The number of altcoins (alternative crypto coins) that have emerged after nine years of Bitcoin’s existence is large, but they are not always highly profitable projects. In this context, a study conducted by computer scientists at Princeton University and the University of California determined that under certain conditions, it is more profitable to mine a newly listed cryptocoin than to speculate and invest in it.

The authors of the study entitled “Estimating Profitability of Alternative Cryptocurrencies” are Danny Yuxing Huang, a Princeton researcher who obtained his Ph.D. in computer science at the University of California, Kirill Levchenko and Alex C. Snoeren, both from the University of California. The results were presented at the Financial Crypto 2018 conference recently.

For every dollar invested, IT professionals calculated returns under such conditions as time of market entry and hold, along with other simple strategies. The study showed that a miner who starts this activity as soon as the cryptocurrency is listed may do better than one who starts mining later; while traders who buy the asset immediately after entering the market tend to enjoy lower returns than those who invest days later.

In essence, the benefits of mining an altcoin are usually less risky than the potential benefits of trading, due to the volatility in the prices of these assets.

It is important to note that we are demonstrating that the altcoins market is highly volatile, whether it is mining or speculating,” explained Danny Huang, according to a review.

And the study added that:

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Altcoins have attracted enthusiasts who enter the market by mining or buying them, but the risks and rewards can be potentially significant, especially when the market is volatile.

White paper: Estimating the Profitability of Alternative cryptocurrencies

The computer scientists compared and estimated the potential profitability of mining and trading 18 cryptocurrencies based on the blockchain protocols Litecoin and Bitcoin, but they were not litecoin, bitcoin, or any other of those that top the list of largest capitalization in the market.

The study also used simulations to estimate the daily return based on $1 investment, either through mining or through speculation and market analysis over seven days. With this, the researchers concluded that the daily yield ranged from 7 to 18% with mining, while trading yielded negative numbers ranging from -1% to 0.5% gains.

The mining of cryptocurrencies is an activity that has been growing, becoming a whole industry. Companies such as AMD or Bitmain have designed equipment and developed improvements to increase mining power. However, the purchase of this type of hardware also requires a considerable investment. On the other hand, mining activity has also been the subject of debates on ecology, since the equipment used tends to consume high amounts of electrical energy.