There is a whole world of investors who are making staggering returns by buying and selling cryptocurrencies, but there are those who are making a killing without having invested directly in this market. It may be that the history of the gold rush is repeating itself after all: those who made the most money then we’re not the ones looking for gold.
Exchanges: I buy, you sell, someone else makes money
Cryptocurrency trading and exchange services (popularly known as ‘exchanges’ without more) are probably the real winners of this global phenomenon. In early November 2020, it was revealed that Coinbase had grown by 100,000 users in a single day following the announcement by financial giant CME that it was preparing to launch a bitcoin-based futures marketplace before the end of the year.
That sparked renewed interest in buying bitcoin, the segment’s star cryptocurrency, and the very one that is the basis of Coinbase’s business. The firm already has 13.3 million users, which is incredible considering that Charles Schwab, the world’s largest brokerage firm, has 10.6 million users.
In fact, last week alone Coinbase grew by another 300,000 users, all of them infected by the almost unreal growth in the value of bitcoin. The company, which began operating in 2012, has had several rounds of investment in which it has “raised” a total of 217 million dollars.
The case of Coinbase is probably the best known in recent days, but it is certainly not the only one. Many other exchanges have been emerging in recent years and months to take their piece of the pie. We have dozens of such exchanges, and among them are Bitfinex, Bitstamp, BTC-e, Kraken, or Cryptsy.
There are also exchange products derived from this phenomenon that certain companies such as Bitcoin Group SE have been able to take advantage of very well. We talked about them in-depth.
Each of these exchanges offers different services and guarantees, ranging from certain security guarantees to the management of all types of cryptocurrencies (‘altcoins’) beyond the more traditional ones, such as bitcoin, ether, or litecoin.
These security guarantees, however, do not seem to be of much use, and we have the perfect example in Bitfinex, whose managers store 99.5% of their resources in so-called “cold storage”, isolated storage systems that minimize the risk of potential attacks on their systems.
All of them, moreover, vary in key issues for users as types of currency (fiat money) accepted (euros, dollars, etc) and of course in the commissions applied in trading operations both between legal tender and cryptocurrencies and between cryptocurrencies.
It is from these commissions that they obtain huge profits, and the lack of regulation in this regard and the emergence of all kinds of markets and proposals makes it difficult to be clear which exchange offers more guarantees or better commissions.
These commissions depend on the fees for exchange operations, buying and selling, or depositing and withdrawing money, and comparisons between the different services are difficult, although resources such as bitcoin wiki can help users to have a more solid opinion about these options.
Miners: a volume business
Getting rich mining bitcoin or other cryptocurrencies was feasible a few years ago, when both the difficulty and cost of such operations were much more profitable.
Today bitcoin mining has become an absolutely specialized field and one in which there are real giants with data centers dedicated to this task.
The situation is different for mining other cryptocurrencies, and the best example is in ether, the cryptocurrency derived from the Ethereum platform. Ether mining had its particular peak, and that particular Ether mining fever had a singular effect: that of the graphics card market being collapsed and without units to meet such demand.
That phenomenon would soon change its pace: the difficulty of mining ether grew notably (in mid-October it relaxed, of course), and that made the profitability of these operations questionable for individuals.
In fact, practically nobody ventures into mining on their own (‘solo mining’), and those who set up a machine dedicated to these tasks join a sort of “miner’s cooperative” (usually called a ‘pool’) in which they all contribute to this task in a distributed way and then share the profits of these operations.
Who benefits from this activity? Well, precisely those who manage these pools, who usually charge a commission every time one of the miners “affiliated to the cooperative” wants to send their income to their ether wallet.
This commission varies according to each pool, and even according to the amount to be transferred after mining days and days of ether.
That same operation is analogous to mining in many other cryptocurrencies, and again turns these intermediaries who organize and distribute the work into beneficiaries of that structure. One that is fed by the work, energy expenditure, and the assembly of these mining rigs by users who take months to get a return on their investment (if they get a return at all).
AMD and NVIDIA are also making money, but it’s not that big a deal…
Those who also seemed to have managed to make a lot of money from this cryptocurrency mining fever were AMD and NVIDIA, whose graphics cards are used to “mine” Ether and many other alternatives in which their GPUs are crucial to obtain a good ratio between power and energy consumption.
In fact, a few months ago there was a truly unprecedented situation: there were no dedicated graphics cards from NVIDIA and AMD because they were all being bought by those looking to make a fortune mining these cryptocurrencies.
The hardest hit, of course, were video game enthusiasts, who found themselves having to wait weeks or months to get access to the card they were looking for, or who paid a significant premium on the resale market to buy such models.
It seemed that the impact of that very strong demand would even make a new business segment take off, in which specialized motherboards and graphics cards entirely dedicated to cryptocurrency mining (without monitor connection ports as the most outstanding external feature) would be protagonists, but both AMD and NVIDIA clarified the situation.
The AMD CEO explained this at the latest conference call with investors to present financial results. In that talk she indicated that indeed sales had benefited from the interest in cryptocurrency mining, but she foresaw that “there will be a relegation of some of the demand in cryptocurrencies”, apparently indicating that the relevance of this market is not as important as it might seem in view of the events in recent months.
It is the same thing that seems to have happened for NVIDIA, whose revenue from graphics cards dedicated to cryptocurrency mining is insignificant.
In fact, according to the company, those revenues have fallen by half, about $70 million, compared to the previous quarter when they collected $150 million thanks to interest in mining Ether and other cryptocurrencies.
