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Crypto Miners: Cheap, or Dangerous to Buy Now?

The crypto mining sector is an extremely volatile one. For Fool.com contributors Chris MacDonald and Jon Quast, this sector is one that could prove to be one of the more interesting spaces to dive into. Here's their discussion, taken from the Jan. 12 edition of "The Crypto Show" on Backstage Pass.

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Jon Quast: Let's move on to another problem here. We're talking about problems, cryptocurrency mining.

Kazakhstan has become the No. 2 cryptocurrency mining country, particularly for Bitcoin (CRYPTO: BTC). I don't know if that's true writ large, but for the Bitcoin hash rate, the No. 2 country in the world as far as hash rate goes.

That is in response to China saying, you know what, you're not going to mine Bitcoin here in our country, Kazakhstan is close. Kazakhstan saying, hey, come, we have the energy, it's perfectly fine. Chinese cryptocurrency miners migrating over to Kazakhstan and for a short time, everything looked OK but it has started to unravel a bit.

Chris MacDonald: Yeah. There's been some particularly violent protests that are in Kazakhstan and that's led to the hash rate dropping. Folks are really concerned about the power grid and the impact that crypto mining has on the power grid.

I think the U.S. right now is the No. 1 market for crypto mining in the world, but with energy prices increasing across Europe and into the Middle East and Asia, these are some big political problems that crypto mining, in general, is maybe exacerbating a little bit.

For Bitcoin, for Ethereum (CRYPTO: ETH), for some of the tokens that are proof-of-work, that have proof-of-work validation models that require a lot of computing power to validate and secure the blockchain networks. These tokens may be under pressure.

Ethereum is making the move to 2.0 to move to a proof-of-stake validation model, which will be much less energy-intensive. We're going to talk about Cardano (CRYPTO: ADA) too with their move to be a little bit more energy. In fact, carbon negative, that's their goal for the Cardano network. There's some tokens out there that are really making positive strides in this regard.

But the energy consumption issue is a big issue and it's something that investors are keeping an eye on and that might be one of the reasons for a little bit of selling pressure into Bitcoin of late. It's something that we're definitely keeping an eye on and how the political landscape develops really will shape for specific tokens like Bitcoin, investor sentiment in the space.

Quast: That's really interesting. The proof-of-stake, a lot less energy-intensive. Of course, Bitcoin is still in the same energy-intensive proof-of-work. It's not moving away from that, right?

MacDonald: No, not right now. I know there's been some discussion that the network could eventually migrate to something like proof-of-stake. But for some of the legacy tokens that have a network, that's currently massive. We'll see what happens.

There's Bitcoin halvings every few years that take place and eventually, the mining rewards will be phased out and it's just going to be transaction fees that miners will receive. To some extent, there's a short-term thesis with mining Bitcoin in particular, but with Ethereum moving to proof-of-stake, it's entirely possible that that's the direction the entire sector could go. That's really a big question mark right now.

Personally, I don't know and I don't know that a lot of experts know which way this will evolve into 10 years from now, let's say.

Chris MacDonald owns Ethereum. Jon Quast owns Bitcoin and Ethereum. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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