Is this for real? And if it is, why aren\’t we all doing it?

So, about four weeks ago I took my £4,000 profit, added another £11,000 from my savings and set about buying and building Bitcoin and Litecoin mining hardware in my spare time. For Bitcoins, I invested in pre-orders of new, specialised mining hardware called ASICs. For Litecoin mining rigs, I bought lots of Graphics cards and built computers out of them in plastic crates. I also regarded this as a home R&D project for my main business, Memset. We\’re a hosting/data centres company and I\’ve been keen for us to experiment with GPU-based cloud computing so I was reassured that even if it came to nothing, I could likely find a use for what I learned.

Along my journey I had discovered that there were virtual securities exchanges games where one could float a virtual stock or bond quoted in crypto-currencies, and this too intrigued me. I decided I was going to need some help, so rounded up a few more techies, two of whom I\’d met on the bitcoin forums and another two who are work colleagues. They all agreed to help me out in their spare time in exchange for shares in my planned virtual company. Next, while on a scuba holiday between dives, I made a business model and plan for our new company, \”CipherMine\”. After crunching the numbers, my model was forecasting that with an extra £25,000 investment, we could be making £20,000-£30,000 per month profit from mining by the end of the year. It looked like we had a virtual business with potential.

By this point, I had also come to believe that Litecoins had greater potential for growth than Bitcoins, so I eschewed the Bitcoin exchanges and instead submitted CipherMine for flotation on Litecoin Global. We made our initial public offering on Monday last week. I think I probably got the IPO price a bit wrong since the 20,000 shares I listed sold out in a matter of hours. We raised a total of 15,667 Litecoins in exchange for 20% of CipherMine\’s shares; about £27,700 at current prices. We are in the process of investing that money into more mining hardware, but in the meantime, our share price has continued to rise. As I write this, under a week later, the shares are being actively traded at about 1.6 Litecoins each; double the IPO value.

What? There are virtual stock markets out there that can be played for real money? You mean you can float a company with no, I repeat no, oversight from the FSA, Stock Exchange or anything like that?

Jesus Mary and Joseph.

So, who\’s in with me then? Might need to have some techies aboard if we\’re to go mining. But Jeebus: a bit of a business plan and you can float and trade? Surprisingly I would insist that any such adventures were in fact honest. But this is such a way to make hay!

28 thoughts on “Is this for real? And if it is, why aren\’t we all doing it?”

  1. “There are virtual stock markets out there that can be played for real money? ”

    Apparently so.

    The American poet Marianne Moore once wrote of “imaginary gardens with real toads in them.” Little did she suspect . . .

  2. Why not just set up the Timcoin. Limited worldwide edition of a few million, award yourself a few thousand a year. Provides some competition for Bitcoin.

    In fact, why don’t we all do it 😉

  3. I don’t understand how mining for virtual coins works. I assumed they were issued by the concept owners so that they got the seigniorage .

  4. Pardon my ignorance, but what is being produced that results in the profit? What is being “mined” exactly?

    Yes, I’m too lazy to Google, Bing or Yahoo.

  5. if there is a virtual currency with real purchasing power, and the controllers of this currency allow you to obtain more of it by doing something they call mining and you can build a machine that does this mining for you. …. then this all makes perfect sense as far as it goes … which is until the virtual currency loses its real purchasing power because people have set up businesses mining it.

  6. Ian B, the best explanation I’ve seen is this:

    “Understanding how bitcoins are brought into being requires understanding the network behind the currency. Briefly, the entire record of every Bitcoin transaction ever made stretching back to the currency’s beginning is public. This is called the block chain. Bitcoin mining involves confirming those transactions by collecting several of them together into a group called a block and running specific cryptographic functions on it. The chain concept comes into play because every time a bitcoin is “spent,” the spender appends a hash to the bitcoin derived from his or her own cryptographic private key, the previous transaction’s hash, and the recipient’s cryptographic public key. As each bit of data added to Bitcoin’s history of transactions is cryptographically derived from previous data, altering earlier data would invalidate the entire chain.

    “When a collected block of transactions is confirmed by a Bitcoin miner—that is, when the SHA-256 hashing that the miners are doing on a transaction results in a very specific value that starts with a number of zeros—the block is said to have been “mined.” The winning miner is allowed to reward itself with some number of bitcoins. That number is currently 25, and it decreases by 50 percent in intervals over time.”

    http://arstechnica.com/gadgets/2013/06/how-a-total-n00b-mined-700-in-bitcoins/2/

  7. Luis,

    which is until the virtual currency loses its real purchasing power because people have set up businesses mining it.

    From what I understand, it was the early days when people were making lots of real money by mining Bitcoins. It’s slower now as more people have joined in. So other virtual currencies have been started.

    There are companies selling machines designed specifically to mining a currency. Someone likened them to the people who used to supply the rubes with flour at $100 a bag during the gold rush.

  8. A couple of points about BTC.

    Nobody owns it, or controls it. There is no Central Bank of Bitcoin, or a BitCoin Inc (though there are swarms of enterprises that use the name – don’t let that confuse you). Gubmint-statists are typically at first incredulous and then horrified at this.

    It runs on peer-to-peer, like BitTorrent, with deeeeep backup. Combined with the no-head-to-cut-off property, this makes it immune to government. It can’t be shut down without shutting the internet down. The only weak link is the fiat-BTC interface – the banks and exchanges, which the BigG can go after (they’ve already started). There are lots of ways round this.

    It’s not a “seignorage” scheme. Some early adopters, including the original inventor / developers, have made a killing, but it wasn’t via getting paid for issuing currency.

    The money-supply is algorithmicly regulated. NOBODY can change that. No inflation.

    It’s modelled to be a lot like gold, including the “mining” economics. Right now all the easy pickings – the panning the rivers, Klondike style – are gone. Now the deeper veins are harder and more expensive to mine (Kalgoorlie, perhaps), and you need capital and partnerships (ASICS mining, its called) to make money at it. 10 years from now, it’ll be like the Witwatersrand – big investment, big organisation to get it out from 11 000 feet.

    As usual with gold rushes, the shovels-and-supplies merchants will do well.

    A good palce to start and get a flavour is the Bitcoin sub-reddit.

    For myself (and I’m dead serious here), I’m working on software to set up a Bitcoin Bank. Anybody want in?

  9. The Meissen Bison

    Well good luck but don’t be lulled into believing that your digital utopia won’t have some virtual Murphys to horse the whole thing up.

  10. You missed the boat on bitcoins if you’re not in it already and have amassed or bought some. That’s the majority of us. There can never be more than 21 million bitcoins in circulation, and the number of bitcoins that can be mined periodically is fixed. Therefore your mining power will only ever amount to an ever-diminishing fraction of a bitcoin’s worth, until all the bitcoins are eventually mined. Exchanging tangibles or real services or currency for bitcoins is something I would avoid at this time. Bitcoins don’t appear to be a final solution – more like a test run for a new digital currency. I personally would hold out until the real deal comes along.

  11. Thanks for all the links everyone.

    I’m still not clear though whether this is a currency in the sense that one can buy goods and services with it. Everything seems to be about making money out of the currency, sort of fully private sector banksterism. Which is nice, but what I want to know is, can I sell shit for bitcoin?

    All I can tell so far is that the value of a coin in other currencies seems to fluctuate wildly, which would make selling tee shirts or teabags difficult, if you’ve no idea what the coinage is worth.

  12. A few things the bitcoiners generally fail to mention;

    1) The whole scene is absolutely rampant with scammers and thievery, mainly focused around the various cargo-cult ‘Trusts’ and ‘Mutals’ and flat-out ponzis that have relieved dimwits of millions.

    2) The value is hilariously unstable, drops of 20% in a day isn’t unheard of and it’s completely crashed several times now.

    3) You can’t spend them on anything. Seriously, go and try and buy something with BTC. It’s a fantastically convoluted process (a transaction can take 10mins+ to complete).

    The whole things being propped up by speculators and the Silk Road (the internets favourite site to buy over-priced hard drugs). Truly the currency of the future!

  13. If you read that Geek.com link I posted, I think I may have inadvertently stumbled on a use for one of those bloody windmills.

  14. This was all news to me and after a bit of reading round I have concluded that the foundation of bitcoin is basically that it can be used to buy charlie and nonce porn online,

    Way to go crypto-anarchists!

  15. “When a collected block of transactions is confirmed by a Bitcoin miner … winning miner is allowed to reward itself with some number of bitcoins. That number is currently 25, and it decreases by 50 percent in intervals over time.”

    and “there is no seigniorage”

    so where does the miner’s reward come from?

  16. In order to do the calculations needed to mine Bitcoins, you need a vast amount of computing power. So you need a big fuck-off computer with loads of graphics cards. (not sure what GPUs do that CPUs don’t)

    It turns out, though, that only AMD GPUs can do it very well at all. And you need like a hundred of them. Could Bitcoin just be a ploy by AMD to make money out of stupid people?

  17. Ian B: It’s a pity. We really need something like this we can use at Sainsburys online etc.

    Things are moving fast in this area. The hope is that one of the big online names (Amazon, PayPal) will start accepting it shortly. Once that happens, bricks-and-mortar names will step up.

    Oxonymous: (not sure what GPUs do that CPUs don’t)

    Pure hell-for-leather simple data-processing for graphics

    Ox: only AMD GPUs
    Nope. Even GPU-powered mining is no longer economic. ASICS (application-specific integrated circuits) are all there is, and a number of nimble startups are currently doing good business in a brisk arms-race.

  18. I don’t see how it can be used as a general currency if the value is very volatile.

    I’m also a bit baffled as to why it has a capacity for “mining” in it at all.

    An interesting point is this; normally the character of a currency is universality; to use the cliche of gold, everyone would take it because everyone knows that everyone else will take it, because it has high intrinsic value as a commodity. National currencies, even fiats, have a similar universality because (a) legal tender laws (b) “grandfathering” and (c) everyone just thinks “the money” is a bit of paper with Mrs Queen on it.

    So the problem with bitcoin is that hardly anyone takes it. So, if more people start taking it, the value per coin has to keep rising to accomodate the masively expanding bitcoin economy.So you’ve got a hyper-deflationary scenario in which it only makes sense to hoard, rather than spend.

    Or something. My head is now spinning.

  19. Ian B: So the problem with bitcoin is that hardly anyone takes it.

    Stick around. That’s already changing fast.

    Ian B: a hyper-deflationary scenario in which it only makes sense to hoard, rather than spend.

    Yep – this point has been widely discussed. It’s the one reservation I have about BTC. Don’t know how it will pan out.

  20. Thon,

    I’m not trying to knock it. I’m trying to understand it and, as a Libertarian (who is thus fascinated to a pub bore level with alternative currency arrangements) am interested in how it will pan out.

  21. The interesting point being that if it isn’t destroyed in a deflationary cataclysm, it’ll basically destroy the entire argument for the activist central banking of the past century.

  22. Ian B: destroy the entire argument for the activist central banking of the past century.

    Yup. Get popcorn

  23. I’m a reasonably intelligent person and have spent quite a few hours looking into bitcoin. I still don’t know how to buy it, store it and sell it without some hacker stealing everything. This renders it useless to all but the most competent techies

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