Free Money Redux

I apologize to all of those who were following my Free Money series of posts as it has been quite some time since I gave an update.   Here is the short version: my portfolio was entirely cleaned out.  I had made some good gains on Yellen essentially being confirmed as the next chair of the Fed.  I sold my entire position in October and went all-in on Snowden leaving Russia before January 1st.  He did not need to go to any particular country, he just needed to leave Russia.  As you know, he (selfishly) did not leave and so all but $0.31 of my portfolio was lost.  Experiment, failed.

I suppose that putting all my money in one contract was dumb and I knew it at the time but it was still fun.  So the initial investment of $50 got as high as about $275 and finished with $0.31 and it was a fun time.  On to this year’s experiment!

The hot topic of the moment is cryptocurrency; the most popular of which is Bitcoin. I am not going to go into detail about crytocurrencies but here are the basics.  An algorithm is released that generates a block or code.  This is sent out across a network of people that are trying to break the code (a process called mining).  When the code is broken, whoever breaks it is granted some amount of the currency.  All of the systems work on this basis but there are variants of the software required to break the blocks.  Right now if you want to get into Bitcoin mining you need to purchase a computer specifically designed for the task.  These machines are expensive and so it prevents most people from getting into it.

The second most popular cryptocurrency is Litecoin.  It works in much the same way as Bitcoin except the algorithm allows mining on home PCs by normal people using their video cards. Both currencies will eventually reach a maximum number.  Bitcoin maxes at 21 million coins and Litecoin maxes at 84 million.  People often refer to Litecoin as the silver to Bitcoin’s gold.

So the Free Money experiment this year will be mining Litecoins. I own a gaming PC that will allow me to mine some but I also have a home theatre PC that does nothing most of the time so I decided to go out and buy a fairly inexpensive video card specifically for mining. Since this is a very popular thing to do these days most stores are actually sold out of the best cards for the task.  I settled on an overpriced AMD Radeon 7850. (Runs about 350-400 kH/s if you are interested).  Total cost of the card, including taxes was $237.29 CAD.  That is $216.46 USD which converts to 9.24 litecoins.  I do not pay for hydro so that is not an element of my profit calculations. According to most of the online calculators the card should pay itself off in about 3 months at current prices. Running both of my video cards should pay it off in about 2 months.  This is kind of cheating but we will consider the gaming PC a sunk cost.

So this year’s experiment is not nearly as active and exciting as last year’s.  It relies entirely on technology horsepower to break even.  The main goal is not to get my $237 dollars back but to hold the litecoins and hope that the price goes up.  We will also determine if just buying litecoins instead of the mining hardware would have been the smarter choice.

Hopefully this year actually ends up with some free money.

Please type what you think and why.