Side Project: Cryptocurrency/mining 101
My last major side project (a bit of an oxymoron?) is cryptocurrency/mining. Unlike the Lyft side project, this one has taken considerably more time and therefore I envision writing multiple blog entries regarding my experiences and lessons learned. It helps that this is a very much a new field, at least to everyone who did not mine any bitcoins 5 years ago.
Why this side project? The dominant reason is to learn something new and cutting edge. Especially given my background in economics/finance and work experience in IT, cryptocurrency is almost a perfect fit. My personal opinion is that cryptocurrency has lasting future in its potential to rebalance the distribution of wealth around the world. The secondary reason is for personal monetary gain. While I may have missed out on the explosive growth of bitcoin over the past year, fortunately there is an almost infinite of so-called alternative coins (“alt coins”) that I could invest in.
As a project manager, I couldn’t but help split my project into different phases as follows (along with a current status as of December 19):-
- Phase 1 “Pilot” — 100% Complete
Aka building the first mining rig as a proof of concept
- Phase 2 “Scale” — 90% Complete
Aka building the second rig and adding more GPUs
- Phase 3 “Optimization” — 50% Complete
Aka tuning all the GPUs and mining software for better performance
- Phase 4 “Diversification” — 15% Complete
Aka building out a cryptocurrency portfolio
Evident from above, I’m “cryptomining” for cryptocurrency. In short this simply means I’ve invested in hardware that allows grants me hashing power and contribute to the pool for specific cryptocurrencies — which I’m compensated for with coins or fractions of coins depending on my hardware. My reason for mining is two-fold: firstly I essentially have free electricity so that removes a significant cost for mining operations, and secondly it helps to insulate me from the risk of market crashes (e.g. if the market crashes, I can recoup some cost from selling the hardware).
A cryptomining operation isn’t too difficult to set up, even if one is looking to build a so-called mining rig from scratch. It’s essentially a normal computer with enormous amount of computing power. By far the most important and expensive hardware are GPUs, or video cards manufactured by AMD, Nvidia and their respective partners. GPUs provide the computing power that are used to produce the hashing power needed for mining. The other requirements is internet connection (wired preferred) and mining software (which can be readily downloaded online). I’ll write a separate post for cryptomining in detail.
My view of cryptocurrency is that it’s not too different from stock trading or foreign exchange. Aside from the fact that coins are complex mathematical equations, they are stores of value identical to the US dollar or gold that can be traded with others and exchanged for goods. Or held for speculation purposes — e.g. what is currently happening with Bitcoin. The dominant cryptocurrency has been Bitcoin, traded under the moniker “BTC”, which at the time of this post is flirting with $20,000 valuation per coin; it’s the most pervasive coin due to its ecosystem and longevity. Perhaps to popularity, it’s also the most controversial one with its ledger being forked multiple times (leading to the creation of close alternatives such as Bitcoin Cash and Bitcoin Gold) as well as being banned by world governments such as China. That said, there are other alternatives such as Ethereum (ETH), Litecoin (LTC), Monero (XMR), etc… each with their own unique traits, advantages and disadvantages.
The current reality is that there is very limited usage of cryptocurrencies in day-to-day activities such as purchasing coffee and groceries. But they offer a compelling vision of the future where one can transmit thousands of dollars across the world with minimal transaction fees or trade with someone in a different country instantly — all in a secure manner. If Web 2.0 was the establishment of social networks, then Web 3.0 is the advent of the cryptocurrency.
