Am I able to obtain compound growth when I invest in Bitcoin?
Einstein - "Compound interest is the eighth wonder of the world; he who understands it earns it and he who doesn't pays it."
We hear many discussions regarding the way forward for Bitcoin, could it boost in popularity? Will the worth increase? How safe might it be as a possible investment?
I have heard many discussions on whether or not to trade, mine and cloud mining but I never have heard any discussion of professional investing or at-least applying the theory of professional investing to Bitcoin. Now lets suppose that were to use the view point that there's a good future for Bitcoin, it's going to increase in popularity, the value will hold and if anything it will rise in value because we understand fundamentally it has better value to fiat currency.
If this sounds like my viewpoint, I made a decision that I should be approaching this like a professional investor; I can afford to invest by way of example 1,000 GBP (approx 1,600 USD), but I plan to think about how to invest this into Bitcoin into the safest and most efficient way.
The most important rule for anybody who sees themselves as a professional investor is to use the rule of compound growth, if you're planning to treat your account or wallet as a current account you just aren't likely to see anywhere near your potential.
A quick example:
Andrew would like to see compound growth on his shares which averages 1% growth every month; (1% seems quite lame, but we would like our example to become conservative as well as demonstrate the strength of this) he deposits 10,000 GBP and each and every year he reinvests his interest. His account would appear like this;
Year one 11,200, year two over 12,500 and so on till year 10 which is over 31,000.
Whereas if Mark decides to take 1,200 near the end of December to treat himself for Christmas, we don't even need to do the maths, he'll remain 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 make improvements to this massively and discover why Einstein called Compound growth the eight wonder of the world.
Returning to the mining; Should you calculate the profitability of utilizing your very own hardware this can be done on line, by using Google and searching for bitcoin mining profitability calculator you will find numerous websites, just be sure that you input the correct difficulty and exchange rate, you'll be fine but one thing that most bitcoin profitability calculators don't bear in mind is the surge in mining difficulty.
Now lets imagine that we have opted for the least expensive way of mining, due to living in England the running and maintenance costs of the Cloudmining warehouses is going to be under half the cost of an average electricity bill, and we save on space as-well.
For 1000 GBP we're able to buy 3 x 1000Ghs Cloudmining contracts as well as have 100 left which we will use to purchase 5 x 50Ghs Cloud mining contracts, that can leave us with 3250Ghs or 3.25Th.
I have taken the most recent and relevant data for the mining difficulty for the past 3 months, as you will find out the difficulty increases about two times month to be more exact it's every 11.7 days. Therefore, I will work on the basis that the difficulty increases 4.80% every 12 days, there is not any point fussing over 0.3 of a day every 12 days when we are operating with averages anyway, plus what we are performing is only increasing our existing accuracy, therefore I don't wish to be criticised for this.
To work through our earnings potential I am going to figure out our earnings after we have deducted the costs and add the difficulty to the next session. And next by adding the new hashing power bought with the earnings. I am focusing on the average increasing difficulty 4.98% as well as the average decreasing cost of 10% for the hashing power.
Now the simple truth is it's not going to serve as smoothly as this, the hashing power will not decrease by 10% every twelfth day, but it will need to go in such a direction to remain viable for the buyers. More than a year ago it was seen with CEX, the hashing power wasn't economically viable for folks as a result it needed to be brought down to a sensible level.
It was found that even by conservative estimates you EASILY beak even within 6 months and may potentially double your earnings within the 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 likely to be, if you apply the principal of reinvesting your earnings or at least a good portion of your earnings during a period as soon as the hashing price falls (the cost per Ghs has never gone up) then you will make a a small fortune.
What I am showing is when you treat mining as you would with any proper business and not a gimmick you'll certainly reap the rewards from it. You need to take the attitude that 6 months, a year or perhaps a three years is not a great deal of time (especially if you are earning money whilst you sleep) and I believe you should definitely spend an hour or two on excel and on line to ensure that you take a proper approach.
If you think about that bitcoin remains to be rolling around in its infancy and fundamentally undervalued, it is certainly possible to earn a good income with bitcoin mining and that it's not at all too far gone to get into as many would love you to think.
Source by Louis James Lewis
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