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Rebuilding

Author's note: This article is part of an ongoing blog about my adventures in the world of alternate currencies.

I've mentioned before that I was one of many unfortunate people who lost money in CoinLenders because of the Inputs hack. There was even a point where the value of what I lost amounted to more than $4000 on paper.

As I was reflecting on that situation I realized that one of the things that saved me from losing even more was the mcxNOW public offering of the rest of the mcxFee shares. I got caught up in the excitement of being able to buy mcxFee shares for only 0.4 BTC (before the public offering they were trading at 0.85 BTC) and I withdrew funds from my CL account and purchased four additional mcxFee shares. Once the shares got put on the regular market the price dropped. Then RealSolid decided he needed a break from all the management involved in the site and that caused the value to plummet even further. Meanwhile the price of Bitcoin climbed up to $1000 and beyond.

The mcxFee share price eventually recovered to right around 0.2 BTC each and it was at that point that I sold all of mine. I woke up one morning and realized that there was no way these shares were worth $200 each. It's possible they might one day be worth that amount but right now they aren't. I took my 1.2 BTC in proceeds and bought hashing power on CEX.io and I have been far happier with the return ever since. The beautiful thing about CEX hashing power is that it too sells on an open exchange which means I can sell it back at pretty close to what I paid for it at any time. This gives me the chance to essentially have my cake and eat it too when it comes to mining. I can use my Bitcoins to mine for more Bitcoins until I need them for something else, in which case I sell off my hashing power and recover the Bitcoins. The one big risk of course is that the price of hashing power could crash. So far, though, my observation has been that the price is fairly stable with just enough fluctuation to keep the hashing power day traders very happy.

I also had to switch from mcxNOW to Vircurex for my DVC/BTC trading needs. In doing so I learned an important lesson: when it comes to trading, size matters. In this case, size refers to trading volume. I noticed that for a while the price of Devcoin was fluctuating by around 20 sat on any given day. I started selling my DVC high and then buying them back low, then using half the profits to buy more. I went through a few cycles before the price of DVC shot up to the moon and I ended up with having sold off way too many at way too low a price. But I cashed out nearly $100 in about a day and a half and started to think I was becoming rather good at this day trading game.

I had tried to play around with day trading while mcxNOW still traded in Devcoins and those efforts went nowhere because there simply wasn't enough volume to support it. Vircurex, on the other hand, has the volume, and that makes day trading possible. After Devcoin's major run up from around 20 sat apiece to a nice fluctuation between 120 and 150 sat each I'm considering taking up that game again, but this time I'll stick with smaller amounts. The major appeal of mcxNOW for me was the fact that balances in my account accrued “interest” based on how much that currency had generated in fees in the previous six hours. I hated the thought of funds sitting idle in my account doing nothing, and that little bit of return helped me to be patient with my high sell orders.

Vircurex now offers a similar “interest” on just a few of its currencies–BTC, LTC, and PPC. It would be awesome if it added DVC to that list, but at least any idle Bitcoin sitting on my balance is accruing some miniscule rate of return. I'm not as excited about the interest this time around, but it's interesting to see that Vircurex is clearly attempting to compete with mcxNOW. They really don't need to–mcxNOW simply does not have the necessary volume, and RealSolid's recent decision to temporarily shut it down is going to set his volume back considerably for months–but I'm not going to argue. And I'm also going to be a more faithful customer. There are just some things that can't be transferred over to the next flashy new exchange, and volume which is the result of many people trusting an exchange that consistently delivers is one of them.

For the record I do not believe RealSolid is a scammer as some people on the Bitcoin Forum have accused (actually, on the Bitcoin Forum everybody gets their fifteen minutes of being called a scammer, but that's a different story). A scammer would have completely closed down the site and disappeared with all the funds held inside it. RealSolid bought back mcxFee shares after he announced his decision to temporarily close down the site–for a much lower price, but he didn't have to buy them back at all–and he's kept the site partially operational and has stuck around on the chat. I do believe he sincerely intends to build the best trading platform around. Having said that I believe shutting it down temporarily was a bad decision from the public relations standpoint, and it's going to cause people to be extra reluctant to jump on board with his new site no matter how well it works. Bottom line, he's not going to get the trading volume that will be necessary for people like me to make any sort of money on trading. For that reason I no longer see mcxNOW as a good investment. But again, I also do not see any foul play in this case and I think it's important to be clear on that point.

So I've moved from mcxNOW to Vircurex for my trading activities and I'm very happy with the outcome. I've also had to make some other changes, the big one being finding another platform where I could invest my Bitcoins by lending them out, which is what I believed I was doing on CoinLenders. As with mcxNOW I'm going to maintain that I was not willfully scammed by the operator of CoinLenders. I believe TradeFortress' story that his sites were hacked and Bitcoins were stolen from him and by extension his customers. But regardless, they're gone and that's been a substantial loss from which to recover.

I decided to give BTCjam some serious consideration. BTCjam differs from CoinLenders in that the user makes decisions about which loans to fund based on the profile of the borrower. Just like with eBay you look at each borrower's feedback score as well as their grade on the site itself. The grade is based on the extent to which the borrower is willing to subject himself to verification. The feedback is based on their lenders' experience with that borrower.

It took me a bit of trial and error to figure it out, but it's actually pretty simple. Stick with investing in the Grade A or better borrowers with good feedback scores and you can earn a good return on your investments. The Grade A borrowers with good feedback have a reputation to uphold and so are highly motivated to make good on it. The returns may not be as high as with the more risky borrowers but they've earned it by providing low risk investments and they're still pretty darned good returns.

I happened to pick up a writing gig which paid in Bitcoins and I invested most of my earnings into various loans on BTCjam and I have to say I'm doing quite well so far. Some of the loans are short term and will be paid back with interest within a month. Others are more long term, like six months. So far my favorite borrower is CintronDigital. His loans tend to be short term with weekly payments. I also like the fact that he uses the proceeds from his loans for day trading on CEX, something I recognize as lucrative but which I don't have enough interest in doing myself to pursue. Funding CintronDigital's loans allows me to get a piece of the profits.

Loans on BTCjam are open to all users to fund, and a loan will become effective if at least 70 percent of it is funded. If a loan doesn't fund within its allotted time the funds will simply return to the investors with no interest. You learn quickly the value of not tying up your money for two weeks into a loan which ends up not funding. The borrower makes payments to pay back the loan, and the website divides up the payment among all the investors. There is no amount too small to invest, which means that a Bitcoin newbie can begin on BTCjam by investing faucet earnings!

When I was still invested in CoinLenders, one of the burning questions I had was how in the world a site like that could offer an annual rate of return of 22 percent. Then shortly after the Inputs hack I decided to finally check out CEX and try my hand at cloud mining. Register an account, drop between 0.14 and 0.21 BTC into buying 2-3 GHS hashing power, then wait a few days and you'll know the answer. You will not find a better return on investment anywhere. That return is sweetened even more with the knowledge that you can pull out of that investment at just about any time.

I have to laugh when I consider how I once thought that mcxFee shares paying out miniscule amounts of BTC every six hours was something to get excited about. Cloud mining pays out dividends (really, mining block rewards) several times an hour on average. Back when I only owned a few GHS, having spent less than a third of a Bitcoin to get them, the mining rewards I got outpaced the daily “interest” payments I was getting on CoinLenders by orders of magnitude, and with far less invested.

The reason Bitcoin lending has to yield such a high rate of return is that it has to compete favorably with mining, and this is especially true since CEX came on the scene. Before CEX people could mine, if they bought the right hardware, if they properly installed the correct software, if they joined the right pool, and if they kept everything maintained. With CEX, which stands for Commodity Exchange, all that set up and maintenance is taken care of for you. You just buy the hashing power and it instantly goes to work mining for you. I understand you pay a higher price for that power, but it's a price I'm happy to pay because it makes mining accessible to me, a non miner.

When Devcoin had its most recent run up, leaving me holding a couple Bitcoins from having sold a bunch of DVC off just before things took off, I decided that rather than let those Bitcoins sit on the exchange collecting dust (and tiny amounts of “interest”) I would put them into mining. When I sold off my mcxFee shares I decided to put those proceeds into mining. When I sold another million Devcoins at a nice high price, those Bitcoins also went into mining. I now am the proud owner of over 79 GHS which produces 0.04 BTC every day. I withdraw half of that to either cash out or invest elsewhere, and I put the other half back into mining as I know difficulty levels will rise. I have the same amount of BTC invested in mining as I used to have in CoinLenders, and the return is astronomically higher.

There actually really isn't much of a way for a Bitcoin borrower to compete with mining on return. Even with recent difficulty increases, mining is still going to yield the highest rate of return. The reason I invest in lending is for diversification. I do not wish to keep all my Bitcoin eggs in one basket.

As a matter of full disclosure I do need to mention that if you were to do a search for CEX on Google you'd come up with a few “reviews” by people convinced that CEX is a scam or another CoinLenders debacle waiting to happen. From what I can gather, most of the complaints are focused around a social engineering hack of one user's account which cost that user $7000. The user was eventually refunded that money when CEX determined the hack was their fault. Overall security measures were beefed up as a result of that experience.

One thing I have noticed is that no matter what the enterprise is, there's always going to be some self-appointed watchdog type or disgruntled former customer ready to spread the word about exactly how the enterprise offended them and is therefore a scam. An entire post could be written about how to distinguish between a scam and a simple bad investment and an unfortunate situation where a mistake was made or a theft occurred and when someone is just mad and spouting unfounded accusations. Lumping all those situations into the category of scam just because someone happened to lose money actually does a disservice to everyone because it makes it that much more difficult for someone to sort out the genuine scams from people crying wolf. As I mentioned before, eventually we will all have our fifteen minutes of being a scammer on the Bitcoin Forum (and wherever else on the Internet those accusations leak out).

Despite having lost a substantial amount of Bitcoin in CoinLenders and having sold mcxFee shares at a loss in terms of Bitcoin, I'm actually doing far better than I would have ever imagined nine months ago when I first discovered Bitcoin. The recent high Bitcoin and Devcoin prices have certainly helped with that. Rebuilding did not take very long at all.

Devtome writers


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