Mining Bitcoin for fun and profit

Chances are you’ve probably heard of Bitcoin, a digital currency. Well, I’ve decided to give Bitcoin mining a go to see if it’s profitable.

At the moment, the price of each Bitcoin has skyrocketed. When I first looked at it at the start of last year, the price was around $6USD per BTC. But in the first quarter of this year, it’s increased in value ten fold, from $13 to $130. £100 invested gambled early last year would be over £2000 now.

It’s possible to speculate in BTC by buying them through an exchange. At least, you’re able to purchase and hold (I’ve yet to see any way to short BTC). And the recent price rise could be related to increased speculation perhaps, I’m really not too sure.

Mining seems to be a relatively risk-free way to get involved, as it doesn’t require you to deposit money into an exchange’s account. By donating some CPU power, you can ‘mine’ BTC blocks for yourself.

Mining as part of a pool seems to be the way to go too. It combines your processing power with a bunch of other computers and shares out the rewards based on your contribution. Mining as an individual with just some basic hardware is likely to be completely unrewarding as your chance of solving a 25BTC block is incredibly low.

The simplest way to get involved is to download GUIMiner and join a pool. I ended up joining Slush’s pool and fired up GUIMiner.

Mining uses your graphics card’s GPU to do the computations as they’re ridiculously powerful. My computer is pretty old now, so only does 70 million hashes each second. But so far, in the last couple of hours, I’ve helped solve two blocks for the pool.

My reward for the effort involved is 0.00053039 BTC. I’m contributing about one thousanth of one percent of the total processing power of the pool, so I’ll get a comparable portion of each 25 BTC block. So for two hours work, I’ve earnt about 7.4 cents.

More difficult is working out how much extra electricity I’m using. Total power usage of my desktop is about 400W. My GPU running flat out draws around 250W of that. At idle, it only draws about 150W. So at a guess, I’ve expended an extra 0.2kWh to earn that 7.4 cents. Seeing as I pay about 15p/kWh, that makes it 4.6 cents for the extra power usage. So yeah, it’s profitable, as long as you’re not running your computer just to generate Bitcoins. Because in two hours, I’ve probably spent about 18.4 cents on electricity (not counting the juice needed to run my monitors).

With Slush’s pool, the minimum reward amount is 0.05 BTC (about $7 USD). So to obtain that, you’d need to keep it running at least 200 hours if your GPU was a similar spec to mine. (An ATI Radeon HD4850) Once you reach the threshold, you’ll get a payout and you can then use that freshing minted Bitcoin for ‘something’.

So there you go. A very basic analysis of the economic rewards of mining Bitcoin. Good luck! Now I’ve just got to figure out what to do with my newfound wealth!