Experiment 4 : Crypto Mining
I know, Cryptocurrency again, I'm starting to worry myself.
However, in my defence, this experiment was more opportunistic that it was planned. I do have to admit, I've been a little sucked into what looks from the outside as a fairly murky world of Bitcoin and Ethereum. To be fair though it turns out its not really that murky anymore.
The get rich quick, gold rush evangelists and outright scammers seem to be no more prevalent now than they are in any other part of finance. Yes there's not much regulation and if someone steals your coins or tokens the police don't want to hear it but after being defrauded out of a small fortune by rogue builders last year, my experience is that not much happens about those kind of crimes today anyway, or certainly not where I live.
The world of Cryptocurrency is however about as geeky as it gets and thrives on acronyms and over-complexity, I assume to give it more legitimacy. Lets face it, in some cases the coin doesn't represent anything, nothing at all, no physical asset no tangible IP and no actual value of any kind. This is particularly true of a Crypto-coin called Dogecoin which was actually set-up as a meme joke. Well that joke currency has a total market capitalisation, which I guess you could say represents it's value, of a whopping R67.5 Bn / $4.5Bn / £3.38 Bn. Yes that's BILLIONS! For a joke coin that outwardly admits to having zero value.
And if you're thinking now "What kind of doofus would actually spend money on a joke coin?", you know Elon Musk, the richest man in the world? Who is an actual rocket scientist and owns a company that does intergalactic deliveries? Him, he buys Dogecoin. Not only does he buy Dogecoin, he bought it as a gift for his 9-month old son. His company Tesla, you know, the S&P 500 company that the biggest global producer of electric cars? Yes? Well they also just bought $1.5bn worth of Bitcoin whilst it was pretty much at its highest price ever.
Look, I'm no massive Elon Musk fan, I quite like the cut of his jib, I'm in awe of what he has achieved as the real-world Iron-Man and he didn't become the richest man in the world without being smarter than the average bear. So if he's' going long in Crypto. I'm open to a bit of investigation.
So after trying to justify what I'm about to do which is quite possibly as far away from the ethos of FIRE as you can get, let's get into the experiment.
I bought a bunch of liquidated stock recently from a failed business and amongst it was a PC with a couple of components missing. I know my way around a computer so I picked up said missing components and brough the thing back to life. I think I paid R500 / £33 / £25 for it and spent around R2000 / $133 / £100 pounds on fixing it.
Well that turned out to not be the dumbest idea I've ever had as it turned out it was a fully pimped out gaming PC which probably cost at least R30,000 / $2,000 / £1,500 to build when it was new. My first instinct was to whack it on Facebook Marketplace and move it on for R10,000 / $666 / £500 and take the win. I have a slight phobia to dealing with people who are avid FB Marketplace or Gumtree users and I seem to naturally attract the most special of them. I usually end up getting haggled down significantly, make a new "friend" and then worry if I'm going to wake up with them stood at the end of the bed for the next two weeks. So I decided that before I do that, let's think outside the box (or the PC case) to see if there's a different way to make some money of this fortuitous find.
After 20 minutes of hard thinking / plotting / strategizing / googling and then 20 minutes of YouTube to recover, I was observing that Bitcoin had eclipsed a value of R600,000 / $40,000 / £30,000 which means it's gone up almost 400% in the last few months. I also remembered reading a year or two back that Bitcoin mining had become more expensive than the electricity it cost to do it and it had largely become a futile exercise unless you happen to own a solar mining farm full of industrial speed mining machines.
I should quickly explain what crypto mining is to those of you who are still awake that wonder what in Oden's name I'm talking about. It's simple, Bitcoin is actually a financial ledger (like a spreadsheet for bookkeeping) but to make it secure, lots of computers check every transaction to make sure it's legit. It only sends legit transactions to the next computer and only when it's passed through a large number of computers is it considered a complete transaction. This is called the blockchain and the computers are the miners. For making your computer available to check transactions (mining) you get paid an amount of Bitcoin if you're the computer that validates the transaction (a bit like a lottery)
That's my understanding anyway, I'm sure Johnny Cryptopants will be along in the comments to point out how wrong I am but for the purposes of this explanation, it'll do.
So back to the experiment, we have a working high end PC and the value of Bitcoin is at an all time high. Would it be possible for me to make some money mining Bitcoin instead of selling it?
Well that's why we have experiments people, to answer questions like these and many others!
So a solid bit of YouTube watching, Googling and looking up words I don't understand like Hashrate, Distributed Ledger and HODL I found what seems to be the simplest way to get mining. Technically it's not mining but it's still making money by generating cryptocurrencies.
I found a site called Nicehash.com and they have basically simplified the complicated process of crypto mining. You don't do the mining but you make your computer equipment available for someone else to mine. They sell that mining power and pay you for leaving your computer turned on running their software.
Now I wouldn't even consider doing this on a PC or laptop that I actually use simply due to security although I'm sure it's all very secure. No thank you all the same. But I don't need to do that because I've got the aforementioned gaming PC.
So I simply fired up the PC, registered and installed Nichash's software and hit a big play button. That was literally it. The software then starts using the processor on the PC (CPU) and the Graphics Card (GPU) to mine cryptocurrency for somebody else. You get paid basically on how powerful your PC and graphics card are (this is not going to work on your laptop). Now the Graphics card is the more profitable of the two so the better the graphics card, the more money you're going to make. I bought a fairly old Graphics Card to get the PC up and running but it seems to do the trick. For anyone that's interested, I bought a second hand AMD RX 570 (which means nothing to me) but it wasn't expensive, less than R1,500 / £100 / £75.
Let me show you how it's going after three days of stop start mining ( I like playing around with settings):
This little venture is currently producing around R22 / $1.50 / £1.10 per day. Now I know what you're thinking:
"Mr H, have you taken leave of your sense, what it the effing jeffing point of this?"
And maybe, just maybe you'd be right. However, (I've noticed I'm saying "However" a lot and in my head I say it like a college professor, I'm going to stop doing that) lets math this up a bit:
The PC in total cost me R2,500 / £166 / £125
The electricity to run it is free because my home runs on solar power
My internet is fast and uncapped so it costs nothing to add this to my network
So at R22 / $1.50 / £1.10 per day, this PC will be paid for in 110 days. After that it's 100% profit.
Be that as it may (notice I didn't say However!), I could sell the PC for R10,000 / $666 / £500 , invest the money and get 10% back on that investment every year. So to break even on this venture it would take about 1.5 years of running that PC 24x7 to make back my money.
I'm not looking as smart as you thought I was right now, huh?
Notwithstanding (screw However!) the fact it's a bad investment on paper, long time readers know I'm not so easily defeated and I'm not closed to a little gamble. So let's throw caution to the wind and put the R10,000 / $666 / £500 little bird in the hand I currently have back in the bush and see if we can get it to become two in the hand (whoa, that analogy isn't my finest moment).
And my rationale for a move that could make me look like a prize dumb-ass to my entire readership?
That is the Bitcoin chart for the last year. Impressive no? I would like to tell you I have some Bitcoin but I have some little bitty Bitcoin crumbs so whilst I made a few dollars, the diamond encrusted Crocs will have to wait a couple more years.
I do believe that Bitcoin, or any other mainstream Cryptocurrency has not stopped though. Bitcoin has quadrupled in value in just a few months, who is to say it's the end? In the next year it could be 10 times the amount it is today or indeed it could be completely worthless.
If it does go up 10 times, my 1.5 year payback window looks more like 6 weeks and then if I run that machine for a year after, my profit would be R82,000 / $5,500 / £4,100. Not bad for switching a PC on?
If it goes the other way and I make the square root of nothing, I reckon in a years time I can still get R6500 / $430 / £325 for that PC easily so when you look at it through my simply fabulous pair of rose-tinted glasses, maybe I'm not as dumb as I look. Or maybe I'm actually dumberer.
Time will tell. Experiment number 4 is afoot. Crypto mining is happening right now just 2 metres away from me. Which coincidentally is going to need to be further away as the mining is causing the PC to pump out hot air at 71C so I'm close to passing out at my desk (its close to 30C outside) and Winston has stopped his hourly visit to my desk. So I'll move the machine to the basement for now and then I have a cunning plan of bringing it back upstairs in winter to be a kind of Cryptomining heater which will save on firewood and Mrs H's obsession of parking a super expensive electric heater at her feet for 4 months out of the year.
I know many of my FIRE purist readers will consider Crypto to be more Kryptonite (look at that, pure genius) so I promise to try and limit my current geeky obsession in future posts now we have 2 of 4 experiments based around the topic. Regardless of that ( I think I've got this However thing beat), I've always been an early adopter of technology and I do believe that like it or not, Cryptocurrency is here to stay and while the governments of the world continue to have the money printers running non-stop to keep the economy alive, there is a strong argument that your traditional "Fiat" currency is becoming less valuable every day which means Crypto isn't necessarily just going up, it's the money that buys it that is going down.
But I'm bordering on conspiracy theory now so let's leave that there. I'd love to hear some opinions on Cryptocurrency as part of your investment or FIRE strategy and whether I'm out on an island on my own or there is some similar thinking going on in your heads. Hit the comments below if you have a view.
Until next time, keep living.