricity in their houses. In some cases, energy companies have even offered discounts on electricity to people who use cryptocurrency mining as a form of income.
Gas has its risks as well:
Some miners could be in danger if a power outage caused by an accident or natural calamity were to occur during their mining operations. As a result, they may risk losing all the money they invested into the installations. However, specific steps can be taken by people to prevent such losses from occurring. For example, the U.S Department of Energy (DoE) is offering grants for small-scale cryptocurrencies that include funds for backup generators and batteries to reduce such risks. However, in the case of oil mining, a complete proof source of energy is necessitated by the miners.