DEVTOME.COM HOSTING COSTS HAVE BEGUN TO EXCEED 115$ MONTHLY. THE ADMINISTRATION IS NO LONGER ABLE TO HANDLE THE COST WITHOUT ASSISTANCE DUE TO THE RISING COST. THIS HAS BEEN OCCURRING FOR ALMOST A YEAR, BUT WE HAVE BEEN HANDLING IT FROM OUR OWN POCKETS. HOWEVER, WITH LITERALLY NO DONATIONS FOR THE PAST 2+ YEARS IT HAS DEPLETED THE BUDGET IN SHORT ORDER WITH THE INCREASE IN ACTIVITY ON THE SITE IN THE PAST 6 MONTHS. OUR CPU USAGE HAS BECOME TOO HIGH TO REMAIN ON A REASONABLE COSTING PLAN THAT WE COULD MAINTAIN. IF YOU WOULD LIKE TO SUPPORT THE DEVTOME PROJECT AND KEEP THE SITE UP/ALIVE PLEASE DONATE (EVEN IF ITS A SATOSHI) TO OUR DEVCOIN 1M4PCuMXvpWX6LHPkBEf3LJ2z1boZv4EQa OR OUR BTC WALLET 16eqEcqfw4zHUh2znvMcmRzGVwCn7CJLxR TO ALLOW US TO AFFORD THE HOSTING.

THE DEVCOIN AND DEVTOME PROJECTS ARE BOTH VERY IMPORTANT TO THE COMMUNITY. PLEASE CONTRIBUTE TO ITS FURTHER SUCCESS FOR ANOTHER 5 OR MORE YEARS!

Crypto investing 2 - the tale of two sites

Disclaimer: I am not a financial adviser. While I do have some formal training in the subject, most of my experience is personal and all of the information below is personal opinion and not suitable to be acted on. I will not be held liable if you do anything that makes you lose money after reading my posts. Do your own diligence and do not rely on advice from anonymous online pundits. In the interest of full disclosure, the author is holding bitcoins.

In my last article I wrote about my adventures with Crypstocks.com, the ups and downs and the conclusion that all that glitters is not gold, though there are diamonds in the mud if you’re willing to go look for them.

In this next installment of the investing series, we’ll look at another angle, which is investing in mining operations by buying hashes or multiples thereof.

In this regard, there are two places that seem to have caught traction as of late, and I will be reviewing them both. One sells “hashes” in bitcoin mining, it is backed by a very large mining operation and is well known as GHash.io, and the other sells scrypt mining hashes, is less known though people have mentioned it on both forums and devtome alike and it is called Scrypt.cc.

Buy a fraction of a fraction of a virtual thing

One of the good things about bitcoin and crypto currency is that, being digital, it’s easy to split into manageable pieces. One bitcoin can be split down to the 8th decimal place, and that means you can buy very small pieces of likewise digital stuff. This comes in handy when a financially sound (read - not worthless) mining rig can go for thousands of dollars these days and has hundreds of gigahashes - most mining rigs are out of reach of regular people. Even a dedicated video card is hundreds of dollars - and doesn’t do that much nowadays.

This is where businesses like GHash.io come in. The principle is sound: they buy the equipment and sell the mining power by the gigahash, a level of granularity that is impossible to attain buy buying physical hardware yourself. This way, one can buy as much - or as little! - as one desires. This also makes trading in said gigahashes easier - you can buy and sell mining power from the comfort of your couch and also dispose of it as quickly as it was acquired. No more fumbling with packages and scouring the web for deals on high end graphics cards; no more anxiety over the unfulfilled orders for specialized miners from Asia. Buy, sell, use. All in the cloud, all the time. An utopia, right?

Virtual Bitcoin Mining

Unfortunately, while the idea is great, the devil is in the implementation, if I may paraphrase. Cex.io (the subsidiary of GHash.io that deals with Gigahash trading) has all of the above and more. A very well polished website, clear menus, FAQs and graphs, current live prices and a responsive interface whether selling or buying said gigahashes. There is also a neat section that shows your gigahashes working for you, and generating revenue as soon as a block is found. This is all great, and indeed the site is worthy of the prizes and certifications it has received, not to say that I’ve never had a problem with it transaction-wise. All my bitcoin was deposited and withdrawn with no hiccups.

Where is the problem then? Well, part of it is with the business model, part of it with the nature of people who decide to invest in such things. I will get to these problems in turn.

As part of the “cloud mining” endeavor, Cex.io charges a small fee for each Gigahash for maintenance, which is natural and expected. However, if you do the math you find that the “small commision” 1) is actually quite steep. As of right now, 1 GHS maintenance fee is $0.105 per month. Not that much, right? Just 10 cents / month / gigahash. However, the actual profit from one gigahash, at current difficulty, is $0.1469 per month, and that is if the difficulty stays the same throughout the month (hint: it won’t). Now, I’d love for somebody to tell that I’m wrong, because so far it seems that I only get about 32% of my gigahash’s revenue - the other 68% goes to the business, as maintenance fees.

Don’t get me wrong, power and hosting in a bona fide data center cost money, and I agree with that. There is also the risk of hardware malfunctions, the overhead of configuring and operating said mining equipment and managing all the stress of having live equipment in some datacenters somewhere, which I know from personal experience is no walk in the park, what with different vendors, datacenter rules, equipment delivery and installation schedules and so on and so forth. This also means that from cex.io’s point of view, the price is fair - you are offloading all the risks involved in the mining operation to them and you need to pay for it. You need not worry about hardware failure, about backups, redundancy, disaster recovery, about cooling and power, about hosting bills and buying extra equipment or selling worn out rigs for parts - you are just renting and a premium is in order. I did not expect to get 100% of my gigahashes’ revenue, but let’s be honest: 30% seems rather slim even if I don’t manage all that risk and operation overhead.

This probably explains the second problem as well - speculation. A lot of people buy the gigahashes not as an investment but to speculate. They wait for a bump in price - or just to break even - and sell. Since they broke close to even on the GHS price, any revenue from mining is net profit, which is great, except they are subjecting themselves to the market risk. This game of hot potato is also detrimental to the market overall - since nobody has faith in the underlying security, price won’t follow any sort of rule which makes any attempt at investing really difficult.

There is one other thing worth mentioning: there is no historical chart (that I could find) for BTC/GHS on CEX.IO going more than one month back. This might be an oversight or something more nefarious, but either way should not matter that much as past performance is in no way indicative of future performance, and people should keep tabs on their investment themselves anyway.

Case study

As an example, let’s see how the GHS has fared in the few months I’ve been watching. At the end of May 2014, one GHS was 0.00748 BTC. At the end of September, one GHS was 0.0021 BTC. That there should be a decrease is natural - the difficulty has increased a lot since May. Let’s see how much the mining power has decreased though. At the end of May, 1 GHS could net 0.00146400 BTC per month (should the difficulty stay the same). At the end of September, 1 GHS brings about 0.00044162 BTC per month (same condition).

This means that the GHS mining power has decreased by 60%, on par with the price. Say we bought 1 GHS at the end of May for 0.00748. That GHS mined 0.0035423 BTC by October 8th 2). Right now it is worth 0.0021 BTC, which means the value of that GHS is now 0.0056423 BTC (past revenue + current price). This means a 75% return on investment so far, in just 4 months. Not too shabby!

But wait. Of that revenue at least 50% is taken by CEX.IO per their maintenance fee (it is actually 60% now, but it used to be closer to 45% at the end of May, so let’s go with a value in between). This means that past revenue is only 0.00177115 BTC, which makes 1 GHS = 0.00387115 BTC now, for a 51% return on investment. Good enough! If the trend continues, the investment should be 100% returned in another 4 months, which means that any revenue after that is net profit!

This is of course depending on overall network hashpower, which translates to difficulty. The last few months have been quite tame, as difficulty has only grown by 13% on average every period, but even if difficulty goes up by 20% each period, the investment should be in the black in about a year.

Scrypt virtual mining

Another endeavor into the virtual mining business is the Scrypt.CC website. The idea is the same as with CEX.IO - buy kilohashes, stay back and receive the income. The website isn’t as polished, and seems sketchy, but my experience with it has been positive so far. There is no big mining operation behind the business as far as I can tell, though, so buyer beware - as with anything online it could be a scam. They also do not charge as big a maintenance fee as CEX do.

The website has the same problem with the historical charts - they are missing entirely. However, another case study is in order, as I retained the transaction details from my early forays into virtual mining.

Case study

Say we want to invest a few satoshi into a kilohash of scrypt mining power at the end of June 2014. At that time, 1 kHS was 0.00038961 BTC, and it used to bring 0.00002323 BTC per month. Now, that same kilohash is worth 0.0000678 BTC and is bringing in 0.000006553 BTC per month. This translates to a 82% decrease in kHS price and a 71% decrease in mining power - which makes the kHS undervalued as of now. That same kHS has mined for us about 0.00006262 BTC so far, and its current value (past profit + current market value) is 0.00006262 + 0.000006553 = 0.000069173 BTC which means we have only made 17% back on our investment. Extrapolating (which is dangerous, but let’s do that for kicks anyway) it means that we’ll see a profit on our investment come summer 2016. By that time 1 kHS will probably net about 30 satoshi in mining revenue, making it economically unfeasible to keep running. This result is really dismal though it could be improved if the investment had been made on a good day when the kHS is undervalued, like it is today - but this is iffy, and if enough money are not available to spread around and mitigate the risk of being caught on an upward slope, the investment will most likely fail.

Conclusion

Virtual mining is a thing. It exists, there are businesses out there that make this thing available, though from the two reviewed here only CEX.IO is likely to be more than just a side project for someone and still be around in a year. It would seem that bitcoin virtual mining is reliable enough for now to be feasible - a few bucks thrown into a couple hundred gigahashes might actually turn a profit in 8-12 months, which is a lot of time in the crypto world. However, the main advantages of having absolutely zero worries about mining equipment maintenance and operation prove to be really appealing to a lot of people. The maintenance fees might be a little lower though.


Investing | Cryptocurrency


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