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Compound Interest with Bitcoin 17 Jul 2016, midnight

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Albert Einstein - 'Compound interest is the eighth wonder of the world. He who understands it, earns it he who doesn't pays it. ' We hear many discussions about the future of Bitcoin, will it increase in popularity? Will the value increase? How safe is it as an investment? I have heard many discussions on whether to trade, mine and even cloudmining but I have not heard any discussion of professional investing or at-least applying the theory of professional investing to Bitcoin. Now lets suppose that were to take the view point that there is a good future for Bitcoin, it will increase in popularity, the value will hold and if anything it will increase in value because we know fundamentally it has better value to fiat currency. If this is my viewpoint, I decided that I should be approaching this as a professional investor; I can afford to invest for example 1000 GBP (approx 1600 USD), but I want to think about how to invest this into Bitcoin into the safest and most effective way. The most important rule for anyone who sees themselves as a professional investor is to apply the rule of compound growth, if you are going to treat your account or wallet as a current account you're not going to see anywhere near your potential. A quick example: Andrew wants to see compound growth on his shares which averages 1percent growth per month; (1percent seems quite lame, but we want our example to be conservative and also demonstrate the power of this) he deposits 10, 000 GBP and every year he reinvests his interest. His account would look like this; Year 1: 11,200, Year 2: 12,544, Year 3: 14,049.28, Year 4: 15,735.19, Year 5: 17,623.42, Year 6: 19,738.23, Year 7: 22,106.81, Year 8: 24,759.63, Year 9: 27,730.79, Year 10: 31,058.48 . Whereas if Mark decides to take 1200 towards the end of December to treat himself for Christmas, we don't even need to do the maths, he will stay at 10,000 and if he keeps drawing on bad years or decides to take more he may even loose money, where as Andrew more than triples his. Now later in this article I am going to show how using very conservative figures, actually improve on this massively and see why Einstein called Compound growth the eight wonder of the world. Going back to the mining; If you were to calculate the profitability of using your own hardware you can do this online, just by using Google and searching for Bitcoin mining profitability calculator you will find dozens of websites, just make sure that you input the correct difficulty and exchange rate, you will be fine but one thing that most bitcoin profitability calculators don't account for is the rise in mining difficulty. Now lets assume that we have decided to go for the most cost effective way of mining, due to living in England the running and maintenance costs of the cloud-mining warehouses will be nearly half the price of an average electricity cost, and we save on space as-well :-) For 1000 GBP we can buy 3 x 1000Ghs Cloudmining contracts and still have 100 left which we could use to buy 5 x 50Ghs Cloud mining contracts, which will leave us with 3250Ghs or 3.25Th. As you can see from the table attached, I have taken the most recent and relevant data for the mining difficulty for the past 3 months, as you can see the difficulty increases just over twice a month to be more exact it's every 11.7 days. Therefore, I am going to work on the basis that the difficulty will increase 4.80percent every 12 days, there is no point fussing over 0.3 of a day every 12 days as we are working with averages anyway, plus what we are doing is only increasing our existing accuracy, so I don't want to be criticised for this.

To work out our earnings potential I am going to work out our earnings after we have deducted the costs and add the difficulty to the next session. And then by adding the new hashing power bought with the earnings. I am working on the average increasing difficulty 4.98percent and the average decreasing price of 10percent for the hashing power. Now in reality it isn't going to work as smoothly as this, the hashing power will not decrease by 10percent every twelfth day, but it will have to go in this direction to be viable for the buyers. Over a year ago this was seen with CEX, the hashing power wasn't economically viable for people so it had to be brought down to a sensible level. On the second table shown I have shown the results of the average rise in difficulty to the average decrease in price in hashing power. It has shown that even by conservative estimates you EASILY break even within six months and can potentially double your earnings within a year.

Admittedly the difficulty rate is increasing at a high rate but the hashing power is too and becoming cheaper at a steeper rate. So whatever your approach is going to be, if you apply the principal of reinvesting your earnings or at least a good portion of your earnings at a time when the hashing price falls (the price per Ghs has never gone up) then you will make a lot of money.

What I am showing is that if you treat mining as you would with any proper business and not a gimmick you will certainly reap the rewards from it. You need to take the attitude that six months, a year or even a few years is not a lot of time (especially when you are earning money whilst you sleep) and I think you should definitely spend a couple of hours on excel and online to make sure you take a proper approach.

When you consider that Bitcoin is still in its infancy and fundamentally undervalued, it is certainly possible to earn a healthy income with Bitcoin Mining and that it's not too late to get into as many would like you to believe. Please get in contact with us if you have any questions.


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