Recently, in personal communications and small Telegram groups, I’ve noticed signs of quiet desperation growing as dreams of a quick reversal to new all-time-highs fade.
Meanwhile, Twitter is noisy with technicians, and egos attached to price predictions. Predictions are made with seeming conviction, because if right, egos will claim clairvoyance.
Here’s the truth: no one knows how far we’ll fall.
Certainly, we can make educated guesses based on technical indicators, and even predict points of support based on our early explorations of crypto fundamentals, but these are all educated guesses. Our techniques will mature over time, but reflecting on my career in the equity markets, everything will remain an educated guess. We’re predicting the behavior of humans, after all.
Some concrete numbers. If 2018 truly echoes 2014, then we could very well be in for another ~50% drop from here.
Upset that I said that? Already typing FUD!!!! in the comments? Wait until the end; discussing that reaction is the entire point of this post.
Hearings on Bitcoin and its derivatives are being held in the USA on a regular basis, and invariably the expert witnesses fail to properly describe the actual processes going on.
If they used the correct language and excluded all analogies, the only possible conclusion would be that America cannot regulate Bitcoin under its current legal system. The Constitution guarantees the inalienable rights of American citizens, and therefore Bitcoin is a protected form of publishing. The only way Bitcoin can be made regulable is if the Constitution is changed; and that does not mean adding a new Amendment, it means removing the First Amendment entirely. Inevitably the anti-Bitcoin protagonists will face a robust and ultimately successful legal challenge that will remove the possibility of any sort of “BitLicense” or interference from the CTFC, FinCEN or any other agency. It will also remove any possibility of interference at the State level. The consequence of adhering to the basic law of the United States will cause America to become the centre of all Bitcoin business for the entire world.
Let me explain why this is the case.
Some say that Bitcoin is money. Others say that it is not money. It doesn’t matter. What does matter are three things; that Bitcoin is, that the Bitcoin network does what it is meant to do completely reliably, and what the true nature of the Bitcoin network and the messages in it are.
Bitcoin is a distributed ledger system, maintained by a network of peers that monitors and regulates which entries are allocated to what Bitcoin addresses. This is done entirely by transmitting messages that are text, between the computers in the network (known as “nodes”), where cryptographic procedures are executed on these messages in text to verify their authenticity and the identity of the sender and recipient of the message and their position in the public ledger. The messages sent between nodes in the Bitcoin network are human readable, and printable. There is no point in any Bitcoin transaction that Bitcoin ceases to be text. It is all text, all the time.
Bitcoin can be printed out onto sheets of paper. This output can take different forms, like machine readable QR Codes, or it can be printed out in the letters A to Z, a to z and 0 to 9. This means they can be read by a human being, just like “Huckleberry Finn”.
At the time of the creation of the United States of America, the Founding Fathers of that new country in their deep wisdom and distaste for tyranny, haunted by the memory of the absence of a free press in the countries from which they escaped, wrote into the basic law of that then young federation of free states, an explicit and unambiguous freedom, the “Freedom of the Press”. This amendment was first because of its central importance to a free society. The First Amendment guarantees that all Americans have the power to exercise their right to publish and distribute anything they like, without restriction or prior restraint.
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
This single line, forever precludes any law that restricts Bitcoin in any way.
Although my mining PC, The Beast, is capable of mining cryptocurrency profitably I was concerned about the amount of heat it produced, and consequently how noisy it was (because of the graphics card fans running hard). My conclusion was that it was not set up well for running the graphics cards continuously because most of the cooling airflow bypassed the cards.
That can be seen in this photo where I have tried to illustrate the airflow route – it comes in the front of the case via the fan in the middle, then gets pulled through the CPU heatsink via the CPU fan then exits out the far corner through the outlet fan. This makes sense for a PC where the CPU is running hard. It’s pretty useless for crypto mining where the graphics cards – whose positions are ringed in red – are doing all the work and generating all the heat.
The main change I have implemented therefore is to install a second inlet fan, nearly opposite the graphics cards, powered from the same connector as the current fan (so they match speeds). I have also removed two expansion card blanking plates between the graphics cards so there is more space for the hot air to exit after it has passed the graphics cards.
This is the ‘after’ picture:
The result is that the graphics cards are running cooler most of the time, and significantly cooler if I manually increase the speed of the inlet fans. The main issue now is that they are set to automatically react to the CPU temperature, which of course stays relatively low, rather than directly to the GPU temperature. My next step in cooling will therefore be to look into slaving the fan speed to the GPU temp.
That is not a standard feature on almost any motherboard or fan utility, but is apparently something that can be done by a third party utility called SpeedFan. But that’s for another day – for now I’m happy to keep mining with the system as it is with the extra fan.
When most people think about earning money in crypto, they think of two common activities: investing and mining. Both can be costly and time consuming endeavours. But growing your cryptocurrency stash doesn’t have to be either of these things.
There are several less explored pathways to crypto-gains. In this article we’ll cover:
1. How your coins can work for you with Proof of Stake
2. How applications in this ecosystem can help you earn money
Let’s get started.
Getting started with Proof-of-Stake
Proof of stake is an alternative to cryptocurrency mining that doesn’t require hardware or crazy amounts of electricity. Instead investors who hold coins are gradually rewarded with more coins.
Think of it like interest in a bank account, but with cryptocurrency. All you need to get started is a proof-of-stake cryptocurrency and a computer
Major coins like NEO, LISK, and Stellar Lumens are built on proof of stake models. And other major coins like Ethereum have announced their intention to adopt it.
How can I use PoS to start making money?
You can use PoS today with nothing more than your laptop and a stable internet connection. Although, you’re going to have to let it run 24/7 so you might want to use an old laptop.
With the price of a bitcoin surging to new highs in 2017, the bullish case for investors might seem so obvious it does not need stating. Alternatively it may seem foolish to invest in a digital asset that isn’t backed by any commodity or government and whose price rise has prompted some to compare it to the tulip mania or the dot-com bubble. Neither is true; the bullish case for Bitcoin is compelling but far from obvious. There are significant risks to investing in Bitcoin, but, as I will argue, there is still an immense opportunity.
Never in the history of the world had it been possible to transfer value between distant peoples without relying on a trusted intermediary, such as a bank or government. In 2008 Satoshi Nakamoto, whose identity is still unknown, published a 9 page solution to a long-standing problem of computer science known as the Byzantine General’s Problem. Nakamoto’s solution and the system he built from it — Bitcoin — allowed, for the first time ever, value to be quickly transferred, at great distance, in a completely trustless way. The ramifications of the creation of Bitcoin are so profound for both economics and computer science that Nakamoto should rightly be the first person to qualify for both a Nobel prize in Economics and the Turing award.
For an investor the salient fact of the invention of Bitcoin is the creation of a new scarce digital good — bitcoins. Bitcoins are transferable digital tokens that are created on the Bitcoin network in a process known as “mining”. Bitcoin mining is roughly analogous to gold mining except that production follows a designed, predictable schedule. By design, only 21 million bitcoins will ever be mined and most of these already have been — approximately 16.8 million bitcoins have been mined at the time of writing. Every four years the number of bitcoins produced by mining halves and the production of new bitcoins will end completely by the year 2140.
Following my initial attempts at mining I had decided to stick with NiceHash on my old PC as a good compromise between mining performance and convenience. Therefore it was natural to move straight to mining with NiceHash on The Beast.
Initial results have been largely encouraging – as might be expected given its impressive performance. Certainly it can mine profitably: as I write this it has Daily Estimated Earnings of about 0.0004 BTC, currently worth about £2 per day.
I have a screenshot from back in February showing a slightly greater Bitcoin earning rate of 0.00048 BTC:
But because of the volatile nature of Bitcoin value we can see that only two months ago that was worth nearly £3.50 per day. Because of this volatility I try not to focus too much on the fiat earnings but instead on the Bitcoin earnings, since I think long term that’s what matters.
I use a Kill-a-watt style meter to see how much electricity the PC is using – and currently it’s 400W. Though that’s not all spent on mining, since the PC gets used for other things (like this blog) it’s a good enough approximation. So in the worst case, over 24 hours this PC will use 24 x 0.4 = 9.6 kWh. At about 15p per kWh that would cost £1.44 – so definitely I’m into profit.
In fact it’s much better than that:
During the daylight hours our roof generates a lot of solar, so in that period the electricity is effectively free.
For seven hours during the night we run on Economy 7 electricity at approximately half price.
I recently had a home battery installed to power the house from our solar once the sun has gone down (one of these: PowerBanx).
So in practice I’m definitely paying less than half the maximum, and probably less than 50p per day.
That’s the good news. The bad news is that there are downsides beyond just the cost of electricity. Specifically The Beast runs hot – I’m monitoring it with MSI Afterburner and in less than an hour after starting mining the graphics cards hit their default maximum temperature of 83° C.
The results of this are:
The PC generates a lot of heat, much like having a fan heater running in the room.
The graphics cards are temperature limited and could probably generate more money if they weren’t so hot.
The PC gets noisy as all its fans are running flat out.
The upshot of this is that I’ve bought an extra fan to go into the PC case low down where the graphics cards are. Currently the case has most of its air flow going along the top where the CPU is, but that’s hardly used during mining. I think this is a case where Scan made a mistake in the system design, despite me making it clear the PC was intended for cryptocurrency mining.
I’ll install the new fan as soon as I can and then report back on the results.
Once my mining PC (‘The Beast’) had arrived it unfortunately sat around for a while as I was busy on other things (particularly getting my tax return done). Once more time became available the first thing I did was to check out The Beast’s performance.
Having paid out for a high end system I was hoping for great things. I ran two particular suites of tests: 3D Mark and PassMark.
The 3D Mark software is used for evaluating specific 3D graphics card performance – the most crucial element in cryptocurrency mining.
3D Mark works primarily by running the latest version of the Time Spy benchmark at high resolution and with a range of graphical features enabled to determine how well the graphic card(s) can keep up. The benchmark is impressive to watch run with highly complex and challenging scenes running through at an impressive speed.
I’m pleased to say the Beast showed itself off well, with an overall 3D Mark score of 11,589.
Comparing this to all the PCs logged against 3D Mark shows The Beast’s score to be better than 97% of all results.
The PerformanceTest9 benchmark by PassMark, in contrast, is for bench-marking general PC performance, including CPU, disk and memory speed – although it does also include some graphical tests.
Again The Beast acquitted itself well with 5/5 scores for CPU, 3D Graphics, Memory and Disk (though only 4.5/5 for 2D Graphics).
It achieved an overall score of 6736:
And individual results putting it in the 99th Percentile, against other PCs testing with the same benchmark, for CPU, 3D Graphics, Memory and Disk (though only 90th Percentile for 2D Graphics):
Overall I was very pleased with the core performance of The Beast, particularly its raw 3D performance which is the key to cryptocurrency mining.
This is not an easy letter for me to write. I have been a customer of yours for over 20 years. You were there with a loan for me when I bought my first car; you helped arrange the mortgage when I bought my first house, and you even helped me launch my first business. We have been through so much together.
And I’ll let you into a little secret?
You were my first! Don’t worry, I know I wasn’t yours. I think this is why this relationship means so much more to me than you.
You may not have noticed that our relationship has changed, you have been so busy since that big financial crisis that we are doing less together. I got my last loan from my supermarket as they had a better rate and my last mortgage from another bank. These days I am only using you to hold money for me and pay my bills.
We are like passing ships in the night and I am worried that if we don’t talk we might have to separate.
Recently I made this new friend called Bitcoin; a form of Cryptocurrency, I call her Crypto, you have probably heard of her. She is fresh and exciting, and I want you to get to know her too. I want you to make her part of our relationship.
I know I am neither a bank manager nor an economist and you have all these arguments for why Crypto will fail, but I am someone using Crypto in my daily life and I know that this is going to be an ever-increasing need for me, and I want us to share this experience.
I know you are scared, or maybe you just don’t understand it. Maybe you think Bitcoin is a Ponzi scheme and everyone buying it is only doing so to make a quick buck. Sure, some of us are, like some of us who bought shares during the Dot Com boom and lost money when it crashed. But look what happened after that, we got some of the most significant companies in the world: Amazon, Google and Facebook.
As Bitcoin and cryptocurrencies gain more and more media coverage, investors who have never been involved in crypto are increasingly asking the question of whether cryptocurrencies could provide meaningful portfolio diversification to the traditional portfolio asset allocation.
In order to answer this question one must look both backwards and forwards: backward looking to determine past correlations and risk-reward profile; and forward looking to understand the real risk of central bank policy mistakes and government debasement of fiat currencies.
Diversification of portfolio focuses on how the volatility of an underlying security plus their correlation with core market assets impacts a portfolio’s risk-return characteristics over the long-term or during periods of extreme macroeconomic or market stress.
The main reasons why Bitcoin provides portfolio diversification are: investability, politico- economic features, correlation of returns, and risk-reward profile.