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How blockchain makes you rich

jbronkhorst

Creating digital money

Today, almost $80M profit per month is generated from mining the blockchain based cryptocurreny Ethereum. This number is based on a currency exchange rate of 1ETH = $235, a rate of 70 trillion hash calculations per second, a power consumption of 4.7 terawatt hours per year and a cost per kWh of $0.12 (US electricity pricing).

Ethereum.JPGScreenshot from CryptoCompare.comFeed this into one of the many mining calculators like e.g. CryptoCompare and this is what you get (see screenshot):

Does this mean YOU can easily earn $80M per month by mining Ethereum? Definitely NOT.

The public Ethereum blochchain network currently has 24,515 nodes worldwide. So assuming that the profit is spread equally, each node would earn $3,250 per month. 

Unfortunately this assumption is not valid as the Ethereum nodes are not equally sized in terms of number of hash calculations per second. And as David Nield indicates in his blog :

The trouble is, the serious players have got whole farms of these computers, and unless you’ve got a warehouse and some life savings to spare, you’re going to be lagging a long way behind. You’re up against huge foreign operations running off cheap electricity and hardware bought wholesale.

GPUs are now established as the mining processors of choice in most situations basically because they’re better at doing lots of laborious, repetitive tasks, whereas CPUs are better suited to switching between many tasks quickly. However it recently turned out that Ethereum miners are buying all the GPUs, leading to a shortage in the market. Mark Pesce explains it in his blog as follows:

As Ethereum ballooned to its highest historical value (nearly USD $400 for a single ETH), it became a wise investment to buy a cheap PC with a beefy power supply, stock it up with GPUs, and let it compute its way into profits. One such PC, could - in the right circumstances - earn up to $10,000 a year, for a $2500 outlay. The formula, simply put: GPUs + electricity + time = profits!

So you probably won't get rich from mining Ethereum (or any other cryptocurrency), unless you put in a lot of effort and have plenty of luck on your side. You’re more likely to be hit by market pressures than benefit from your mining equipment, which is why it’s seen only to be worthwhile for the most adventurous and persistent.


How about Initial Coin Offerings?

As of 11 July 2017 there were more than 900 cryptocurrencies available over the Internet and growing. By market capitalization, Bitcoin is currently the largest blockchain network, followed by Ethereum, Ripple and Litecoin. 

New cryptocurrency can be created any time and in this environment of freshly launched coins, there is a new transaction type called the “Initial Coin Offering” or ICO. This is defined by investopedia as follows:

An unregulated means by which funds are raised for a new cryptocurrency venture. An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin.

22995486509_36ebd9180e_b.jpgUnlike an initial public offering (IPO), acquisition of cryptocurrency is not government regulated, and may or may not grant ownership or other rights in the venture. The first ICO was for Mastercoin in 2013 while Ethereum raised money with an ICO in 2014. ICOs are now extremely popular. As of May 2017 there were currently around 20 offerings a month and Brave's ICO generated about $35 million in under 30 seconds. There are at least 18 websites that track ICOs.

 

Although Mastercoin and Ethereum are examples of successful ICO transactions, you need to be careful as some Initial Coin Offerings (a.k.a. crowdsale campaigns) are actually fraudulent, for example: “Ver Backed Qtum Founder Ran Previous ICO Scam,”  “To everyone that bought into the Matchpool ICO, it looks like it was maybe a scam…,” and “A Digital Currency Scam is Misusing the Rothschild Family Name.” Because ICOs are not regulated by financial authorities, funds that are lost due to fraudulent initiatives may never be recovered. 

Should you buy into an ICO? In his blog "WTF is an ICO?", Alex Wilhelm advises:

Only if you have a massive appetite for risk, zero fear of losing your capital and are willing to take a flying chance on an idea that could flop. Then again, crowdfunding has similar risks and seems perfectly healthy. Your call.


And finally: hedge funds!

 In an interview with Forbes, Bill Miller - a famous multimillionaire investor - recently announced he had been holding one percent of his portfolio in Bitcoin since 2014. Based on price increases since then, Miller stands to have made huge gains which could outweigh even his most impressive stock investment decisions. soap-bubble-2489583_960_720.jpgHe's up nearly tenfold, and Bitcoin is now a top holding of his hedge fund. And also other billionaires are betting on bitcoin

And these stories do not only exist for bitcoin, but e.g. also for Ethereum as an Ether trader made more than $200 Million in one month.

If you're going to do that, though, you'll need to pick your exchange(s) carefully. Be sure to do your research first: pick exchanges that are reputable and as secure as possible, and use a variety of means to track the prices of the currencies you follow. 

As Nathan Reiff puts it:

Because cryptocurrency prices are incredibly volatile, being delayed by even seconds can mean the difference between a substantial profit on a transaction and a meager one. Vigilance, careful attention to trends, and a bit of luck are all helpful, too.

To what extend are you investing in blockchain based cryptocurrencies?

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Jeroen Bronkhorst
Account Chief Technologist (Financial Services Industry)
Hewlett Packard Enterprise

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About the Author

jbronkhorst

Jeroen has 26+ years of experience within the IT industry. From an industry perspective he spent 7 years in Government (Defense), 12 years cross-industry and 7 years in Financial Services Industry. In terms of skills, he spent 10 years in IT Consulting, 6 years in Portfolio and Program Mgmt and 10+ years in Strategy and Innovation. Geographcally he worked 10 years within the Netherlands and 16+ years Internationally.

Comments
Arun2

Very interesting article. Tap has just opened..new digital currencies being launched frequently and more opportunities out there.

Rod Varisco

Hi Jeroen - would HPE's The Machine be a better tool for handling the increased blockchain traffic for mining Ethereum (bitcoin, or any other crypto), better than GPUs' or CPUs?  Has there been any tests around this?

jbronkhorst

Hi Rod,

The Machine represents HPE's vision for the future of computing by bringing together new applications for photonics, memory, compute, hardware and software to create not just a new machine, but a whole new architecture for computing. This is still under development and its exact impact on blockchain related workloads is not yet clear.

Given that there are various articles on the Internet describing a positive impact of in-memory computing on bitcoin and blockchain environments, my gut feeling says that the memory-driving computing architecture of The Machine will also make a significant positive impact. However I cannot substantiate that (yet).

In any case HPE Labs are also looking at blockchain as described in the article "Beyond Bitcoin". And In addition in Nov 2017, HPE announced its Mission Critical DLT solution which offers availability and fault protection for enterprise-grade applications. This solution includes scalability and SQL integration that cannot be realized with workloads running in a public cloud environment or generic infrastructure. While this solution is not designed for mining cryptocurrencies, I consider this to be "a better tool for handling blockchain traffic" for production environments.

Does this help?

Jeroen Bronkhorst
Account Chief Technologist (Financial Services Industry)
Hewlett Packard Enterprise

twitter.gif @jbronkho
linkedin.gif jeroenbronkhorst

 

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