I am still trying to make sense of the economy of bitcoin mining and how it resembles other types of economic activities that have been around for a while. It occurred to me today that mining for coins is somewhat similar to investments in mutual funds.

Making a Living in the Real World

With a large degree of over-simplification, we can say that there are two ways to make a living in the world, just like there are two ways to profit from bitcoin mining.

The typical way is to find a job with a company and perform a more or less predefined set of tasks for which you are awarded with a salary. This kind of income is generally stable and predictable, even if not very big. Employees with different levels of skills & capabilities are paid different salaries, but the difference in payouts is not that significant.

The challenging way to make a living is to become an entrepreneur. You have to acquire substantial capital and run a much bigger risk but your potential reward is also significantly higher.

How to Mine for Coins

There are also two basic ways to approach bitcoin if you have the necessary equipment. You can either sell your hashing power to somebody (via a service such as NiceHash ), or use it yourself by mining on your own or, much more likely, join a mining pool.

NiceHash mining looks to me fairly much like holding a regular job. Almost anybody can join; no special skills (i.e. hardware) are needed. The service guarantees regular, if not big, payouts1Figuratively speaking, of course. If there are no buyers of hash power, you won’t get any money. But you get the idea.

Mining for currency directly or joining a pool on the other hand resembles the choice made by an entrepreneur. Nobody will guarantee profits even if you are well-equipped2Having powerful hardware increases your chances to get the bitcoin reward at the end of the 10 minute period, but no amount of hardware will guarantee 100% positive outcome; there is still some luck involved.  but the reward is much, much higher.

What Does This Have To Do With Mutual Funds?

Mining pools and hash selling/buying services resemble mutual funds in many ways. For example, they distribute potential earnings among members in proportion to their stake (mutual fund shares, or hashing work performed); they charge members a similar maintenance fee; and they attract new customers by publishing a prospectus that describes the way the enterprise is making profit, what is the past profitability and what is the projected future profitability.

 

Do these similarities strike you as interesting? Do you think that someday soon cooperative bitcoin mining will be regulated same as mutual funds? Let me know in the comments below.