Bitcoin Gold Rush: Are You Late to the Party?

April 23, 2014 8:32 pm Last Updated: April 23, 2014 9:51 pm

Steve Vittitoe has a money printing machine in his home that generates roughly $260,000 a year pending bitcoin price volatility, reports CNBC. Vittitoe and his partner operate a series of computers and black boxes round the clock that mine 1.2 bitcoins a day.

Others, like Cloud Hashing, have sized up their operations in the form of a 3,000 computer business that looks to mine over $100 million worth of bitcoins each year.

But what exactly is a bitcoin? How is it mined? And are you missing out on the bitcoin gold rush? Bitcoin is a digital currency used for peer to peer transactions that does not use a bank as a middleman.

This virtual currency is both created and sent through cryptography. Each transaction is anonymously verified by other users who solve for an encryption code. As a reward for helping others secure transactions, users receive an allocation of bitcoins. Mining is this process of solving crypto-codes for bitcoins.

Artesian from Academic Earth explains that the code was very easy to solve at first because there were few bitcoin users. However, as the community grew, it became more and more difficult to solve the crypto-code.

As a result, individuals like Vittitoe and companies like Cloud Hashing have to invest a large amount of capital into high-end computers that can mine efficiently.

Since last November, the price of bitcoin has shot up from $200 to $500 USD and, at one point, reached a high of over $1,100.

In order to hedge out the bitcoin price volatility, companies like Cloud Hashing sell mining contracts to individuals who are interested in mining bitcoins. This service saves investors the hassle of purchasing and setting up a mining machine.

One Cloud Hashing user, Hanoii, warns that there are numerous variables to consider when purchasing a contract because the amount of computational power needed to mine bitcoins is constantly increasing.

This means that there will be volatility in both the number of bitcoins that your contract will ultimately yield as well as the value of those bitcoins.

Hanoii does mention that purchasing your own equipment for a good price and running it properly with good maintenance will probably be profitable. However, at current prices, Cloud Hashing mining contracts do not seem to be a profitable investment.