Sunday, November 3, 2013

Making a loss on Bitcoin

So, my little experiment in bitcoin mining is going to end up making a loss.

Seven months after purchase, a Butterfly Labs Bitforce 5GH/s Bitcoin miner arrived.

With the explosion in ASIC based miners, the difficulty level of mining bitcoin is doing a hockey stick, and hence the return on investment is declining radically. If Butterfly Labs had shipped their devices anything like on schedule, it would have been easier to make a small profit. I suppose this is a stark confirmation of the common wisdom that the people who make money from a gold rush are those who make picks and shovels.

I've ended up with a block of metal with more significance as a historical footnote than anything else.

As the 9-month difficulty chart below from BitcoinWisdom shows, difficulty is rising at an exponential rate. Difficulty is a measure of how many hashes-per-second it will take to solve a block, and hence earn bitcoin. Checking out the Bitcoin Calculator on that site shows that most dedicated bitcoin hardware will not break even, never mind make any return on investment.

By contrast, the hundred or so dollars I spent on buying bitcoin a few months ago looks like a decent speculation, as bitcoin is currently at around the $200 mark.