Advice from a Bitcoin Miner

Every so often I encounter someone talking about bitcoin. They usually brief me on what the latest price of a Bitcoin is and then go on to tell me how for some reason it’s the future of money. I’ve always had the impression that these “bitcoin people” were the “techy-wall street trader” types of people — something I couldn’t see myself getting involved in.

But then I met Mark, he was the first bitcoin miner I’ve had the pleasure of meeting. And by the end of our quick chat, he had changed my opinion on “bitcoin people” completely.

He started off by laying out the 3 main ways people could earn bitcoin.

1. You could accept bitcoin as a payment in exchange for a good or service you provide.

2. You could purchase or trade bitcoin.

or,

3. You could mine bitcoin.

How bitcoin mining works.

Bitcoin mining is the process of verifying transactions on the blockchain network (that grows in complexity) which in turn — creates a new bitcoin.

Bitcoin miners are machines that are simply made of graphics cards, GPUs and other parts no more special than the parts in your laptop. These machines perform calculations and verifications on the blockchain. This is what a miner looks like.

The problem with mining on your own.

The problem with mining is that it can be costly to keep maintaining and upgrading the miners. Miners can use up a lot of electricity and bring up your electricity bill very quickly.

As more and more bitcoins are introduced into the blockchain network, so do the complexity of calculations that need to be solved. So it’s always best to always have the fastest machines that can calculate increasingly complex encryptions on the blockchain. Also, current miners on the market can quickly get outperformed by newer and faster graphics cards that come out in the future. That means additional costs for upgrading the hardware just to keep mining the same amount of bitcoin.

A way that Mark keeps his cost down is that he is part of a “mining pool”. It’s like a club where he joins a group of other miners to collectively pitch in for the latest and fastest miner to share in the profits. Also, he gets paid in bitcoin by the same club if he refers a new member into the mining pool.

This was when it started looking a little like a multi-level marketing model with referrals and downlines. But whatever your opinions are on this type of model. Mark is both mining and getting paid in bitcoin through referrals. In any case, Mark is trying to get his hands on as many bitcoin as he can.

Mining vs Trading.

Since he was mining and earning bitcoin (2 of the 3 ways he highlighted in the beginning), I asked him if he also traded in bitcoin.

“Personally, I do. But not much. I like to trade because of my background in finance and trade, but the name of the game is to hold as much bitcoin as you can.” — Mark

There will only be a total of 21 million bitcoins that can ever be mined. Currently, roughly 70% of bitcoins have been mined so far. But no more new bitcoins will be created once a total of 21 million have been mined.

By the end of our chat, it really looks like Mark is maximizing his time and getting a hold of as much bitcoin as he can. He’s already found a smart way to circumvent the cost of power and hardware by being a part of a mining pool, and all we can do now is sit back and see how far this will take him.