I guess that the increase in price of bitcoins during 2013 has generated a lot of interest in this crypto-currency, with lots of people wanting to get in on the action. Knowing whether Bitcoin is something you should get involved in, and how, is the tricky thing to get right.
You might decide, as I did, to buy some bitcoins in the hope that they will increase in value. Unfortunately for me, I’m currently about 30% down on my investment of £100 (I’ve just checked their value while I’m writing this post and their current value is just under £70).
So, I’m currently sitting here feeling a bit disappointed that my investment has gone down so much, but at the same time feeling happy that I didn’t invest more – I almost bought another £50 worth a week or so ago. But, as I’ve come to understand, this is the world of Bitcoin – it’s very volatile, with daily fluctuations in the value of the currency being a lot more dramatic than we would expect from a ‘normal’ currency.
Or perhaps I could try Bitcoin mining. It certainly sounds interesting, but what is it. Here’s a sort of explanation: bitcoins are created when mathematical problems are solved by various computers dotted around the world – either working together as a ‘pool’ or individually. When a problem is solved, a block of bitcoins (I think there are 25 in a block) is created and distributed between the computers that solved the problem. When bitcoin was first invented in 2008/9, the problems were relatively (compared to today) easy to solve and a normal desktop PC was all you needed.
However, every time a block of bitcoins is mined, the subsequent mathematical problem is slightly more difficult to solve than the previous one. So, gradually, what has happened over the past few years is that in order to mine bitcoins you need to use a more and more powerful computer. Now, in 2014, you can only sensibly mine bitcoins by using specialized computers that have been specifically designed to mine bitcoins and nothing else.
OK, so I’ll buy one. Well, at least that’s what I thought until I started looking into the price of them. If you want something that’s going to earn you some serious crypto-currency, you’re talking about forking out a few grand. You can pay a lot less than that of course, but it’ll take you a year to earn a few quid.
This got me thinking, so who’s making money out of bitcoin mining? the people selling the bitcoin mining computers (or rigs as they’re referred to) of course. And, another thing to bear in mind if you’re thinking about buying a rig is, if the bottom falls out of the bitcoin market, all of these very expensive rigs will become completely redundant as they have no other use apart from bitcoin mining (I guess you could possibly use them to mine other crypto-currencies, but you wouldn’t be able to run your favourite bookkeeping spreadsheet application on them). My guess is that the providers of bitcoin mining rigs are desperately trying to sell as many units as possible, just in case the whole bitcoin thing disappears down the toilet. I’ve no doubt that bitcoin mining is making some people very rich….but perhaps not the miners themselves !!
So, what do you do? do you invest some money in bitcoin in some way or not? Personally, I think I’ll just keep an eye on the value of my initial investment … let me just have another quick look to see what they’re worth since I last checked about fifteen minutes ago … just give me a couple of seconds … they’ve gone down by another 30 pence … what joy. Still, it gives me something else to check numerous times every day !!
If you want to know more about bitcoin, why not have a quick read through my Beginner’s Guide to Bitcoin, which you can find here.