Bitcoin Mining Stocks: Top Investment Ideas

It is believed that the 21 millionth bitcoin - the final bitcoin - will be mined in 2140. This is because bitcoin mining is governed by a complicated scheme that makes it more difficult and worthless as time goes on. The thinking behind this is that, because of technical advances, bitcoin must be made more difficult to mine if the target time for block genesis, ten minutes, is to be preserved. While this scarcity makes bitcoin an excellent store of value, it makes investing in bitcoin mining somewhat less appealing.

However, the recent bitcoin price spree has reinvigorated interest in bitcoin mining. While it is theoretically impossible for a home user today to mine bitcoin profitably, major bitcoin mining operations are popping up every day, creating an opportunity to invest in the equipment manufacturers that are outfitting this modern-day gold rush.

Understanding Bitcoin Mining

Bitcoin is rewarded to miners who successfully figure out the hash of the next block in the blockchain, thereby discovering it.

The way it works is like this. A miner makes his mining equipment available to the bitcoin network to verify pending transactions. (A transaction must be verified six times to be valid). For every megabyte of transactions a miner verifies, the miner gets to guess (as many as times he or she wants or needs) what the number only used once or "nonce" (which is a random number which will meet the requirements of the target when added to the contents of the block and rehashed) of the next block will be on the blockchain. This resulting address would be less than or equal to the target hash.

The more powerful your rig, the more quickly you can get through your megabyte of the transaction, the faster you can make your guess, and the more guesses you can make. Guess correctly and you get the prize for that block, which is currently set at 12.5 bitcoin. In the case of ties, the miner that has done the most verifications wins.

The transaction requirement not only prevents the system from being spammed but also helps to pay for the needed service of transaction verification.

Beating out the competition takes very fast processors. The way most rigs do this is to daisy-chain powerful graphics processor units (GPUs) or application-specific integrated circuits (ASICs) to a server backbone. The biggest manufacturers of these processors are Advanced Micro Devices (AMD) and NVidia.

NVidia

NVidia is the manufacturer of some of the most powerful GPUs and video cards commercially available. While NVidia has taken steps to ensure that its products are available to gamers that need them for their gaming rigs, the high demand for these video cards for mining rigs have created a worldwide shortage of medium- and high-end graphics cards.

NVidia's cards - particularly, the older models - are preferred to AMD's due to the power savings. The California-based company has seen significant profits due to miners' interest. With a 92 percent price surge, NVidia had the third-best performing stock in 2017 on the Philadelphia Semiconductor Index.

AMD

Like its rival NVidia, California-based AMD has profited from the mining craze, but not as much as others. AMD was forced to admit that their chips are exposed to the Spectre vulnerability, where an attacker could extract private data via a timing attack through a side channel. This admission caused a deflation of AMD's stock price.

Despite this, the need for higher hashing capability keeps AMD's inventory scarce. Both AMD and NVidia saw their sale estimates rise in the last quarter, in part due to mining use.

AMD and NVidia are not the only players in this game. Samsung has recently announced that it will be producing ASIC mining hardware. For those looking to profit from bitcoin mining without actually doing the mining, these companies represent some of the best alternative investment offerings available in this space.

Want some more tips for how to leverage the investment opportunities in the world of New Finance? Read Bitcoin Market Journal and learn to invest like a pro!