It’s no longer a secret ; Crypto could replace traditional fiat currencies as the primary medium of exchange. It’s also no 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 have emerged through various processes, including what most crypto enthusiasts call mining.
The crypto mining process is clearly defined and can be traced from start to finish. The associated demands, such as power and manpower, are easily quantifiable. But what about Fiat currencies, their biggest competition? How does the process of “mining” fiat money compare to crypto in terms of human resources and depletion? The article will attempt to answer the question exhaustively.
The mining process
The definition of mining should be clarified for both types of currencies before measuring the levels of depletion associated with them. Below are the explanations of the extraction process in both;
Crypto mining is more clearly defined compared to “mining” fiat currencies. The whole process is also completely digital.
To generate value in terms of new coins, a transaction must be validated by miners. The miners, in turn, have to solve a complex calculation problem, which requires a powerful computer. The preferred computers for mining cryptocurrency these days are called ASICs.
Once the problem is resolved, the miner is rewarded with a coin, which allows them to mint a new coin. The difficult computational problem is, in turn, solved with the help of complex mathematical functions called hashes. A hash converts a random complex digit entry into an encrypted digit with a fixed height.
Fiat mining is a bit more complex and less straightforward. However, the whole process begins with trade and adding value, with actual money creation being physical.
Once a service or a finished product is delivered to the market, it is always sold cheaply. The price is greater than the total of the inputs and all the costs of production and provision in the market. The demand for money supply ends up being greater than its supply, necessitating fiscal expansion.
All fiat currencies trace their supply to the banks. Banks then create more money to meet demand by issuing loans that increase total deposits. The money created is payable with accrued interest, allowing even more funds to be reinvested in the economy.
Central banks also create more money in the economy through open market operations (OMOs). The process involves the sale of securities by the central bank to the market, which increases bank reserves and the money available for lending. It can also create money by influencing the costs and availability of credit through changing interest rates. These measures are called quantitative easing.
The government also participates in the “extraction” of fiat currencies through deficit spending. The government spends more money in the economy than it receives through taxes and other forms of government revenue. Such spending directly increases the amount of money flowing in the economy.
Estimates of the level of mine depletion
Now that the mining processes are at a standstill, it can be easy to estimate the levels of exhaustion in mining. We will analyze each entity separately.
Crypto mining is a resource intensive practice. The miner sets up his mining machine and can then sit and watch while the computer does all the work. However, you have to procure the required mining computers, which can be a bit of a hassle and somewhat exhausting. Setting up with the necessary mining software is also a laborious and exhausting endeavor.
The transactions leading up to the mining process are also fairly straightforward exchanges that take no less than a few seconds to complete. However, other factors lengthen transaction approval times, especially network issues on the blockchain.
Fiat coin box
With Fiat, the levels of exhaustion can be different depending on the path that led to the creation of the currency. Some courses are quite exhausting, while others are less so.
Commercial banks provide loans to increase their deposits through the loan application and approval process. For starters, the bank needs to continuously hire people who review application files and approve or reject them. The review process may involve examining the credit rating and ability to pay by other means (securities) if the expected source of funding is not available.
When central banks and government “mine” fiat currencies, the process is usually very complex. A team of economists is conducting extensive research on the performance of the economy to ensure the need for monetary expansion policy. Another team should carefully consider the potential effects on the local currency exchange rate.
They must also reconsider the effect of an expansionary policy on critical economic indices such as inflation and interest rates. Just to explain how sensitive and essential indexes are, too high inflation due to rapid expansion can cause prices to rise too quickly. This can end up devaluing the currency and undermining growth levels.
Low interest rates resulting from the central bank’s attempts to increase the money supply can lead to deflationary pressures and stagflation. Stagflation simply means that prices do not rise, which greatly discourages businesses and hinders economic activity.
To add to all this, the newly “mined” fiat currency is printed by specifically contracted money printing companies. Workers in these companies usually face exhausting workdays to accomplish their efforts.
Crypto vs Fiat Mining: the verdict
Crypto mining itself is quite resource intensive, and it is estimated to use more electricity than Argentina. It is also a reasonably comprehensive job since miners have to monitor the development of mining activity.
Yet the level of exhaustion expected from crypto mining is on another level. Longer and more engaging working hours, with a lot of human intervention as basic requirements. The process of analyzing an economy as a whole is exhausting to say the least. Even analyzing customer loan applications is hard and exhausting work. On the bright side, workers who mine fiat currencies enjoy long holidays as well as every public holiday and weekend.