One of my growing frustrations with the cryptoworld is the dearth of solid investments which can be reasonably expected to grow in value over time as well as yield a decent income. In short, I’d love to find a place where I can make regular payments and expect my principal to grow as well as pay dividends (which can either be reinvested or pocketed). Something like a mutual fund, actually.
It’s certainly understandable that a wide variety of solid investments hasn’t come on the scene yet. After all, Bitcoin is barely five years old, and most of the alt coins which currently exist were basically born yesterday. Some are several months old and a very few are older than a year. First you build a solid coin, then the solid investments related to that coin follow. It takes time. I get all that.
I’ve been accumulating various cryptocoins here and there. Sometimes I buy them outright. Sometimes I get them through faucets and giveaways. Mostly I earn them. In either case once I have them I would like to feel like I’m doing something productive with them, as opposed to having them simply collecting dust in my wallets. I don’t mind trading my alt coins for Bitcoin as often the Bitcoin-denominated investments are better as they’ve had more time to develop.
Here’s a rundown of the types of investments I have come across and their issues.
1. Mining As far as I can tell, mining remains the most immediately profitable way to invest Bitcoin. Cloud mining allows for anyone to participate in mining without needing to buy and maintain expensive equipment or have the technical knowledge to run it. I personally have really enjoyed building up my stock of hashing power on the Bitcoin Commodity Exchange, and regularly withdrawing and spending the mining rewards, as well as reinvesting them. For a while I was netting more than a tenth of a Bitcoin a week.
But there are two problems with mining, or rather it’s the same problem hitting me in two different ways. The problem is consistent mining difficulty increases. In order for Bitcoin miners to collectively generate one block every ten minutes, the difficulty level needs to adjust according to the amount of computing power engaged in mining. Since more and more people get into mining every day, this means that mining gets harder and harder. This means that the same amount of hashing power will mine fewer and fewer Bitcoins as time goes on.
My personal experience of this is that each week the return on my hashing power gets lower and lower. It also means that the price of each GHS (unit of hashing power) also gets lower and lower with time. This second part means that once I buy hashing power, I effectively cannot sell it for the same price I paid for it. I will always be taking a loss. In this way buying hashing power as an investment is equivalent to buying a brand new vehicle off the lot thinking that in a year I can resell it for more than I paid for it when the truth is that my vehicle just lost a few thousand dollars in value the minute I drove it home. Whatever my hashing power is worth today, I can bet it will be worth far less next week, next month, and next year. At the same time it will yield less and less.
The trick with Bitcoin mining is to somehow recoup that initial investment in rewards faster than the price of the hashing power drops in value. This is possible perhaps if you own your own equipment, can somehow get deep discounts on utility bills, and were able to pay a very low price per hashing unit to begin with. I’m growing more and more skeptical of this being possible with cloud mining. I’ve been keeping a little tally of how much Bitcoin I’ve put into cloud mining and how much I’ve taken out. I’m not even counting Bitcoin or Namecoin I’ve reinvested, and I have a long way to go to reach the break even point. I paid over ten times as much for much of the hashing power as I could sell it for now, and each week it’s mining less and less. And to further exacerbate matters, the Bitcoin Commodity Exchange is now passing on its higher costs of operation to the customers. Now each time a block is mined, my reward is “taxed” by close to thirty percent.
Some people have chosen to sell off all their GHS and put their Bitcoin somewhere else. I’ve considered it, but so far I figure since I already own the hashing power I might as well use it and get something out of it rather than sell it for ten cents on the dollar. Perhaps with patience in a year or two I will actually reach the break even point from mining rewards. I’m also tempted to buy more hashing power since the price is so low, but I wonder how much farther it can drop. I’m hoping at some point it reaches a floor determined by the cost of manufacturing GHS but since it trades on the open market, that may not be a huge consideration on the part of those putting their GHS up for sale.
In general Bitcoin mining yields a good return, but you’re getting that return with a rapidly depreciating asset, and I’m not sure if it’s possible to reach a break even point in any sort of reasonable amount of time.
Scrypt mining is becoming more popular these days, especially as Bitcoin mining gets more difficult. There are cloud mining services popping up, and many people are touting the potential profitability. One interesting feature of Scrypt mining is that newer Scrypt coins are easier to mine than older ones. A huge factor in Scrypt mining profitability lies in choosing the right brand new Scrypt coins to mine, hold onto, and then sell when those coins get some traction and increased price.
ASICs for Scrypt mining have recently come onto the market which basically means that Scrypt mining is going to experience the same massive difficulty increases that Bitcoin mining already has. It’s a matter of being the first to set up and run the best ASICs and mine the most possible in the shortest period of time before everyone else jumps on that bandwagon. The fact that new Scrypt coins are being developed fairly constantly will probably delay the worst impact of difficulty increases as those new coins start out being much easier to mine. As long as the profitable ones are mined early and sold at the right time there is decent earning potential from Scrypt mining for a long time.
I’m dabbling into Scrypt mining using my “pocket change,” and I may increase my investment to make my mining rewards more substantial than an automatic faucet. Scrypt.cc is one service I’m trying out, which is working fine so far. There is also a security on CryptoStocks called CPW (Crypto Power Mining) which has paid out consistent dividends. Both projects estimate a complete return on investment in around 200 days or so.
2. Securities Securities are essentially stocks and bonds indicating an investment in a company or project. These securities are issued because the project or company owner wants to raise funds to be able to buy or build some infrastructure which is expected to make the enterprise more profitable in the future. In exchange for stockholders’ investment, the enterprise shares the profits as regular dividend payments.
Investing in securities is definitely a beautiful concept. However I have found that more often than not the project I invested in stops paying dividends or folds long before I can get a complete return on my investment. The reasons for folding vary. Sometimes it’s because the website listing the security got hacked. Sometimes it’s because the project was a scam all along. Mostly it’s because the project simply failed, as most new ventures both in the fiat and crypto worlds often do. The investor of course loses his investment and understands from experience the real meaning of the word “risk.” Hopefully he could afford what he just lost.
I’ve lost plenty of cryptos off of securities which seemed like a good idea at the time but ended up not working out for whatever reason. I’ve also had to sell securities too early to pay bills. I still play around with them, still throw money at ones which look promising. Of all the ones I currently own I believe the best one is the RENT fund listed on Havelock Investments. It’s run by a group of real estate investors who seem to know what they are doing and who send out detailed updates to shareholders at least twice a month. Of all the security type investments I’ve tried, this one may be the fund to keep buying, maybe to the tune of a half Bitcoin every month. Dividends are paid monthly. Another security which is looking good is the DGEX one which is denominated in NXT. That one pays out weekly dividends in both BTC and NXT. The easiest way to get into that fund is to send some BTC to the Bitcoin Next Exchange (DGEX), from there buy NXT, and then use the NXT to buy the DGEX shares. You can send NXT directly, but it has to be from a PC-based wallet, and NXT PC wallets can be highly annoying at times.
3. Scams, hacked services or plain bad investments The cryptoworld is rife with scams of all kinds. Most scams are some version of the high yield investment pyramid scheme (HYIP), where investors are lured into sending money by the promise of ridiculously high returns. I have come across sites which literally promise more than a 100% return on investment within 48 hours! If the site offers no explanation as to how it can provide investors with such a high rate of return then I assume it’s a scam and move on. The times I get sucked in are when a plausible specific explanation for the promised rate of return is offered. It also helps when the rate of return seems reasonable but good. If I don’t understand the ins and outs of how the method actually works (and don’t realize that I don’t understand) then I’m more likely to get hooked.
The very first scam I fell for got me because I didn’t understand Bitcoin mining. I knew that it was very lucrative but I’d never actually gone through the exercise of estimating reasonable rates of return. More recently I may have just sent 0.05 BTC to a scam site claiming to provide investors with a rate of return from the arbitrage in the price of Bitcoin on various exchanges. Why would I fall for that? Well, the estimated rates of return were reasonable and the scenario of profiting from trade exchange arbitrage seemed plausible to me. Thankfully it was only 0.05 BTC. Lesson learned.
In addition to outright scams, there are the sites providing a wonderful service which get hacked and have lots of funds stolen, as what happened to Inputs.io and CoinLenders. I still believe the owner of those services was honest, but when his site got hacked and funds stolen, those of us who had put BTC into it lost our funds. Theft really stinks and it’s not fair.
And then there are those services which are simply poorly run, such as Mt. Gox, and eventually the whole thing comes crashing down as the company files for bankruptcy which releases them from the obligation of having to pay any of their customers back.
Between all those types of rotten investments that end up becoming Bitcoin black holes… well, if you haven’t lost Bitcoin in at least one of those things, you’re probably either super smart or playing it very safe. It’s really true that you should only invest what you can afford to lose. I add to that my own advice which is that if you’re earning cryptos on a regular basis, take at least half as profits by cashing out to fiat and use those profits to better your life. Since I started taking profits from my own crypto earnings I can handle the inevitable losses a whole lot better.
4. alt-coins It’s as simple as doing some due diligence and choosing the alt-coins or group of alt-coins you think will be the next winner, and then buying some on Cryptsy or another trade exchange. Once you’ve purchased the alt-coins, you sit on them until the price is right for you to sell. I am starting to accumulate a few alt coins here and there, and I’m hoping that in the future their value goes up much higher than it is now. I’ll admit that I do not do a ton of research before I buy an interesting alt-coin, but there are a few things I consider.
Does the development team have a plan? If I run across forum posts and other published info talking up how their alt-coin is unique and different and how they plan to make it successful, then I tend to believe that coin has a much better chance of actually being successful. Of course I understand that talk is just talk and worthless without action, but in general I’m willing to give people the benefit of the doubt. If they can articulate a good plan for their alt-coin and get the word out about it, then they are ahead of the majority of alt-coins.
How good are the faucets? This one isn’t an absolute, but I do see a bit of a correlation between an alt-coin’s success and longevity and whether or not there are faucets for that coin. Lots of long lasting faucets as is the case with Bitcoin is generally a good sign. If nothing else, it indicates that there are people behind this coin willing to promote it and give some away to get it into more hands. Another indicator is the popularity of the faucets because that says something about overall popularity of the coin.
Is this coin newsworthy? Any mention of an alt coin in the press is a possible sign of a price increase further down the road. When I learned that Dogecoin was sponsoring a Nascar racer I figured it was time to buy some. If the racecar driver actually wins his race there will suddenly be a lot more people who know about Dogecoin. Some of those people will want to buy some, and that increased demand boosts the coin price on the exchange.
5. Faucets, giveaways, and ad viewing At first glance the idea of hitting up faucets as an investment strategy is rather ridiculous. Tiny amounts of dispenses will take years and years to amount to anything substantial. However, when it comes to brand new coins, the faucet dispenses are usually much higher at the very beginning, before the coin’s price has had its initial jump. An alt-coin likely to be successful is one with a good development and marketing team and it undoubtedly involves one or two really good faucets. If you happen to know about the coin and the faucet early, you can rack up quite a few coins before the size of the dispense drops. And even with coins which have been around for a while, if there are enough faucets and you are systematic, you can do quite well. The great thing about faucets is that all they take is time. You do not have to buy anything. You don’t even have to install a wallet, as usually some kind of alt-coin exchange such as Cryptsy or AllCoin already supports the coin. You can just use the address generated by the trading platform for your account. Once you collect a few dispenses for a given coin, you can start paying attention to the market movements of that coin. Once you have an idea of the spread, you can place some sell orders at the high, and once you sell, then turn around and place buy orders at the low. If you’re patient, you may gradually enhance your faucet earnings by also taking advantage of the market swings. But you do have to be patient. You’re either going to be waiting a long time using a wide spread or you’ll be growing your stash a tiny bit at a time with more frequent trades using a more narrow spread. Of course with trading speculation you also risk losing your precious stash, so you can also play it safe and simply hold onto your growing stash.
For more substantial dispenses, you can go after the giveaways. Alt-coin giveaways are numerous, so much so that there are now entire websites dedicated to giveaways. One site I encountered recently is CryptoSandwich. There is now a forum specifically for alt-coin giveaways. Many other forums about cryptocurrencies will also have boards specifically designated for giveaways. For the most part the people offering the giveaways are willing to hand out alt-coins in exchange for the opportunity to market to you in the future. For example, The Alt-Coin Herald promises 100 DogeCoins just for liking their Facebook page. Two other giveaways I tried was one for getting 800 SaturnCoins for favoriting and retweeting two items, and one for getting 10,000 BetaCoin for making a comment about BetaCoin on the thread.
Unlike faucets which usually allow for regular visits, giveaways are generally a one-off deal. You complete the required task, post your address, and you’re done once you collect the reward. Just like faucets, there are good giveaways and then there are those giveaways which never materialize. I would say that about half of the random giveaways I’ve tried have yielded nothing. For this reason I generally only apply for the very simple giveaways. I can like a Facebook page, I can retweet a couple things, but any more complicated than that and I consider it to be too high a risk, as I don’t want to have been out a lot of time promoting something for free. Of course, scouring for good giveaways in and of themselves can take a lot of time too. But even just a cursory glance at the Alt-Coin giveaway forum every few days is likely to show you some easy giveaways which could make you just a bit richer in some alt-coin you’d never heard of before.
Speaking of marketing, there is always the opportunity to earn small amounts of Bitcoin by viewing ads, and there are tons of sites which will pay you to do that. I don’t spend a lot of time viewing ads but when I do, I go through CoinAd. There are never a lot of ads to view, but the payout threshold is reasonable and I’ve always gotten paid when I’ve hit the threshold and requested a payout. CoinAd even posts the transaction ID for each payout on my account dashboard.
If you yourself enjoy marketing and are good at getting others to sign up for and visit websites, many of the faucets and ad viewing sites have affiliate programs. If you get enough referrals, you can leverage all their hard work and get a nice little passive income. What’s great is that just like you, your referrals don’t have to buy anything, just visit the site and do the little bit that is required to claim a dispense or earn some coin.
6. Good old fashioned hard work In the end, just like with the fiat world, there are few things that beat working hard for getting paid well and consistently. My investments in the cryptoworld have yet to pay off significantly. I’m still waiting to reach a break even point on all of them, and as I’ve mentioned some investments have folded and lost everything I put into them. So overall, I need to be honest and say I’m not exactly the poster child for wildly successful investments. I have gained the most cryptocoins by far simply by working for them. For me, that translates into writing, but it could be any kind of service you offer in exchange for payment. The cryptoworld is new and fairly small, so networking is often much easier than it is in the fiat world. If you are willing to get paid in cryptos, landing customers can be very easy too. If you write, definitely check out the opportunity the Devtome offers. I have not found any opportunity that beats it for return on investment to date.