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How I Nearly Lost $10,000 In My Hamfisted Struggle To Mine Bitcoin In Australia

We now know who bought all the US Government’s Bitcoin. Bitcoins.

VC Tim Draper, who lists Skype, Hotmail, Tesla, Baidu and Box amongst his impressive investments, snapped up all 30,000 Bitcoin seized by the FBI in its raid on Silk Road last year.

That’s roughly $US17m if he offered the $US580 it was trading at on Friday, the day of the auction. And if so, Draper’s already about $US1.8m richer on the deal going by the current price of $US640.

So, lucky him. Sadly, I’m not in the position to drop $US17m on cryptocurrency, and I don’t live in the US.

I looked at the bidding process to see if it was open to non-US citizens, but I had a lot of work on, and the kids were about to knock off school for holidays. I had a lobster pot to fetch before a big swell that day buried it in sand.

Basically, I want some Bitcoin, but not so much that I can bothered with the process of getting it.

I tried, once, back in October when all things BTC really started heating up. That process only really just ended a couple of weeks ago – and nearly cost me around $10,000.

Before we go into how that happened, if you’re a Bitcoin veteran, you’re not going to get much out of this other than a few laughs at my shoddy attempt to understand the technology behind mining cryptocurrencies.

I took on my new career with the same tools that suck me into most new projects – a combination of Google, a ropey excuse to buy some toys and a complete unwillingness to bother with any finer detail that might derail my enthusiasm.

I absolutely got what I deserved. Here’s what I learned.

And before you go on, please note nothing of what you are about to read is in any way intended as investment advice and doesn’t take into account the financial situation or objectives of any one individual.

That’s important.

I was spurred into action in November 2013 when prices 'surged' from $100 to $260.

The catalyst was BI US executive editor Joe Weisenthal's 'Bitcoin is a joke' post. I skipped over all the important warnings and saw only 'It could go to $US500 or $US1000 or $US10,000.'

Obviously, I Googled 'how to mine bitcoin'.

Immediately I learnt I needed a wallet. I chose Blockchain mainly because it got the most favourable reviews.

This next bit took me forever to work out - how to mine Bitcoin

There's several ways and several Wikis to show you how to a) use your own PC to join a pool, or b) buy a mining rig and go it alone. It looked too hard and I needed BTC, stat.

I plumped immediately for c) click on ads and get rewarded with BTC.

To this day I don't know why, but immediately someone dropped 1 BTC into my wallet!

Seriously, wtf? I click on a few ads and there's 1 BTC? Score! At the time, that 1 Bitcoin was trading at the easiest $345 I'd ever made.

In the next couple of days, the price went nuts. As it approached $500, I just wanted to get a couple under my belt. So I hit Google up again with a 'how to buy bitcoin' request.

There were plenty of options, but all of them involved me handing cash over the counter at a NAB branch. I ordered four and jumped in the car.

Brainwave. I'm about to drop nearly $2000 on this flaky business, I thought, so I decided to check out some retailers first.

Because I could buy several decent laptops for that kind of money, right? And spend maybe an hour a day clicking on ads across them all. And that's what I did - instead of handing $2000 over at the NAB, I found a couple of $400 bargains at a 50% off sale. (They're actually really nifty.)

Now I had two laptops, two PCs already at home and two kids who might want to earn a bit of easy pocket money. There's even a Minecraft server which pays you in BTC to play!

Although I had to explain to my wife why the kids were suddenly gifted a laptop each.

A week later, I hadn't come near to matching my original 1BTC reward, despite clicking on hundreds of ads.

In fact, the way it was rising, I could have doubled my money if I'd stuck with my plan to buy the four Bitcoin. So I lined all the PCs up and had a look at mining proper.

There's several ways you can add your computer's processing power to an online pool and share the rewards.

After working with a bunch that didn't seem to be sending on the proceeds, I settled with BitMinter, mainly because the Java applet was pretty and showed me I was really doing something. Check out that hashrate!

Gah. This is ridiculous. All my PCs are too slow to use on anything else and it's obvious I'm spending more money on power than I'm gaining in BTC.

My biggest payout in a week was roughly 10c. Time to hire some serious muscle power.

BTC hit $1000!

There was a rush on to buy dedicated rigs and I wanted in.

Even if the price didn't move from here, an $8000 rig could pay for itself comfortably within a month. I bought this for - deep breath - $8495.

But wow! It's only a month away! (PDA warning - I have the most trusting wife ever and I love her for that.)

Wrong. 'First run shipped by March?'

Damn. Clearly this guy had ordered a couple of machines and was flogging one for a bit of a profit to help pay for his own. His feedback checked out fine, so apart from my prejudice in regard to the dodgy grammar, I gave him the benefit of the doubt.

Amongst all of this, I was running very late to the Bitcoin party. And contract mining was popping up everywhere.

Contract mining is simply a way of buying into someone else's processing power. You can buy share of mining for a day, a week, years even. If you can find the right balance between the time you buy, the price you pay and processing power, it's pretty attractive.

I bought a two-year contract worth about the current price of two Bitcoin. The vendor promised to return around 0.2 BTC each week. I'd make my money back in 10 weeks, then have 90 weeks of gravy!

And it almost did... for the first three weeks. But not quite. A little over a month later, the payments started to dip. And the time between the payments began to widen.

I sent an email asking what was going on, but never received a reply. I wasn't too worried - even at the reduced time/rate, I'd still be ahead early into my contract.

But then I got an email from eBay saying my machine was on its way. Hooray!

Actually a good result, because more powerful machines wouldn't be shipped until at least April, which gave me three months of BTC mining at the high end of production before getting swamped by better rigs.

January 21, and no machine. So I sent these two passive-aggressive emails out that week.

Note I even called him mate. Twice. Remember, this was not a regular eBay purchase - it was $8495. I'd spent less on a Toyota Hilux earlier that year, which was by now the second love of my life.

February. No rig :|

Time for a complaint to eBay and hopefully, a resolution. But here's where it got tricky.

This was not a good time for me to discover this small detail in eBay's resolution terms.

I'd bought an item that I was always likely to be waiting more than 45 days for, given a week's grace for late delivery. It sounded like a great scam - sell items that won't be delivered until after the dispute resolution period ends.

I contacted eBay. Not very helpfully, they repeated their 45-day policy and apologised for my poor eBay experience.

They told me my bank might be able to help out.

And at the same time, good news. Because I paid for my rig through Paypal and therefore had buyer protection with my Master Card provider St George, they were taking my case up. Win!

Within a week, I had my $8495 back in my account, with the caveat that it would be taken back out if the vendor suddenly came clean and stumped up with my rig.

I still wanted a miner (I still do), so I was okay with that. My wife certainly was.

And a big shout out to Paypal and St George, who worked quicker than I ever imagined they would.

I was still $1000-odd out of pocket, but I had two laptops (and with them, extra unconditional love from my kids) and a near two-year mining contract.

Which so far has run for 30 weeks, and returned 24 payments totaling 1.16436 BTC - about $730. I'd got into the deal under the assumption I'd have 6 Bitcoin by now, but I'll be unlikely to have even half that by the end of my two-year contract.

So I'm about even, with a tiny amount of BTC trickling into my wallet. Looking back, it's easy to see myself as a fool, although the numbers were sound and I'm lucky enough to be able to take the odd smallish financial punt.

But it is still extremely difficult to garner BTC if you live outside US or Europe, where there's quick and easy access to machines and any number of banks willing to process cash for BTC transactions.

You can build your own rig, sure, and it's not beyond regular folk. But there's a lot of maintenance involved and you have to constantly upgrade your equipment.

So if that hasn't completely destroyed your interest in cryptocurrency, here's a few things I can share that I would do differently now, and probably still will:

  • Keep it simple. If you're confident, just jump in, go hard, then sit back and wait. Mince around, be indecisive and try to hedge your bets and you'll lose.
  • That means just buy a rig, the best that will stay the best for up to six months. Or buy a lump sum of BTC and forget about it.
  • If you're buying expensive equipment, stick with the known retailers who have a significant online presence. That sounds obvious, but it's not so simple when you feel like an opportunity's passing you by.
  • Make sure your payment processor (and account it's linked to) has buyer protection built in.
  • And although I didn't know I had buyer protection at the time I paid for my rig, I did hunt around and make sure the guy I was buying off was real before committing to the sale. I wasn't as nervous about losing my money as certain significant others in my life were.
  • Also, alternative currencies now number in the hundreds (probably thousands). You can mine them too, but they're mostly worthless and you can have a lot of fun simply by buying into a few for hard cash online. I've switched a few times, but I've settled on Bter because it's easy for a beginner to watch what's moving and trade between currencies.
  • For the record, I've currently got a heap of Doge, and not so much Darkcoin, VeriCoin and AuroraCoin. Of those, only VeriCoin looks promising.

Hope that helps.

And finally, remember, nothing of what you just read is in any way intended as investment advice and doesn't take into account the financial situation or objectives of any one individual.

A careful read of the article will probably show you that the whole thing is terribly risky and maybe you are better off staying on the couch.

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