It is no longer a secret; crypto could replace traditional fiat currencies as the primary medium of exchange. It is also not a secret that cryptos and blockchain have a large number of use cases, and yet it’s just a scratch on the surface of their full potential. Nonetheless, cryptocurrencies came to light through various processes including what most crypto enthusiasts call mining.
The process of crypto mining is clearly defined and can be traced from start to finish. The demands associated with it, such as power and workforce, are easily quantifiable. But what of Fiat currencies, their biggest competition? How does the process of ‘mining’ fiat currency stack up against crypto in human resources and exhaustion? The article shall attempt to answer the question comprehensively.
The Mining Process
We ought to clarify the definition of mining for both types of currencies before gauging the levels of exhaustion attached to them. Below are the explanations of the process of mining in both;
Crypto Mining
Crypto mining is more clearly defined when compared to ‘mining’ fiat currencies. The entire process is also completely digital.
To generate value in terms of new coins, a transaction needs to be validated by miners. The miners, in turn, have to solve a complex computational problem, which requires a powerful computer. The preferred computers to mine cryptocurrencies nowadays are referred to as ASICs.
Once the problem is solved, the miner is rewarded with a coin, hence minting a new coin. The difficult computational problem is, in turn, solved using complex mathematical functions called hashes. A hash converts a random complex figure input into an encrypted one with a fixed height.
Fiat Mining
Fiat mining is a bit more complex and less straightforward. However, the entire process starts with trade and value addition, with the actual money creation being physical.
Once a service or finished product is delivered to the market, it is always sold at a profitable price. The price is higher than the total of inputs and all the costs of producing it and availing it to the market. The demand for money supply ends up higher than its supply hence necessitating a fiscal expansion.
All fiat currency trace their supply to the banks. Banks subsequently create more money to satiate demand by issuing loans that expand the total deposits. The created money is payable with an accrued interest, which avails even more funds for reinvestment into the economy.
Central banks also create more money in the economy through open-market operations (OMOs). The process implies the selling of securities by the central bank to the market, which increases bank reserves and money available for lending. It can also create money by influencing credit costs and availability through changing interest rates. Such steps are referred to as quantitative easing.
The government also participates in ‘mining’ fiat currencies through deficit spending. The government spends more money within the economy than it receives via taxes and other forms of government revenues. Such spending directly increases the amount of money circulating in the economy.
Mining Exhaustion Level Estimations
Now that the mining processes are out of the way, estimating the levels of exhaustion in mining can be easy. We shall analyze each entity separately.
Crypto’s Case
Mining cryptos is a resource-intensive practice. The miner sets up their mining machine and can then sit back and observe as the computer does all the work. One, however, has to source the required mining computers, which can be a bit of a hustle and somewhat exhausting. Setting it up with the necessary mining software is also a painstaking and exhausting endeavour.
The transactions leading to the mining process are also quite simple exchanges that take no less than a few seconds to make. However, other factors lengthen the time taken for the approval of transactions, more so network problems on the blockchain.
Fiat Currency’s Case
With Fiat, exhaustion levels can be different depending on the path that led to the creation of the currency. Some courses are pretty exhausting, while some are less exhausting.
Commercial banks issue loans to expand their deposits through the process of loan application and approval. To begin with, the bank has to permanently employ people who review the application cases and either approve or reject them. The review process can involve looking at one’s credit rating and ability to pay by other means (securities) if the expected source of finance is unavailable.
When central banks and the government ‘mine’ fiat currencies, the process is usually very complex. A team of economists conducts in-depth research on the economy’s performance to guarantee the need for a monetary expansion policy. Another team has to carefully consider the potential effects on the local currency’s exchange rate.
They also need to reconsider an expansionary policy’s effect on critical economic indexes such as inflation and interest rates. Just to explain how sensitive and essential the indexes are, too much inflation due to rapid expansion may result in prices expanding too fast. It may end up devaluing the currency and eating into growth levels.
Meagre interest rates resulting from the Central bank’s attempts to increase money supply may lead to deflationary pressures and stagflation. Stagflation simply means prices aren’t growing, a considerable disincentive to companies that dampens economic activities.
To add to all these, the newly ‘mined’ fiat currency undergoes printing by specifically contracted money printing firms. Workers of such firms face typically exhausting days of work to fulfil their endeavors.
Crypto vs Fiat Mining: The Verdict
Crypto mining is in itself quite resource consuming, estimated to use more electricity than Argentina. It is also reasonably exhaustive work since miners need to monitor the mining activity’s progress.
Still, the level of exhaustion expected under crypto mining is on another level. Longer and more engaging work hours , with a lot of human input stand as basic requirements. The process of analyzing an entire economy proves quite exhausting, to say the least. Even analyzing the loan applications of clients is a challenging and exhausting job. On the plus side, workers who mine fiat currencies get to enjoy long leaves as well as every holiday and weekend.