I’ve been involved in bitcoin since it had it’s last bubble in 2011. I did the whole “Bitcoin Mining” thing with tons of GPUs and Linux setups. Did I make a ton of cash off the new gigantic change in value? No. I could’ve, but unfortunately I did not. I also haven’t lost anything in Bitcoin to date.
Bitcoin in general, is most similar to what is called a “Penny Stock”. These types of stocks can swing wildly and are the opposite of conservative investments. The only way to “invest” in bitcoin is with money you don’t mind losing, it’s still very much in its infancy.
It seems like people always think oh boy free bitcoins let’s all go mine.
First of all what mining does is maintain the cryptography of the Bitcoin network. You are basically brute forcing the network to find an answer based off the difficulty. If you find the answer you are given a reward. The reward is halved every so often. When I started mining it was 50 BTC. Due to the difficulty being so high, bitcoin mining pools were formed so all the hashing power could be combined and then distributed out based on how much power you contributed to finding the solution. GPUs (Graphics processors like ATi/AMD Radeons, specifically) were found to be much more efficient than CPUs for breaking cryptography.
I’m here to tell you mining is a pain. I did it for about 6 – 7 months in 2011. I had a 6990 and 6x HD5830′s. I still had trouble getting it to cover electricity costs at some points. Granted, I sat on the bitcoins for a long time till the price went up and then sold so the video cards, electricity and computer hardware were all paid off. Would I do it again? No.
Keeping machines up and mining is not all that easy to be perfectly honest. The new ASIC miners are the only things I’d really mess with these days, but really I’ve completely lost interest in mining. If you want to mine, go ahead just realize it isn’t all that easy and it’s not really much fun once you get past the idea of playing with expensive hardware. There’s lots of people that would mine even if they were going negative, just like there’s lots of people that do the other distributed computing projects for free. (Folding@Home, etc)
If you could just set it and forget it, then yea, the ROI isn’t really that bad for the investment cost, but in general with computer hardware you can’t just forget it. You have to monitor it. Now, there are interesting ways to monitor it, but you also have to deal with the heat that these things push out. All in all, unless you’re running a data center I don’t think it’s really that great of an idea.
Here’s my main issues with Bitcoin as it is today:
1. It’s hard to buy.
You have to link a bank account and go through ACH transfers, plus you have to go through new verifications on Mt.Gox and other exchanges.
Why is it this way?
Well, the way the USD currency network is setup things can be reversed. With bitcoin, it can’t be reversed. Once you have bitcoin in your wallet, it’s yours. Think about it as having paper dollars in a wallet, if you give it to someone, it’s gone. The same principles apply to bitcoin, only it’s electronic and can be sent long distances.
2. Value swings.
Now, you might think, well this is why people are buying it. They want to make a lot of money off bitcoin. Well that doesn’t really make a good currency, now does it? The Dollar, even though it loses value consistently, at least day to day it stays relatively stable. That means that if you plan to purchase something in the next few months in general the item is going to cost the same or only a little bit more. With bitcoin, who knows what the value is going to be in a month or two the item could cost you 20x more or 20x less in a few months.
Now, if Bitcoin gets big enough, and I think this will only happen if issue number 1 is fixed, this problem will largely go away. In the mean time, you have to keep dollars in an exchange, buy bitcoins right when you want to buy something or send money and the receiver has to exchange it immediately for their local currency or else they might lose a bunch of money.
Now, with banks, credit cards and such, money is insured or can be reversed. Having a pile of bitcoins sitting around is the same idea as having a bunch of USD under your bed. Granted, you can use various encryption methods and make copies to send around all over the place, but what normal user is going to want to go through this? There are new programs like the Armory, but largely I still don’t see a “normal” person using things like this.
If you don’t understand what I’m talking about here then stay away from Bitcoin, it’s not for you. If you’re a tech geek then sure, you probably can jump through all the hoops and use this currency, I know I did even when it was much less developed. Is it a revolutionary piece of technology? Really only time will tell. I would guess that either A. Bitcoin will get much more mature and products/services will launch making it very easy for the normal person to get and use or B. Another currency will come out that allows the average person to easily use it. Until i see joe blow down the street using bitcoin, it has not gone “mainstream”.