Bitcoin 我的掘礦記事報告 一 / My Mining Journal - 1

This time, I would like to share my Bitcoin mining journal. Please note, I do not promote Bitcoin mining.

Bitcoin mining is hot since the price shot above US$3000 in August. I joined as well, and I analyzed my progress from time to time. I would like to (re)start my Bitcoin journal today because I have more followers and higher visibility now. Although these experiences will not replay entirely, I believe the learning will apply to Bitcoin in the future once again, like what Economics teacher told their students.

Bitcoin Mining Basics

Bitcoin mining is a term that describes the participation in Bitcoin network and processing the transactions. The mined output is called Block Rewards, yes, these are your Bitcoin. There are a lot of complex variables in mining that I do not understand them entirely at the very beginning. That is why I look closely on the topic and hope that I can generalize them one by one.

What you need

To join mining, you need a miner. It is now a specially designed hardware that is more expensive than a high-end computer, with special chips called ASIC. I choose not to buy a miner (well, it is hard to get anyway) and joined cloud mining. Cloud mining is simple, and help me to just get the mining done, saving time for me to understand more about the ecosystems.

Of course, most cloud mining services are scam. They are not regulated and can change your service terms as they wish to. I did not have much spare money for investing, so I just spent all my money into 1 mining service I have chosen. In fact, I realize now this is not wise, because I should buy Bitcoin instead of buying mining contract. It is too late, anyway.

Cost and Return

After all, everyone is looking for how much they earn, the net income. This means you have to understand the structure of the cost and income involved. Cost is either a miner, or a cloud mining contract, and electricity costs or cloud mining maintenance fee. I am fine with the arrangement of cloud mining because the maintenance was deducted in a fixed sum in US dollar, from the mined Bitcoin. The formula is:

Costs in Bitcoin = Fixed US$ Maintenance / Bitcoin Price

I do not think too much before I buy the contract because the contract cost was raising rapidly and I believed I would break even within 300 days, in US dollar terms. The fixed maintenance cost in US dollar would be deducted from the mined Bitcoin outputs. When Bitcoin price increases, the number of Bitcoin deducted for costs is lower and I can get more net income in terms of Bitcoin. Very attractive, right?

The formula I use was:

Annual return = [(Daily mined – Maintenance) x 365] x Bitcoin Price at the day of purchase

Mining Difficulties

I only realized the importance of Mining Difficulties after I spent all my fund. In brief, it can be treated as a factor that made my Bitcoin net income decreases over time. As Bitcoin draw more attentions, the participants could increase and therefore the processing power of the whole network could increase, making the competition intensifies. The Bitcoin network would therefore increase the mining difficulties to balance the network, and decrease the average return for each participant. The difficulties should increase the same percentage as the processing power (Hashrates) increase, and the return would also decrease in the same percentage of this increase.

My Projection needed reworks

That is, as time goes by, the net income decreases. I had to recalculate with Excel this time.

What I did was studying the past record. The difficulties adjusted on average 12 to 13 days, with average of 7% a period. My mining income before maintenance fee would also decreased by the 7%.

Net Income = [Previous Mined amount x (1 – difficulties adjustment percentage)] – (maintenance/Bitcoin Price)

With this calculation, holding the price unchanged could make a contract termination in 34 weeks. I was shocked.

Yes, I know. It can’t be. The price MUST change, and therefore I had to re-model my projection once again, with 2 variables assumption. This made the projection better as I could enter what I THINK it could be. And sometimes, I told myself Bitcoin price will increase to a point someday that make the mined Bitcoin x Price = my money spent.

Long Story Short

With all the calculation, my current conclusion is to buy Bitcoin, not cloud mining contract. If I used the money I spent on cloud mining to buy Bitcoin, the net worth of my money would have doubled today. There is no investing instrument that can get this return within 2 months. Best of all, buying Bitcoin do not need to risks contract terminations.

My journal does not end here. I am writing the next part at the time you see this story. ^_^