This picture was taken the day that my Antminer S9 shipped in mid-December 2017... it was a very happy day!
Welcome back Cryptocurrency and Blockchain Enthusiasts!
It's been a couple months since my first introductory post. I've been learning so much in the process, expanding my mining farm, joining as well as leaving several facebook groups and discord channels related to mining and cryptocurrency, and attending numerous blockchain and mining related events. I got spread too thin and haven't posted on Steemit for a couple months. I want to keep this post short but there's just so much to cover! The crypto rabbit hole led much further down than I expected. I've had expectations humbled, and met many blind optimists, cynics and skeptics as well as fake million dollar mining investors in this short time frame. Follow me on Steemit if mining cryptocurrency is an interest of yours, as well as reading about what I'm learning from going to these crypto and blockchain technology meet-ups and conferences in the Bay Area. As the title states, the focus of this post will be to share my own story with you on how I went from owning zero to $20,000+ in just 2 months.
My background
I had no prior mining experience or interaction with cryptocurrencies besides buying Bitcoin through Coinbase. I first learned about Bitcoin in 2014 when the price was only in the $600's. The reason that I wanted Bitcoin was to make a deposit into an online poker site. US regulation had blocked all American banking and financial institutions from depositing into these off shore poker sites, so the only way for an American to play was to send Bitcoin. I did buy-in early, but I didn't buy very much and to be honest I lost most of it playing poker and quit shortly thereafter. I had about a tenth of a Bitcoin (worth about $60 at that time) and forgot about poker and Coinbase until Fall of 2017.
This was my first ever purchase of Bitcoin from my Coinbase history.
The Buzz about cryptocurrency takes off 3rd and 4th quarter of 2017
In summer of 2017, I noticed many friends talking about cryptocurrencies in my daily Facebook feed, and they sounded incredibly excited and bullish on the price of Bitcoin which was around $4000 at the time. I didn't understand what the hype was about since my mind had long ago put it into the category of illicit things that you should not do like buying drugs, firearms, or gambling on the dark web. Week after week there was more buzz about cryptocurrencies, so I decided to reactivate my Coinbase account.
This was a headache to figure out since I had to reinstall the two factor authentication and reset the password to reclaim my account. To my surprise, I found that tenth of a bitcoin there and the price had appreciated to over $1,000! Bitcoin just did its spectacular run up to over $10,000 the week before. I was excited and started researching what cryptocurrency was really about. I learned that cryptocurrency is just an application of blockchain technology, and there are many potential uses of it where it can add incredible value to our world and disrupt traditional business models with its decentralized network of a distributed ledger.
What is blockchain besides the hype?
The basis of blockchain is a database of records that cannot be altered, and every computer on the network has an identical copy of that record. Being decentralized and distributed, there is no single point of failure and to corrupt the information, you would have to hack the entire network which would be costly and difficult. Our current system is very centralized, where data compiled into one data center and vulnerable to hacking. In the past year, several large companies have been hacked from Equifax credit rating, and medical data from hospitals. In the blockchain system, each piece of data is protected with encryption with a unique private key so one hack will not result in hundreds or thousands of losses.
A couple innovative blockchain ideas that I personally feel have enormous potential is using blockchain to prove land ownership and credit worthiness, because in many developing countries, they lack the institutions and markets to provide these services. Land ownership and credit are the building blocks of every economy, and can unlock enormous potential in entrepreneurs. Blockchain would provide transparency, prevent fraud, and eliminate corruption in such applications. Bloom (BLT) recently launched their pilot platform https://bloom.co/ for credit history, credit rating, and ID verification on the Ethereum blockchain. I invested in this ICO before it launched last December.
Why mine and not buy Bitcoin directly?
The main benefit of mining is two fold. You own a valuable physical asset that can be sold off, and you are earning a perpetual, passive income stream. If you buy Bitcoin once, you are taking a long position and just praying that it goes up. When you are paid as a miner, your cost is just electricity and you can sell your coins daily or weekly at a profit.
However, is not a completely passive system, since you do need to monitor it daily and take care of it. Also, there is alot of technical information you have to understand in calculating your safe electrical load, building the hardware, and installing the mining software to your pool and wallet. Having a passion for technology, an open mind, and willingness to reach out for help while fumbling through the process is important.
I had a couple friends write to me about my opinions on investing in Bitcoin, but one of them warned me it was overvalued. He had invested in stocks for a couple decades, and did pretty well for himself. He understood how the financial markets moves in booms and busts and the importance of timing, so it is crucial that you buy financial assets when their price is on the way down, not on the way up. He wrote to me when Bitcoin was hovering around $8,000 and 4 weeks later the price had skyrocketed to $16,000.
Still he told me that he didn't put a dollar into a crypto because he didn't yet understand what he was investing in and felt it was overvalued. I heeded his advice and looked for a better way to invest in Bitcoin, so this led me into exploring mining.
What exactly is mining and why are you getting paid?
I usually compare getting paid for mining as serving like a credit card processor for the Bitcoin network. Every 10 minutes all the transactions on the Bitcoin network get batched together and updated onto the blockchain, and this update is mining the block. We validate transactions in a system known as "proof of work." If my pool finds the block first, we win the block reward of 12.5 Bitcoin which is split amongst all the miners. We get paid proportional to the amount of computing power that we contribute in our pool. More hardware, more hash power, more payments.
If you would like to better understand technically what mining a block is and how blockchain functions, I highly recommend you subscribe to the channel Ivan on Tech https://www.youtube.com/user/LiljeqvistIvan and enroll in his online course titled "Blockchain Deep Fundamentals." I'm currently a 3rd of the way through the course and have learned an incredible amount of information.
Calculating mining profitability
You can quickly calculate your mining profitability by looking up your hardware model, the hash rate and electrical consumption, and plugging those numbers into mining profitability calculator like https://www.coinwarz.com/calculators or https://www.cryptocompare.com/mining/calculator/
When I decided to pull the trigger on the Antminer S9 purchase, the mining calculator showed that 13.5 TH and 1300 watts would produce about $1000 of income and cost about $150 of electricity, with Bitcoin at $16,000 and electricity costing 12 cents per kwh. Here is the video I recorded the day that I setup the Antminer S9 on December 19, 2017.
Why everyone should test mining
Mining is a great way to learn about how the crypto ecosystem works because you will be incentivized to learn about the different wallet choices, mining pools, proof of work (POW) coins, and speculation on new coins that are mineable. I recommend anyone interested in cryptocurrency or blockchain technology to buy just one GPU and start learning about mining today, because POW is the backbone of this entire system.
I was FOMO'ing pretty hard at that point but instead of buying Bitcoin at $16,000, I directed my emotions into learning about how mining works. You are only paying electricity for cryptocurrency which sounded like a bargain, so I was ready to jump in. I learned about the difference between ASIC and GPU mining and decided to do a little bit of each. I ordered an Antminer S9 from Ebay for $5400 and two Zotac GTX 1070 TI GPU's from Newegg for about $550 each.
I hooked up one of the Zotac 1070 TI to an old Dell Desktop office computer, and started mining on NiceHash which paid me $5 daily in Bitcoin. The second GPU I installed in a custom gaming pc that I built back in 2012 for playing Starcraft 2 and Diablo 2. It was mining about $5 a day of Zcash. In just a week's time, I learned how to use different wallets to deposit my mining earnings, how to connect my mining hardware to a mining pool, and how to estimate my electrical costs. I have repaired and built computers for over 10 years and always had a fascination for technology, so I learned very quickly and felt ready to expand.
Financial goals from mining
The most valuable lesson that I've learned so far from venturing into mining is the importance of savings and investment, and setting a goal to keep you focused and financially disciplined. It is just too easy to blow money on frivolous expenses or trying to help friends. It is incredible how setting a financial goal completely changes your mindset, and gives you motivation to stay focused on your target.
Personally, I am content with treating mining as a way to save and invest. I think it would be great if I could earn enough passive income to cover my basic living expenses, so that I could explore any new interest, study coding more in depth, or work any job that I am passionate about, regardless of how much it paid.
Planning to scale up
I paid for 75% of my hardware with cash and savings, but I did plan to finance one of my rigs (about $5000) on credit by using the mining payouts to pay itself off. I calculated the ROI would be about 5 months per GPU with Bitcoin at $16,000, so I signed up for several credit cards that offered 12 month zero interest. Let me pause here and emphasize that I DO NOT RECOMMEND anyone open up credit cards and maxing them out on hardware. The market is too volatile to leverage 100% on credit, and you will take a credit score hit if you exceed 30% credit utilization. This could hurt other more important aspects of your life like if you plan on taking out a mortgage for a home or financing a car.
I took a calculated business risk to leverage my credit because in addition to my mining payouts, I have steady income from my job at Amazon, I had at least $5,000 in savings, and I could call upon my family for a financial bailout if things went really bad. If you don't have at least 2/3 of these things backing you up, don't risk it.
Building 4 Rigs in 2 Months: Where are the GPU's?
This is a quick cell phone video I made after GPU mining for only 1 month:
The most difficult part of the build process was finding enough GPU's at a reasonable price. I would spend a couple hours everyday checking Amazon and Newegg websites. I also visited every BestBuy, Fry's Electronics, and Central Computer in the Bay Area. It was fun at first, since I felt like I was on a scavenger hunt, but it got frustrating quickly since GPU's were quickly sold out at retail everywhere by the middle of January 2018.
Retailers like Fry's Electronics and Central Computers started raising their prices by as much as $200-300 in February. GTX 1070 TI's used to be sold at the MSRP of $500-550 each in the first week of January, and these prices were raised to $700-$750 by February. I read that AMD Cards like the RX 570 and 580 used to retail for about $250-300 in the summer of 2017, but AMD card demand had surged and raised the MSRP price to over $400 since Ethereum's price surged from $10 at the start of the year to over $800. I consider myself lucky to have acquired most of my GPU's near MSRP price in order to complete my 4 builds within budget.
My mining strategy: diversification and risk adversion
My overall GPU mining strategy was to diversify into at least 3 different, solid coins. I decided to mine Ethereum, Zcash, and Bitcoin through Nicehash. I felt these coins were very secure investments and had alot of market support.
*8 Sapphire GPU's on the Biostar Motherboard TB250-BTC PRO Motherboard
Ethereum is strong since it is the 2nd largest coin by market capitalization and has innovated smart contracts onto its blockchains. What this means is that decentralized applications can be run on the Ethereum network that will guarantee payment or transfer of funds after certain criteria are met, just like a real world application.
For mining Ethereum, I have an 8 card rig with x6 Sapphire RX 580 8GB cards and x2 Sapphire RX 570 8GB cards. I chose the Sapphire brand because it was highly reviewed and kept its value. Sapphire GPU's cost about $450 each, and the entire rig's budget was about $5000. The hash rate of the rig is about 240 mhz and it draws about 1150 watts. The rig will mine about half an Ether per month through the Ethermine pool. I will do a technical write up about this rig in a future post. You can click here to see a parts list which help you understand how I approach piecing together a rig: https://docs.google.com/spreadsheets/d/1G-0vmPNzOGpoFWe5h3yfaNHeo_TPmqDVMTCJhb-swAc/edit?usp=sharing
Zcash is a very strong privacy coin, though it is very young and has only been out for a year. Their innovation is the zk-SNARKS proof which secures the identify of the sender and receive, as well as hiding the amount that was sent.
For mining Zcash, I have a 6 card Nvidia rig with x5 GTX 1070 TI's and x1 GTX 1070 with a mix of Zotac, Asus, and Nvidia brand cards. If you are wondering why there is a random 1070 in there, it is because Nvidia cards were becoming very scarce at the time and I was able to find this one at MSRP from Best Buy at $429. The 1070 hashes at a respectable about 450 sol/s compared to the 1070 TI's 500-520 sol/s. The hash rate of the rig is about 3000 sol/s and the total power draw is about 900 watts. The Zcash rig cost about $4300 to build. It mines about 1 ZEC per month, which is worth only about $400. Zcash had a nice run last December up to $800 but corrected like the rest of the market. Zcash has more room to grow than Ethereum and Bitcoin since it is a younger cryptocurrency, and I will go more in depth about Zcash in another post for this build.
NiceHash is not a coin, but it is platform for renting out your hashing power. At any given moment, due to market price changes and difficulty adjustments on a coin's network, a different coin may be more profitable to mine. NiceHash has an algorithm switching application which will auto-adjust your rig to the most profitable coin. Miners like myself will sell hashing power for payment in Bitcoin to buyers who want to mine an altcoin but do not own hardware. This might seem like an odd service, since you may think why don't those buyers get hardware and setup their own miners. Some coins are not listed on exchanges yet, or due to geographic restrictions, some individuals are blocked from opening an account on an exchange and thus are unable to buy an altcoin that they want. They can instead choose to rent hashing power from sellers on Nicehash, direct it to a mining pool, and receive payment in the desired altcoin.
For Nicehash, I currently have two rigs assigned:
1 rig has x2 MSI Duke Gtx 1070 tis, x3 EVGA GTX 1070 TI's, and x1 EVGA GTX 1080's. The 1080 is randomly in there because I was able to find it listed at MSRP from BestBuy for $680 when GTX 1070 TI's were sold out everywhere and being sold on Ebay for $750-800. The 1080 hashes up to 560 sols, compared to the 1070's 500-520 sols. I'm a bit disappointed the hashing power on the 1080 wasn't better, but I'm glad that I had a chance to get one at MSRP for testing. This rig cost about $4500 to build.
The 4th rig is a work in progress and only has 3 GPU's at the moment. I have not decided yet on how I would complete it, but I'm leaning towards getting x2 GTX 1080 TI's. You might notice that this rig only has 5 GPU slots, and it is because I salvaged my custom gaming computer for a mining rig. This saved me about $500 on parts - the SSD, RAM, CPU, and motherboard, which only has 5 PCI slots. However, this rig has been incredibly buggy due to driver compatibility issues and it crashed numerous times on setup and would drop wifi. In the future, I will use this rig for testing new altcoins that are mineable but not yet listed on any exchanges for trading. This is a lesser known speculative strategy for miners that I was taught in a mining group on facebook. Some of these new altcoins aren't worth even a penny yet, but you can mine a few hundred or thousand coins a day and maybe one of them will take off.
Profitability of My Mining Farm Today
As of today on February 26, 2017, I mine with a single Antminer S9 and have 23 GPU's, split among 4 custom mining rigs. I mine Bitcoin with the Antminer S9. I have 1 rig mining Ethereum with 8 AMD GPU's, 1 rig mining Zcash with x6 Nvidia GPu's, and the 2 other Nvidia rigs on NiceHash which pays in Bitcoin. The Antminer S9 and each of the GPU rigs make about $400-500 month, before factoring in electrical costs or hardware depreciation. So I am mining roughly about $2000-$2500 a month in today's bear market. The market will have small rallies with significant 10-30% gains, but it gets eroded away over the next week. There was a severe but needed correction in January and the cryptomarkets are still recovering, and as of today the coins that I mine are priced at Bitcoin ~$10,167, Ethereum $869, and Zcash $386. Observing the cryptomarkets price patterns for the past three years, there is always a dip in the winter, a rally in the spring, another big rise by Thanksgiving and one more run up by Christmas. I sell off the minimum amount of coins monthly to pay my electricity bill, and plan to HODL everything else until Christmas. Then I will sell off everything I'm holding before consider my next move.
What will I do next and my forecast for the rest of the year?
After selling off all my mined coins around Christmas, I most likely will want to take at least half of what I earned out and reinvest it in something less volatile, so definitely not hardware or cryptocurrencies. The other half I will want to keep in cash. Hopefully my investment will 5x by Christmas, but this may be overly optimistic. The current total market valuation of cryptocurrency is around $400-500 billion, so for a x5 rise with Bitcoin at $50,000 and Ethereum at $5000, it would require a x5 growth in the market cap to $2.5 trillion dollars. This does not seem realistic to me in today's FUD filled market conditions and the growing concern of the regulatory environment. The market can swing 30% up or down in a single day with any good or bad news, so anything can happen by year end.
Final Thoughts and Advice for Everyone
ROI is averaging about 10 months if you were thinking about getting into mining now. If you are bootstrapping your operation and need a quick return, mining is not for you. Let's say a rig costs about $4500, which is about $125 depreciated monthly over 36 months. A rig mines about $500 a month, costs about $125 in electricity to run, and depreciates about $125 per month, so it nets about $250 profit per month. The ROI does not seem that great anymore, given the risk of the market crashing or a new generation of hardware going online which makes your investment obsolete. The coin price would need to keep appreciating and new mineable altcoins would need to develop in order to sustain miners. If Bitcoin does go x5 by Christmas, then my bet will pay off huge. However, if it doesn't, I am content with paying off my hardware and just making a little bit.
You need to thoroughly research blockchain technologies and cryptocurrencies, and truly believe in their potential of being disruptive technologies, so that you can hang on for a timescale of at least 12 months, and perhaps as long as 36 months to get a meaningful return on investment. There will be more good and bad news, more rallies and crashes, FOMO and FUD, so if you do not have the underlying understanding of the technologies, this will be an emotional roller coaster for you and you are likely to tap out before you see any significant financial returns.
Finally, financing a cryptomining business on interest bearing debt would be foolish. You will be put you under alot of financial stress, and risk losing your credit worthiness. Just don't do it. This market is too risky.
What's next?
In my next post, I will cover my experience at the Blockchain Connect conference and share my main takeaways from the event.
Arriving at the Blockchain Connect Conference on January 26, 2018 located at the Palace of Fine Arts
Listening to one of the speakers in the main auditorium.
There were many distinguished speakers there including Charlie Lee founder of Litecoin, Brad Garlinghouse CEO of Ripple, and Riccardo Spagni founder of Monero. I recommend you follow this conference organizer, as it is one of the better ones out there: http://www.goblockchainconnect.com/
I've also signed up to attend the Nvidia GPU Technology Conference 2018 in San Jose which takes place in late March and will cover this event in a future post here. I'm really excited to learn about the next generation of Nvidia GPU technology known as "Tesla," and its application in other uses like self-driving cars, AI, Deep Learning, virtual reality, genetic sequencing, etc. Learn about GTC 2018 here: https://www.nvidia.com/en-us/gtc/
I feel very fortunate to live in the heart of Silicon Valley and have access to such exciting events, and am grateful to be able share my experiences with you. I am in the best place in the world to work in technology, and at a very pivotal point for blockchain technology. Here in Silicon Valley is where all of the revolutionary ideas and venture capital comes together to launch the next world changing tech startup.
Shout Outs
Finally, I owe a few shout outs to several friends that I have communicated with regularly since I started venturing into the cryptomining world.
First off, shout out to my friend Ari in Atlanta who I've talked to nearly daily for the past 3 months. He has opened my mind into understanding the altcoin ecosystem and keeps me up to date on the latest blockchain technologies. He's one of the few people I consider a true friend and filled with an incredible amount of wisdom about all of life.
Next shout out to my friend Bandol in Cambodia for warning me about not buying into Bitcoin at $16,000. Lol that would have been a disaster since the correction in January saw Bitcoin tank as low as $6000 before recovering.
Shout out to my fellow bboys in crypto, Big Phil in Michigan and Keean from Alabama. Before I got into GPU mining, they gave me loads of helpful advice and encouragement, always writing me back right away. I didn't have anyone locally to teach me how to setup these mining rigs, so it was helpful and reassuring to have a friend that always has your back and walked a familiar road. There's just so much information on the open web and many of it is just wrong or outdated, that you need someone that is actively mining to guide you or you will make some costly mistakes. We disagree nearly all the time about how to approach mining and investing in cryptocurrency, but it's all about learning from each other and continuing to elevate!
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Feeling generous and want to support my story telling and future cryptojourney? Tips can be sent to my wallet addresses below:
Bitcoin: 1JetCCvsMmkbeqr34xhkc6bp4TAUKvSTja
Ethereum: 0x4e490b8e51ca4233b040568b8800e69ef7413a54
Litecoin: LZNG73yNe3chYJxVwSeQygUx4TyHSYZU8V
Zcash: t1ZdKvaqHjm78HyCEvuApXiKS9PJDddhb6J