Free Money: Quarterly Update

Almost immediately after starting this year’s Free Money experiment a cheap video card became available on Kijiji.  Since there was an extra slot in the mining computer the decision was made to increase the initial capital investment.  The second card cost $130 CAD. That brings the total investment up to $367.29 CAD.

The initial plan was to mine Litecoins but very quickly I discovered that there were hundreds (if not thousands) of different crypto currencies which are referred to as “alt coins”.  Most of them are slight modifications to the Litecoin algorithm. There are also online exchanges that allow people to trade between the different alt coins.  The markets operate much the same as forex but without the widespread use of extreme leverage.  The prices are highly volatile because the markets are, in general, very thin.  This leads to a massive amount of price manipulation across all the coins as people “pump and dump” a different coin each day.  Most of the time the prices are listed in Bitcoin; this means that no matter what coin you are interested in, the ultimate goal is to get it converted to Bitcoin at the highest possible exchange rate. Bitcoin is the easiest coin to convert to actual cash (called fiat by those in the know).

The algorithms for all coins are designed so that they are paid out at a pre-determined rate.  This means that as more people start mining the popular ones, the difficulty goes up and it becomes harder for someone with a small setup like mine to make any money.  This lead to the decision to mine smaller, lesser-known, coins rather than Litecoin.  The switch was made to mining Dogecoin, an alt-coin based on a popular internet meme, but that required sending all the coins to an exchange and converting them to Bitcoin.  A few small attempts at playing the markets were made but with all of the coins essentially being identical you are at the mercy of price manipulators.

For now, I have settled on a service that does all the work for you.  You simply point your processing power at their servers and they automatically switch to the most profitable coin at that moment, mine it, sell it and then pay out in Bitcoin.  It is the lazy man’s best choice for alt coin mining.

As you are likely aware the price of all crypto currencies took a massive hit when MtGox closed.  When this experiment began the price of 1 Bitcoin was around $1000 USD.  It is currently around $500 USD. I have mined a total of 0.44 Bitcoin since getting up and running.  Which means I have $220 USD ($244 CAD) if I were to cash out. The original plan was to be able to pay off the hardware in 3 months.  With the price drops and the fact that I don’t mine 24/7 because I also use this as my media PC, the time frame will need to be extended.  One of the other questions we wanted to answer was if it was better to buy Litecoins and hold them rather than buying the mining hardware.  With the money invested in both cards I would have been able to purchase 14.3 Litecoins.  At current prices that would be worth $179.63USD ($200 CAD).

Buy Hardware: $244 – $367.29 = -$123.29 CAD

Buy Litecoins: $200- $367.29 = -$167.29 CAD.

So for right now I am about $40 better off having purchased the hardware instead of the actual coins.  If prices stabilize at their current levels then I can expect to break even on the hardware purchase in a total of 6-8 months rather than 3 months.  Which means the free money should start to roll in at the beginning of October.

For the hardware nerds out there, here is my ugly mining setup. If you are wondering, I already owned all the extra gear so none of it was added to the costs.


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