Bitcoin mining: how profitable?

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Now that we have gone through the theory, it is time to talk money and roll up our sleeves.
(you can read part1 if you need to refresh the basis!)

So, how profitable is mining?
Here the bad news start.
Remember in the previous article the difficulty rating? Initially a CPU was sufficient. It was OK to just use the CPU for some mining. But as we know, generic processors (i.e. CISC) are not exactly the fastest around, although they are good for multi-purpose instructions.

Then people started to use GPUs. GPU can execute routine jobs much more easily as that is all they were build for: execute instructions. But again, GPUs were not really designed to process bitcoin blocks.
But the era of GPU is now closing to an end as ASIC (application specific integrated circuit) – these have been designed for the specific purpose of processing bitcoin blocks.
Now, while everybody at home has a CPU or a GPU, ASIC hardware is basically useless for anything else other than mining bitcoins. And while with a good GPU we might have got close to 500MegaHash/second, with a little USB ASIC we could easily get 2.5 GHash (like my little redfury).

And here we can start doing a bit of maths. Given I was curious to test ASICs, I bought the redfury sticks, which cost around 100$/120$ each



Now, remember the difficulty rating? While I bought two of those, someone might have bought a whole lot – creating huge arrays with an investment of over 1000$. Newer ASICS are coming out (i.e. ice fury) – some even have dedicated ASIC servers.
In the meantime, difficulty goes up.

Now I have been mining since one month – at 5GH/s I managed to get around 0.02, which makes roughly 8.5$.


Funny thing is, many “pool” services (more about this later), will not pay under a certain threshold (in the case of eclipseMC that I am using, is 0.2)

At this rate (so, without difficulty increase), to make up the cost of the sticks, it will take me two years; without counting electricity cost. Of course though, if I was to invest 3000$ in a specified machine, I would probably be able to make money much faster and probably pay for the investment much faster.

But is it really worth it? This is what I think:

  • Assuming we can get 4000$ in mined bitcoin, is it really a sound investment? Bitcoins will need to be sold or re-used, but the virtual shops accepting bitcoins are just a bunch, while the 3000$ of investment were very real…
  • What if an exploit is found that will invalidate the bitcoins in the meantime? What will happen of the 4000$? Though I guess there is a risk of each investment but…
  • What happen if a new ASIC with 4000GH/s is found in the meantime, that increases the difficulty so much to make any effort with the current hardware pointless?
  • What happens if bitcoins devaluate considerably?

Again, risks are around the corner everywhere, but in this case I would really consider these factors before investing seriously (because this is the only way to make a return) – it might be less risky to invest in stock market!
As far as I am concerned, I can always say that I am also fascinated by how the redfury work, maybe with some PCAP I might be able to decrypt hashed passwords? Looks quite complicated but you never know, time will tell…

What are the alternatives?

Litecoin are a good alternative right now and as I write this article ASIC hardware is a fairly new thing. But is it worth investing good money in litecoin when Bitcoin already exists?

Get started!

This tutorial is for linux box… But should be easy for windows as well
The first thing to do, is finding a mining pool. Mining alone is not suggested as awards are given on block solved, and solving a block alone with a mere 5 GH/s is nearly impossible. A list of mining pools can be found here; though I found myself well with Eclipse mining consortium (which will not pay below 0.02bc). To get paid we need a wallet – coinbase is a good place to start. Desktop software without services can also do this but it will be necessary to download the block-chain… Can take a loooong time. Coinbase will give a wallet address fast and with no fuss. The wallet can be configured in the mining pool.

Create a new worker and password, these will be your username and password for the miner.

The next step is to configure the mining software. For ASIC hardware (and CPUs), cgminer is the best solution. Addresses to connect can be found here for eclipse MC, being myself in europe, I will use stratum+tcp://eu.eclipsemc.com:3333.
Under manage worker, it will be possible to create a new worker, and set the password. The worker can then be specified when cgminer starts:

Login

Fingers crossed, you should see the workers green, and the hashes flowing:

Conclusions
Mining was not made to be profitable. But Bitcoins have a huge potential, and value might still go up. If you decide this is something you are interesting in investing, give it a go, but it won’t be cheap!
One thing I found nice is that, given that I always leave my PC switched on, I can make good use of it to make a few pennies – maybe in three years I will have paid off my red furies and might be able to claim I got myself a beer out of it! :)

 


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