Mining hosting vs. self-mining: Pros and Cons
Cryptocurrency mining is a process in which transactions in the blockchain are updated and verified, resulting in the production of cryptocurrency coins or tokens.
Mining is achieved through computers solving a complex mathematical problem (known as a hash), allowing the problem solver to select which pending transactions are added to the next block in the chain of transactions. Coins or tokens such as bitcoin or dogecoin are generated as a reward for the effort and energy put into the solution.
Initially a pastime activity done by people at home as solo miners, mining has evolved into a competitive and capital-intensive business dominated by public corporations equipped with dedicated mining centers. Self-mining requires more direct attention if one hopes to succeed in the crypto market. Mining hosting has emerged as an alternative approach that provides the opportunity to stay in the game without having to be as involved.
Mining hosting and self-mining contrast how hands-on a person will be with their mining equipment.
Hosted mining, which also goes by custodial mining, involves a third-party hosting mining equipment on behalf of a client. Typically, the client will directly purchase the mining rigs from the hosting company, although they could also have the company host equipment purchased from elsewhere in some cases.
The client fully owns the equipment and pays the host company a fee for electricity consumption, space, security, monitoring, and other support services. This is usually done on a fixed-term contract.
Once the mining rigs are operational, the mined crypto is deposited into the client’s account.
Pros of Mining Hosting
- Hosted mining is convenient. For a fee, a miner can generate passive income as they go about their business since the service handles the operation and maintenance of their equipment.
- Clients benefit from economies of scale with mining hosting. Mining rigs draw vast amounts of electricity, and hosting services partner with colocation sites that are afforded lower electricity rates than residential areas.
- Hosting companies overcome limitations present in self-mining. They are better equipped to handle the spatial requirements, electricity consumption, dedicated cooling solutions, and noise pollution of mining rigs.
Cons of mining hosting
- The client gives up a level of control over their mining equipment to another party. Should this party prove unreliable (insolvency, for example), the client bears that disadvantage. Partnering with reputable services would remedy this, but still, the drawback exists.
- Hosted mining has been accused of playing a role in the centralization of the cryptocurrency network. The core tenet of cryptocurrency is decentralization. Records are stored across all computers in the crypto network with no single point of failure, making it more secure than the centralized nature of the government and bank systems.
Hosted mining brings together a bunch of miners under one entity, causing centralization, albeit at a relatively small scale. The points of failure, therefore, increase for potential cases of disaster or crackdown by the authorities.
Self-mining, also known as solo mining, involves an individual undertaking the mining process independently. The miner buys equipment, oversees the status of their computer(s), and collects the mined crypto at the end of the process. Self-mining does not rely on a third party.
Pros of self-mining
- The miner has full control of their mining equipment and process. They do not face the risks of partnering with potentially unreliable miners or companies. They are also relatively more secure as a single point of failure compared to being part of a group of mining rigs.
- Solo miners are afforded a level of privacy that isn’t possible with hosted mining. Hosted mining requires one to give up private information for the company to provide effective service. For those who prioritize privacy, self-mining is the better option.
- Self-mining allows the opportunity to acquire a good mining rig secondhand. Most hosting services require the purchase of new equipment directly from the service. A solo miner can enter the mining market at a relatively lower initial investment, given that they have done their due diligence to ensure they get the best machine for the best price.
Cons of self-mining
- A solo miner deals with the cost of operating mining equipment. In today’s hyper-competitive crypto world, an ordinary CPU won’t cut it for mining. The current technology used widely is Application-Specific Integrated Circuit (ASIC). These give a better chance of earning rewards on the blockchain but can be expensive to operate and maintain because of their size, power consumption, and required cooling solutions. Plus, solo miners may have physical limitations in their locations that make it impossible to host such equipment.
- Solo miners lose out on the convenience offered by hosted services. They have to monitor the hardware to ensure it runs efficiently. They have to dedicate their time to mining primarily with little opportunity to explore other ventures. Solo mining in such a case also requires some technical know-how which is a barrier for those who don’t have such skills.
All in all, hosted mining is the more practical solution for someone who isn’t well versed in the technical operation of mining rigs and wants to mine crypto with more freedom to do other things in their life.
Self-mining is worthwhile if one has the knowledge, can dedicate time to the mining process, and prioritizes privacy.
Subscribe to us for the latest bitcoin mining news