What is opportunity cost? A definition and examples

Opportunity cost, explained

Opportunity cost is a concept in economics that refers to the value of the next best alternative that is forgone when making a choice — i.e., the cost of the best alternative that is not chosen.

Consider the scenario when you have a limited budget and are debating between buying a new laptop or going on vacation. The value of the vacation you could have taken with the same amount of money would be the opportunity cost if you decide to buy the laptop. Similarly, if you decide to take the vacation, the opportunity cost would be the laptop you could have purchased with the same amount of money.

Everyone is gambling, all the time.

The “risk takers” have the courage to attempt something and gamble with the possibility of failure.

The “risk averse” avoid failure, but gamble with the opportunity cost of what they could have achieved—had they found the courage to try.

— James Clear (@JamesClear) February 23, 2023

Opportunity cost is a crucial factor to take into account when making decisions because it enables you to weigh the advantages and disadvantages of many options and come to the best decision possible based on one’s preferences and limits. By understanding the opportunity cost of a decision, individuals can better assess the true costs and benefits of the choices available to them.

Relevance of the opportunity cost concept in the crypto world

Opportunity cost is an important notion in the crypto industry because it is a highly speculative industry with large potential rewards and losses. The opportunity cost of hanging onto a certain asset vs. investing in a different asset must be considered by cryptocurrency traders and investors.

Consider a trader who made an investment in a cryptocurrency that has recently seen a significant rise in value. The trader can be tempted to keep the asset in the hopes that its value will rise more, but doing so prevents them from investing in other assets that might have superior growth potential. On the other hand, if the trader sells the asset to invest in another cryptocurrency that they believe has better growth potential, they risk missing out on potential gains if the original cryptocurrency continues to rise in value.

While miners choose what cryptocurrencies to mine based on expected profits and the resources needed to mine each asset, opportunity cost is also important in the cryptocurrency mining process. Miners can increase their profitability and prevent losing out on…