Mining bitcoin like it’s 2016

Let’s start this piece by making it absolutely clear that I don’t know what I’m talking about. I’m not a cryptographer, a banker, or computer hardware expert. A couple of things have recently piqued my interest in BitCoin: the financial impact following the UK referendum on EU membership, and a Product Tank talk I attended yesterday evening centred on “FinTech” (financial technology).

Why I care about Bitcoin

My highlight of that Product Tank talk was given by Lars Krüger, Head of Product at Blockchain. Blockchain’s tagline is “Be your own bank”, and they provide a handy smartphone app which allows you to manage your Bitcoin wallet. A bank account where the currency is Bitcoin. Bitcoin is like other currencies except not run by a central bank… and here is where every article on the subject just falls apart because there’s too much to explain all at once. You could read the Wikipedia article on it, but that’s fairly terse. Or you could just try and catch up by osmosis, which I imagine is how most people cope.

There is certainly a discussion to be had around “why currency is simply trust”. There’s a lot of talk about Quantitative Easing, negative interest rates and basic incomes. I’m finding all this very fascinating and there’s much to discuss surrounding all that, but let’s try and steer this back towards Bitcoin mining.

Following the UK referendum on EU membership, the British pound is now worth a lot less than it was compared with the US Dollar. Living completely inside either the Pound or Dollar ecosystems that doesn’t mean much (ignoring external market influences beyond the scope of this article) but outside of either of those systems it means a lot. If I had bought £10,000 worth of USD on the 22nd June, and sold them on the 27th June, I’d have made over £1,250.

In order to spread risk then, it makes sense to hold funds in a variety of currencies. While I could buy US Dollars or Indian Rupees, Bitcoin holds a lot more interest, and one reason is that I had heard it is possible to mine them. That’s the concept of putting your computer to work and being rewarded in Bitcoin. Not having to buy them, but instead putting assets to work behind the scenes to build a residual income. Sounds fantastic.

So again I stress I’m no economist, but I can grasp that the value of the currency we exchange today is no longer based on anything other than trust, and it’s that trust and confidence in comparative currency values that influences comparative currency values. I’m happy that it is okay to allow new money to be created so long as it is done at such a rate as to not undermine confidence in the value of a currency.

Finally I get to the point of this section. To mine Bitcoins you need electricity and beefy computers. I have solar panels and some handy computer gear lying around. How hard can this be?

Making it difficult

If we could all print sheets of £20 notes at a material cost of a few pence, cut them up with scissors and have them accepted as legal tender, the economy would fall apart. There’d be no trust. £20 today would be worth less tomorrow. So it can’t be easy to mine a Bitcoin. If I was awarded a Bitcoin for simply clicking a button in a computer application, Bitcoins would be worthless.

But Bitcoins are far from worthless. Today (28th July 2016) a Bitcoin is worth £501.60. It needs to be difficult to earn even a fraction of a Bitcoin. And it is. Very hard. Pointlessly hard.

Briefly, in order to mine a Bitcoin a computer must perform millions of millions of mathematical computations. That takes time, electricity, and the hardware costs money. In order for Bitcoin mining to be worthwhile, it needs to be possible to make a higher value in Bitcoin than your hardware and electricity expenditure.

Again with a solar energy surplus, some good computers and with a single Bitcoin being worth £200 more now than it was at the turn of the calendar year, I thought I was in a strong place to start. No. Not at all.

Measuring your mining speed

Mining a single Bitcoin all by yourself is basically impossible. I was told that yesterday, and 24 hours later I believe it. The alternative is joining a shared pool of miners, who all work together and divvy out the rewards in proportion to the effort put in. When I describe the economics of that, the concept of solo mining being pointless should clarify itself.

My main desktop PC has a quad core i7 with hyper-threading (exposing 8 virtual cores) running at 3.7GHz. It’s a few years old but it certainly does the job. I never have to wait for the CPU. It turns out that if I dedicate all 8 of those cores to Bitcoin mining, I can achieve a speed of about 2 million hashes a second. A hash is a mathematical calculation. Look up the details if you care and want to know more.

Anyway, 2 million per second sounds like a lot. I had heard that actually a graphics card is rather better at this hashing business than a CPU. It sounded strange, but it’s got something to do with polygon rendering in 3D video. Anyway it’s true, and as luck would have it I love to have loads of monitors hanging off my PC, so I’ve got an AMD Radeon R7 200 something or other and it can do about 175 million hashes a second. That’s right! It’s getting on for 90 times faster than my CPU!

And here’s the best bit. For reasons that are rather dull I’ve got two machines of similar specification, and when it is sunny, easily enough solar energy to run both of them. So I should be able to purr along at 350 million hashes a second for free. This was going to be easy money.

Reality

Typically a mining pool will pay out when you’ve earned 0.1 Bitcoin. Remember that’s about £50. So I’d need to earn around £50 before I’d see any return. At 350 Mh/s (Mega (million) hashes per second), do you know how long that would take?

Really though, what’s your guess? Maybe that would take an absolute maximum of a kilowatt to run and a kWh would cost you 15p if you didn’t have the benefit of solar panels. It would therefore take 333 hours (nearly half a month) before it cost £50 in power, so clearly one needs to earn 0.1 Bitcoin in less time than that.

What was your guess then? The answer is, that running constantly at 350Mh/s, it would take over 1,500 years to earn 0.1 Bitcoin. Now I’m renowned for a lack of patience, but I suspect most people wouldn’t wait that long.

How can it work, then?

I was surprised that my GPU (Graphics Processing Unit) was 90 times better than my CPU at this business. It turns out it is possible to buy apparatus designed for Bitcoin mining. “Antminer” is a common choice – a brand that has a evolutionary series of products purely with Bitcoin mining in mind.

I looked into this. Here’s a table comparing my two existing PCs and various Antminer products.

Rig Power consumption (watts) Gh/s (giga-hashes per second) Power cost to earn £50 Hardware cost at today’s prices Time taken to earn £50
2 PCs 900 0.35 £1,773,900 £0 1,500 years
Antminer S1 360 180 £1,380 £18 3 years
Antminer S3 366 400 £631 £65 1 year 4 months
Antminer S7 1,200 4,700 £176 £350 41 days
Antminer S9 1,375 14,000 (!) £68 £2,400 14 days

Maybe my figures are based on some less than accurate estimates. Still, unless I’ve got something very wrong here, this is bonkers. None of them make any sense based on a typical UK electricity tariff of 15 pence per kilowatt hour.

Even if they could be entirely funded by solar energy and we ignore the capital outlay on that solar rig, the S7 would take 6.5 years to break even, and the S9 nearly 2 years.

In conclusion then, if you have infinite free power (you’ll probably need A/C too), you can steal the custom hardware, and you can afford to wait forever for a return, Bitcoin mining might be worthwhile. Otherwise it isn’t.

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