For the past several months Bitcoin has been making headlines as its massive growth has outpaced any and all traditional investments. However, the big winner this week in the fledgling crypto currency market was not Bitcoin but the myriad of young crypto currencies that now appear poised for growth.
A recent surge in value has sent huge groups of miners flocking towards these crypto currencies. A new group of miners is emerging armed with custom built computers and looking to invest in the next progression of mining hardware. With potentially huge profits these modern day miners may have struck gold in crypto currencies and the news is spreading fast.
Fanning The Flame
Over the last 10 months or so Bitcoin miners have been anxiously awaiting the arrival of ASIC mining hardware. Finally, in late January and early February ASICs started coming online resulting in record hash rates for the Bitcoin network. What’s more is that the value per Bitcoin has somewhat paralleled this increased hash rate leaving it now at around $47 per coin. Due to the rise in value many GPU miners have stayed on with Bitcoin as it still proved valuable in terms of gains in US dollars or Fiat currency. However, over the last two weeks much has changed.
It started late last week as the price of Litecoin began to rise on the crypto currency exchange Btc-e. Then on Monday the unexpected occurred as Bitcoin experienced what appeared to be it’s most harrowing moment to date. A software bug caused a divergence in the blockchain, Bitcoin’s record keeping mechanism and virtual heartbeat. The Bitcoin developers showed remarkable ability by reacting quickly to the problem. The event actually boosted the confidence of many Bitcoin enthusiasts as they saw the ability of the community to adjust as a positive.
However, the recent rise in the value of other crypto currencies is likely due in part to Bitcoin’s recent technical problem. Maybe a few lost faith in Bitcoin or perhaps some miners simply decided it was time to switch to another coin with the emergence of ASICs. I’d like to think that the mining community simply decided that having alternate currencies would make the crypto currency market as a whole, and thus Bitcoin, stronger. The robustness of multiple coins means that problems in one coin would not mean the end to what is fast becoming a truly remarkable financial and technological revolution.
Mining Is Profitable
If you had been mining Terracoin two weeks ago with a Radeon 7970 you would have been bringing in between 400 and 500 Terracoins per day which were then valued at around $0.005. That’s right, they were individually worth around half a cent. Today that same Radeon 7970 would yield about 25 coins a day but they’re valued at $0.24. What that means is that the coins mined in one day two weeks ago are worth about $120 where as the coins mined today would net you around $6.
In many ways this is reminiscent of Bitcoin’s early beginnings such as the now legendary pizza transaction in which two pizzas were purchased for 10,000 Bitcoins (~$470,000 today, something like $100 then). The value of a single coin from a crypto currency can increase wildly from one week to the next.
However, none of us are able to accurately predict the future value of these coins at any given point. One of my favorite practices, and one that has paid off somewhat recently, is to mine coins that I see to have the greatest upside potential. For instance, at this point you could mine Bitcoin and expect to earn a steady ~$4 a day (assuming a Radeon 7970 at ~700 MH/s). You could also mine another coin like Litecoin or Terracoin and make a similar amount in Fiat currency. However, these other coins have a larger potential upside due to their currently low value.
To illustrate the point, does it seem more likely that Litecoin will go from $0.65 to $1.30 by the end of the month or that Bitcoin will go from $47 to $96? (Possibly more importantly we can pretty well predict that no Fiat currency will be worth twice it’s current value by the end of the month). Another point is that you’re earning a larger share of that particular currency. For instance the 25 Terracoins you mine today would mean you essentially own 25 out of 42 million possible coins. This is a much larger portion of the total currency than mining 0.0726 Bitcoin of the total 21 million.
On Actual Value
However high the potential upside of these coins may be they still pale in comparison to Bitcoin in terms of actual usage. Currently Bitcoin is unrivaled in the crypto currency market when it comes to usability. Litecoin is starting to make gains as more merchants accept it, not to mention the recent emergence of Atlantis. Terracoin on the other hand has only been around since late October 2012 and has just a handful of merchants that officially accept it. On this end Bitcoin is the clear frontrunner and is likely to be for some time. For the rest of the crypto currencies to survive in the long term they will need to gain actual usability and acceptance by more merchants.
Another big factor in the progression of these crypto currencies lies with the developers involved. In a way this builds on itself as more people mining the coin leads to more people interested in its success which ultimately leads to further development. We’ll see if this proves true now that Litecoin, Terracoin and others are gaining such attention. And there are a few others including PPCoin, Devcoin, Novacoin, Ixcoin and Frecoin. All these coins have different designs and different attributes giving the market as a whole a lot of potential.
The Future Of Mining
Back to some of my earlier statements, the future of mining is bright. With ASICs strengthening Bitcoin and possibly other SHA-256 coins, and with the potential for Scrypt FPGAs for Litecoin, mining is at a crucial point. GPU miners still have a place and may continue to for some time but what is certain is that the security for these coins is quickly increasing. What’s more is that the window of opportunity for large amounts of coins may quickly close as more and more miners come into the Crypto Currency mining space and bring with them paper money they hope to turn into digital gold.