Bitcoin woes bite home miners
Once the darling of IT geeks, the digital currency has fallen out of favour. Those who swore by it are now swearing at it Report by NG JUN SEN firstname.lastname@example.org
Think miners, and the quintessential pickaxed dusty man comes to mind.
Mr Ricky Santos is none of that. He spends most days in front of a computer screen and is a self-professed geek.
But he is a miner too. He tried to join the gold rush for bitcoins, a digital currency that can be "mined" by solving mathematical puzzles.
The currency can be used to buy things online and even at shops and restaurants here.
When it started, one bitcoin was worth less than one US cent. As it grew in popularity, it shot up to be worth more than US$1,000 (S$ 1,360) each.
But all that has changed.
Now, Mr Santos, 30, occasionally strolls into his storeroom and flicks on the light switch.
Three computer-size black boxes sit on a rack in the storeroom in his four-room flat. He presses a button and the servers sputter back to life.
"This is just for old time's sake," says the IT engineer from Indonesia.
The machines are dedicated bitcoin miners. Each cost him $1,000, and they were built to churn out one bitcoin every two to three months.
Mr Santos bought his bitcoin miners early last year, back when the value of one bitcoin hit nearly $1,500 each.
"I was lured into thinking that I could break even on my investment in half a year and make a nice profit afterwards," says Mr Santos. It was not to be.
The price of bitcoins plunged threefold in half a year. Today, one bitcoin is valued at around $300.His machines have "retired from service" as they no longer turn a profit.
"At that time, I devoted a lot of effort looking at calculations and my own work suffered. I even contemplated leaving my job because mining sounded profitable then.
"Luckily I didn't, or I would have been ruined," he says, adding that he made only around $1,000, not enough to cover the cost of the three machines.
He is not alone. Mr Santos is one of several miners who were lured by the prospects of earning big back then.
They are known in the industry as "home miners", as they run the machines in their own homes to make money for themselves.
Today, nearly all of them have relegated the machines to their storerooms, leaving them to collect dust.
Most, like 19-year-old Egan Tay, lost money overall.
He spent $500 on two mid-range bitcoin miners late last year, and has never recovered the money.
Says Mr Tay, a student at ITE College East: "I didn't think that the price of bitcoin would fall so much.
"I also didn't factor in the high cost of electricity here. I spent $25 each month on electricity just to run the loss-making machines."
Says Mr Peter Yeo, a former home miner: "Now when we turn our miners on, it will be for nostalgia reasons.
"It is impossible, at today's rate, for any home miner to make money. This is a fact."
The startling fall of the bitcoin value was sparked by Chinese banks banning its use and the collapse of a major bitcoin exchange last year.
The increasing difficulty of the algorithms also meant that once high-end equipment could turn obsolete in months, Mr Yeo explains.
Adds Mr Santos: "It's not like I could just leave the miners running forever like a money printing machine because they will keep on incurring bigger electrical bills."
But unlike many others, Mr Yeo made money from mining cryptocurrency as he chose to "upscale" rather than give up.
He started up a server farm in Jurong with more than 300 machines, renting processing power to other miners for a fee.
Mr Yeo uses the unused processing power to mine another type of cryptocurrency that is currently more profitable than bitcoin for his new company - Cloudmining.sg
"As a company, I get government grants and subsidised electricity. I believe this is the only survivable model of mining in Singapore," he says, adding that his company earns around $20,000 a month.
Unfortunately for other home miners, procuring capital to "double down" on an already unstable cryptocurrency market is out of the question.
Says Mr Tay: "Unless you have several thousands lying around that you can invest, there's no money to be made."
Adds Mr Santos: "I pored over online bitcoin calculators and researching hash rates and equipment.
"It was such a waste of time."
At that time, I devoted a lot of effort looking at calculations and my own work suffered. I even contemplated leaving my job because mining sounded profitable then. Luckily, I didn't, or I would have been ruined.
- Mr Ricky Santos, one of several miners who were lured by the prospects of earning big back then
Coping with their losses
BLEAK FUTURE? A purposebuilt Application Specific Integrated Circuit miner. - TNP PHOTO: ARIFFIN JAMAR
They used to discuss profits and how to maximise them when it came to bitcoin mining.
Now, home mining interest groups mainly talk about coping with their losses.
The number of attendees at these informal meetings, where a niche community of miners shares tips and tricks, have dwindled.
Says Mr Santos, who stopped going to the meets last year: "There used to be about 50 attendees (a year ago). I think only less than 10 people attend these meetings now.
"Bitcoin rose in value since its introduction in 2008, hitting a record high price in late 2013 before falling drastically. Topics changed from making money to exit strategies. When I left, the mood was like a self-help group."
On Internet forums such as Hardwarezone.com, queries from prospective miners are instantly rubbished.
"They will get a standard reply. 'Don't even think about it,'" says Mr Santos.
Besides mining, bitcoin trading also appears to have lost steam here.
On Meetup.com, the Bitcoin Singapore Meetup Group saw a fall in the number of people attending its monthly meets.
There were 100 people at its February meet last year - and 30 at its February event this year, its website says.
In 2013, several bitcoin ATMs managed by firms Tembusu Systems and Coin Republic appeared around the island.
Today, at least five are no longer operating and another four were converted into payment kiosks that do not involve virtual currency, reported The Straits Times.
SOME REMAIN OPTIMISTIC
But some, like Cloudmining.sg founder Peter Yeo, remain optimistic about cryptocurrency here.
"If people stop mining, it just means that the coins that I mine become more valuable. The difficulty (of mining) will also fall, which means I can mine more," he says.
"Cryptocurrency is designed to not fail."
Not all agree.
Former US Federal Reserve Chairman Alan Greenspan once told Bloomberg that bitcoins are "a bubble" and do not have an intrinsic currency value.
The future of bitcoin mining, at least by private individuals, seem bleak.
Mr Santos points out that the "free market forces" behind mining bitcoins are now skewed against home miners due to the appearance of large bitcoin farms in other countries like China.
"Those farms will just keep on upscaling, driving up the mining difficulty and making things worse for us home miners," he muses.
"That's what you get when a currency is completely unregulated."
About bitcoins and bitcoin mining
Bitcoins were created in 2009 by a person or a group of people known as Satoshi Nakamoto, with the intention of eliminating governments or banks as financial intermediary.
Although the identity of its creator is unclear, bitcoins are widely lauded as the world's first decentralised, anonymous digital currency.
They are sent through the Internet from one address to another, with no central regulating authority.
Bitcoins can be created through a process known as mining, where users are awarded bitcoins each time they find the solution to a certain mathematical problem, thereby creating a new "block" in the bitcoin network.
A block is a record of some or all of the most recent bitcoin transactions. Creating a block rewards the miner with bitcoins.
The difficulty of the mathematical problem fluctuates every 2,016 mined blocks to control how many bitcoins are produced.
Miners can join other miners in a "mining pool", combining their processing power and sharing the profits from mining the same block.
Bitcoins are not widely used here, but a few retail outlets and restaurants have started to accept them as alternatives to native currencies.
Rise & fall of bitcoin