Bitcoin: worth the electrons it’s printed on?

I recall read­ing even before I had any inter­est in Bit­coin or Bit­coin min­ing that the cost of elec­tric­i­ty was prob­a­bly high­er than the yield one could get by min­ing. So I nev­er expect­ed to set up a min­ing oper­a­tion on my per­son­al com­put­er and get rich quick. I did what I rec­om­mend any­one do if they are inter­est­ed in get­ting to know how Bit­coin works: I set up a min­ing oper­a­tion to learn.

The online resources about Bit­coin are full of advice: don’t both­er. There’s too much com­put­ing time nec­es­sary, elec­tric­i­ty costs too much, you’re bet­ter off get­ting onto one of the exchanges and buy­ing Bit­coin. This sort of dis­cour­age­ment is entire­ly appro­pri­ate for the investor try­ing to make a quick for­tune with a nascent elec­tron­ic cur­ren­cy, but not for some­one who likes to get to know a tech­nol­o­gy before using it.

In fact, right now is a won­der­ful time to get start­ed with Bit­coin because you can still set up a min­ing oper­a­tion with your home com­put­er and lit­er­al­ly make mon­ey. Not a lot of it mind you, but with a decent graph­ics card you ought to be able to pull down a few cents’ worth each day. Not real­ly enough to spend, but enough to look at and see that there is some­thing there that could be spent. You don’t get into mod­el rock­etry because you think it will take you to the moon, but it’s a great feel­ing when you see that rock­et head up into the sky, even if it only goes a few hun­dred feet.

Over the course of the last month or so, I’ve accu­mu­lat­ed some­where around ten US dol­lars worth of var­i­ous cryp­tocur­ren­cies.¹ In addi­tion to Bit­coin, there are a num­ber of oth­er less­er-known cur­ren­cies com­pet­ing for the space. Lite­coin, the sec­ond largest cryp­tocur­ren­cy, is tout­ed by some as the sil­ver to Bit­coin’s gold. What it promis­es is faster con­firmed trans­ac­tions and an algo­rithm that cir­cum­vents some of the ways min­ers are tak­ing over Bit­coin pro­duc­tion and squeez­ing out small­er players.

Most cryp­tocur­ren­cies are much much small­er and have been cre­at­ed for short-term prof­it rather than a desire to inno­vate. Spec­u­la­tors often jump in on new cur­ren­cies and buy up a lot when it is cheap, then dump it as the price increas­es due to the spec­u­la­tive demand. It can be very prof­itable to cre­ate a new cur­ren­cy, mine it like crazy, and sell what you’ve got ear­ly, leav­ing a bunch of spec­u­la­tors hold­ing the bag. How­ev­er, a few of these cur­ren­cies stand out as hav­ing real potential:

• Bit­coin, of course. The original.
• Lite­coin, which trades at very favor­able rates, cur­rent­ly a bit shy of three dol­lars per Litecoin.
• Feath­er­coin has some pop­u­lar­i­ty among min­ers but I’m skep­ti­cal about its future.
• Peer-to-Peer­Coin, which adds a con­cept called proof of stake in addi­tion to the proof of work that most oth­er cur­ren­cies rely on exclusively.
• Dig­i­tal­coin, one of the new­er entries into the field. DIg­i­tal­coin’s devel­op­ers have gone the extra mile with Dig­i­tal­coin, set­ting up exchanges for pur­chas­ing real-world goods with Dig­i­tal­coin. Most alter­na­tive cryp­tocur­ren­cies exist only as trad­ing chits by which min­ers can trade in eas­i­er-to-mine coin for the more dif­fi­cult to cre­ate but eas­i­er to spend Bit­coin. It remains to be seen what will hap­pen with Dig­i­tal­coin, but I have to give cred­it to the devel­op­ers for doing what it takes to make a cur­ren­cy stand out and succeed.

I have small hold­ings in each of these cur­ren­cies, all togeth­er total­ing about ten dol­lars as men­tioned above. Ten dol­lars isn’t a lot, but hey, free mon­ey! Right?

Well, no. Now we get back to where we start­ed. Elec­tric­i­ty isn’t free and pro­cess­ing pow­er uses elec­tric­i­ty. So how much did my ten dol­lars cost?

There’s a great device called a Kill-a-Watt that plugs in to a wall sock­et and which any appli­ance can in turn be plugged into. It has a dig­i­tal read­out of how much elec­tric­i­ty is being used at any giv­en time by what­ev­er is plugged in to it. Its sole pur­pose is to mea­sure elec­tric­i­ty usage so that peo­ple can find out where they are wast­ing elec­tric­i­ty. I used this Kill-a-Watt to mea­sure the pow­er con­sump­tion of my com­put­er at (rel­a­tive) rest, and then set it to mining.

I mea­sured the pow­er con­sump­tion in a few dif­fer­ent ways, but all vari­a­tions on the following:

• Min­ing with CPU, yields approx­i­mate­ly 20¢ per day².
• Min­ing with NVidia GeForce 8800 (a pret­ty bad card to mine with), yields approx­i­mate­ly 5¢ per day³.
• Min­ing with ATI Radeon 5770 (not great for min­ing but about ten times faster than the NVidia), yields approx­i­mate­ly 40¢ per day⁴.

Here are my pow­er con­sump­tion numbers:

From these num­bers, we can see that CPU min­ing adds about 80 – 100 watts, Min­ing with the GeForce 8800 adds about 40 – 50 watts, and min­ing with the Radeon 5770 adds some­where around 80 – 90 watts. Mul­ti­ply each of those num­bers (lets just take the low end for the sake of unre­al­is­tic opti­mism) by 24 and you get the num­ber of kilo­watt hours I’m charged each day for using each of the min­ing meth­ods above:

This sug­gests that with min­i­mum rea­son­able hard­ware (A GPU capa­ble of 150 or more mil­lion hash­es per sec­ond) you might make a small prof­it if you’re lucky on your pow­er con­sump­tion. And (this is a very impor­tant caveat) if you don’t count the cost of keep­ing your com­put­er run­ning all day. Most peo­ple’s com­put­ers won’t guz­zle quite as much elec­tric­i­ty as mine does, but it is still a very real con­sid­er­a­tion, and more than enough to off­set a three cent gain per day.

There are GPUs out there with much faster hashrates and more favor­able pow­er con­sump­tion, but it seems very clear: the elec­tric­i­ty is like­ly to cost more than the min­ing will yield unless very close atten­tion is paid to the hard­ware choic­es. While I rec­om­mend that any­one who is curi­ous get start­ed min­ing, I don’t sug­gest that you keep doing it for very long unless you have very cheap elec­tric­i­ty or are will­ing to take a loss for the fun of cre­at­ing your own money.