Hi Gareth, I enjoyed your article today.
I first became aware of Bitcoin at a CFA investment conference in 2015. I then learnt it’s more about decentralised blockchain technology and Bitcoin is just the oldest and most significant currency used in blockchains (open source ledgers).
You glossed over mining as a way to get a toe in the water? Mining is just providing processing capacity to blockchain networks when you strip out the crypto lingo of “mining”. After researching the topic, I thought it was the least risky approach. What am I missing?
This year I decided to initially buy a Baikal 1.2 Gh Dash mine (price is now $2 200 but it previously cost $5 800). Cryptocurrency Dash was at $94 and the Rand exchange rate $13. Dash hit $300 in the last week so my 6 month projected Return on Investment (RoI) is now considerably shorter. At 300 watts the electricity is less than R300 pm for this Baikal processor. In a world where a share with a PE of 14 and dividend yield of 4% is good this RoI seems too good to be true. However, it’s working?!? Last week I also took delivery of 5 Antminer L3+ mines. Again the projected payouts are beating projections and these should earn me $3,780 this month (R50,000). My costs are R5,250 pm. I’m earning in $ and paying costs in Rands.
Of course the price you pay to import these processors and their efficiency with regard to electricity is key. I found the guys at Browntoast.co.za to be the most cost effective and efficient suppliers, and they help pick the most efficient processors. Setting up a mine / processor is beyond the average person but I think this was the least risky way for me to get into the unstoppable blockchain technology developments.
Crypto currency prices are highly volatile with all the signs of a bubble. Who knows? Getting into the game by providing processing power to blockchain networks seems to be a more substantial way to earn your crypto currency rather than speculating on the price going up? It also avoids the risk of the various cloud mining pyramid schemes being sold.
With the meteoric rise in popularity of Ethereum, cryptocurrencies and blockchains are back in the news again. Graphics card prices have soared with the promise that those who have the computers and know-how to do some serious mining can take home huge sums in a Bitcoin-like gold rush to snatch up as much virtual currency as possible. But how easy is it to make your fortune in cryptocurrency? And is it worth your while getting started?
Brought to you by Mustang. We’ve all had tech related regrets. Betamax, backing the Zune against the iPod, letting that precious vinyl collection go. No one likes living with regrets, so don’t add what you drive to that list. Stop thinking about it and just book a Mustang test drive already.
For the uninitiated, mining for currencies like Bitcoin and Ether means devoting a huge amount of computer processing power to doing accounting sums for the platforms behind them, helping to verify the accuracy of the public blockchain ledgers.
You’re essentially getting rewarded for keeping the books for these platforms, which we’ve explained in more detail here, and the rise of cryptocurrencies like Bitcoin and others has led to a flood of amateur enthusiasts jumping into the mining business — the idea of having your computer whirring away making you free money sounds almost too good to be true.
Image: Peter Miller/Flickr
And in reality, it almost is — you can get rich from cryptocurrencies, but you need to put in plenty of work, and have luck on your side. You’re more likely to get a windfall due to market pressures than the quality of your mining rig, which is why it’s only worth a shot for the most committed and the most adventurous.
How do you mine coin
Mining for cryptocoin requires some free software tools and a dedicated rig. Turn the clock back several years and you could get away with a powerful home PC and make a few bucks. These days you can waste a weekend and a month’s wages on building a machine with four graphics cards purring away in a row and still not make a profit.
GPUs are now established as the mining processors of choice in most situations — graphics cards are even built for and marketed towards miners now — basically because they’re better at doing lots of laborious, repetitive tasks, whereas CPUs are better suited to switching between many tasks quickly.
You probably won’t get rich
The trouble is, the serious players have got whole farms of these computers, and unless you’ve got a warehouse and some life savings to spare, you’re going to be lagging a long way behind. You’re up against huge foreign operations running off cheap electricity and hardware bought wholesale.
Even if you do get yourself a rig set up and find a currency with a bit of a profit margin, you’re still putting yourself at the whims of the cryptocurrency markets — mining can start or stop becoming profitably depending on a currency’s current value.
There are several profit calculators on the web that will tell you how much computing power and electricity you need to make a certain amount of cash, so you can see exactly how much (or more likely, how little) you could make. Take Bitcoin, for example, which is now just about impossible to mine profitably for average users at home — you’d need thousands of GPUs running before you’d get close to getting more back in Bitcoin than you’d be paying for electricity.
Market fluctuations in cryptocurrencies. Image: Screenshot
You can fork out thousands of dollars on specialised kit, if you want to, but even then you’re only going to be raking in a handful of dollars a day with Bitcoin. That of course can go up or down as the currency value fluctuates, and what’s profitable one day might not be the next if your chosen cryptocurrency dips in value, or gets some bad media coverage — that’s where the slice of luck we mentioned earlier comes in.
Other options, like Feathercoin and Ether, have a better profit potential than Bitcoin right now, with the caveats we’ve already mentioned: If you’re serious about your mining then you need to keep a very close eye on the market trends, because the situation can change on a weekly or even daily basis. A single Litecoin, another cryptocurrency, has swung from costing you between $US10 ($13) and $US55 ($72) this year alone.
For instance, a huge $US64m Ether heist carried out last year was severe enough to cause a fork in the Ethereum platform it runs on top of, and a halving in price of Ether itself — if you’ve got a powerful, expensive, cryptocurrency mining operation going on in your basement then that’s a serious hit on your profits through factors completely out of your control. Sure, a swing the other way can make you relatively rich, but it’s a risk, and the upward trend won’t necessarily continue.
Image: The Ethereum Project
Many modern-day miners join a mining pool, combining resources with other users and getting a share of the profits, but the same risks remain. Fork out a few thousand on a mining rig, take the time to study the market trends, go through the process of setting up the programs, join up with a mining pool, and yes you can — if the prices stay buoyant and you’ve picked your cryptocurrency wisely — make a few thousand dollars a year. Whether or not it’s worth the risk and investment is up to you.
And if your investment isn’t already precarious enough, remember the scene is constantly changing: In the near future Ethereum is set to switch from its existing Proof of Work (PoW) system for extending the blockchain to a new Proof of State (PoS) system which is easier to scale and less energy intensive.
Without going too far into the technical details, it essentially makes the mining process more like earning interest on money you’ve already got: Racks of graphics cards won’t be able to generate wealth as they did in the past, which is bad news for miners looking for a profit even if it’s good news for your electricity bill. Instead, earning money will rely on staking (investing) rather than mining.
In other words, if you’re already halfway through building your Ethereum mining machine you might want to pick a new cryptocurrency… at least until the ground rules change on that one too. (Remember what we said about the constant state of flux?) And that’s really the only way to squeeze any profit out of cryptocurrency mining operations — keep moving as fast as the market does, and switch up the currencies you target as conditions change.
As soon as one cryptocurrency becomes profitable to mine, as we’ve seen with Bitcoin and Ethereum, everyone wants a piece of the action and making money gradually gets harder. It’s then time to get in early on another currency. In short, if you want to get rich (or at least make a profit), you need to pick and keep picking the right cryptocurrencies, have a serious amount of graphics processing power in hand, hope that your chosen currencies stay secure and keep increasing in value, and put in a lot of time and effort.
It’s not impossible, but we can think of easier ways to make a buck. If you’re determined to jump in and get involved in cryptocurrency mining, if only for the educational and geek appeal rather than to make any money, your best bet is to immerse yourself in one of the many mining forums out there, which will give you the inside track on the latest news and market trends.
Cryptocurrency Mining: What It Is, How It Works And Who’s Making Money Off It
NVIDIA Corporation NVDA’s second-quarter earnings released earlier this month, though exceeding expectations, elicited cautionary reaction from the investor as well as analyst communities. Traders bid down the stock by over 5 percent on Aug. 11.
One of the reasons cited for the negative reaction was cryptocurrency contributing to much of the outperformance.
Start mining crypto currencies with HashFlare .
Why should it be a cause for alarm?
Analysts Blayne Curtis and Christopher Hemmelgarn of Barclays believes revenue stream from cryptocurrency is fickle. Therefore, the analysts were not in favor of assigning a multiple to it, as it has the potential to become an eventual headwind.
Rival Advanced Micro Devices, Inc. AMD also had a similar tale to tell. The company indicated that cryptocurrency demand remains strong, while also suggesting that the demand might not last forever.
What Is Cryptocurrency?
Cryptocurrency, as the name suggests, is a form of digital money designed to be secure and anonymous in most cases. It uses a technique called cryptography — a process used to convert legible information into an almost uncrackable code, to help track purchases and transfers.
Giving a simple definition, Blockgeeks says it is just limited entries in a database no one can change without fulfilling specific conditions.
Cryptography is a technique that uses elements of mathematical theory and computer science and was evolved during the World War II to securely transfer data and information. Currently, it is used to secure communications, information and money online.
Cryptocurrencies allow users to make secure payments, without having to go through banks.
Some cryptocurrencies include bitcoin, Bitcoin Cash, Ethereum, DigitalNote, LiteCoin and PotCoin.
Bitcoin has the distinction of being the first cryptocurrency, having been introduced in 2009. Since then, this class of cryptocurrencies mushroomed, with more than 900 currently active.
See also: Chips And Cryptocurrencies: A Match Made In Tech Heaven?
How Cryptocurrencies Work
A cryptocurrency runs on a blockchain, which is a shared ledger or document duplicated several times across a network of computers. The updated document is distributed and made available to all holders of the cryptocurrency.
Every single transaction made and the ownership of every single cryptocurrency in circulation is recorded in the blockchain. The blockchain is run by miners, who use powerful computers that tally the transactions. Their function is to update each time a transaction is made and also ensure the authenticity of information, thereby ascertaining that each transaction is secure and is processed properly and safely.
As payment for their services, miners are paid physically minted cryptocurrency as fees by vendors or merchants of each transaction.
The value of the cryptocurrency fluctuates based on demand and supply, although there is no fixed value for it. Buyers and sellers agree on a value, which is fair and is based on the value of the cryptocurrency trading elsewhere.
Since there is no intermediary like bank involved in the transaction, as it is a peer-to-peer transaction, the transaction fee that is associated with credit cards is eliminated. The identity of the buyer and seller are not revealed. However, each and every transaction is made public to all the people in the blockchain network.
One can acquire a cryptocurrency through exchanges found online or trade it for traditional currencies.
Assume X wants to buy an item valued at $10,000 and he realizes that the seller Y accepts cryptocurrency, say bitcoin, as a form of payment. X scouts around to find the prevailing exchange rate, say $1,000 per currency. X gets Y’s public Bitcoin address from Y’s website, although both parties remain anonymous to each other.
X can now instruct his Bitcoin client or the software installed on his computer to transfer 10 bitcoins from his wallet to Y’s address. X’s Bitcoin client will electronically sign the transaction request with his private key known only to him. X’s public key, which is a public information, can be used for verifying the information.
When X’s transaction is broadcast to the Bitcoin network, it would be verified in a few minutes by miners. The 10 bitcoins will now be transferred to Y’s address.
Cryptocurrency mining includes two functions, namely: adding transactions to the blockchain (securing and verifying) and also releasing new currency. Individual blocks added by miners should contain a proof-of-work, or PoW.
Mining needs a computer and a special program, which helps miners compete with their peers in solving complicated mathematical problems. This would need huge computer resources. In regular intervals, miners would attempt to solve a block having the transaction data using cryptographic hash functions.
Hash value is a numeric value of fixed length that uniquely identifies data. Miners use their computer to zero in on a hash value less than the target and whoever is the first to crack it would be considered as the one who mined the block and is eligible to get a rewarded.
The reward for mining a block is now 12.5 bitcoins.
Earlier, only cryptography enthusiasts served as miners. However, as cryptocurrencies gained in popularity and increased in value, mining is now considered a lucrative business. Consequently, several people and enterprises have started investing in warehouses and hardware.
As enterprises jumped into the fray, unable to compete, bitcoin miners have begun to join open pools, combining resources to effectively compete.
Bank of New York Mellon Corp BK has been running an internal blockchain platform for U.S. Treasury bond settlements since early 2016, a Marketwatch report quoting Morgan Stanley said. The private nature of the platform has kept it out of the regulatory purview. Once the bank decides to roll it out to clients and use it commercially, regulatory oversight might come into the picture.
A complete mining kit consists of graphics cards, a processor, power supply, memory, cabling and a fan, which would cost between $2,400 and $3,800 on Amazon.com, Inc. AMZN, according toBloomberg.
The top three mining hardware, according to 99bitcoins.com, are Avalon6, AntMiner S7 and AntMiner S9.
Given that existing GPUs aren’t powerful enough, now miners are flocking to application-specific integrated circuits, or ASICs. To circumvent this shortcoming, Nvidia and AMD are said to be working on GPUs, which could be used specifically for the purpose.
The two companies who are dominant in consumer-grade mining hardware are Canaan and Bitmain. Bitmain, based in Beijing, does mining as well as manufactures mining hardware.
Source: Block Chain
Mining pools are concentrated in China, which boasts of 81 percent of the network hash rate.
Why Mining Chips Are A Fickle Revenue Stream
For companies such as AMD and Nvidia, which have dominant positions in the gaming chip market, a focus away from their core business may not be a prudent course of action.
As seen, these companies may have to bring out new GPUs designed exclusively for this purpose to pose a real threat to the ASIC chips, which are predominantly manufactured by the Chinese, who are notorious for their low-cost market positioning. How viable is the spend on such exclusive chips is a moot point.
Additionally, national governments and exchanges are mulling over regulation of the whole realm of cryptocurrencies. Japan has recently introduced legislation to protect users after Tokyo-based Bitcoin exchange Mt Gox collapsed in 2014. Similarly, introducing taxation such as capital gains tax on Bitcoin sales may also impede the cryptocurrency industry.