I think we could all agree that the recent rise of Bitcoin has been nothing less than spectacular. I know myself I was a sceptic for quite a long time on how could something that had no tangible value be worth something it seemed insane. Warren Buffet’s comments though that if Martians were watching us from mars, digging up gold then moving it somewhere else and sticking it back in the ground and guarding it they would think we were nuts was quite true. The fact of the matter is though that as humans we need to trust the store of value that we have. Money or currency for a long time has been this. In the 1970s through when President Nixon took us off the gold standard though this changed how we all view the value of money. When you just keep printing more and more with no consequence you start to lose faith in it.
Gold for such a long time was seen as a store of value and back in 2003 when gold was around $300 per ounce and today it’s worth close to $2000. The reason being is that gold is created from the earth and thus that governs how much is added each year to global stockpiles and politicians can’t just create more thus we trust it! Bitcoin is an algorithm that can’t be altered, it’s open for all to view and needs to be verified by multiple independent parties so this makes it virtually impossible to alter and thus we are now trusting it as a store of wealth. The only catch, where banks used to facilitate the movement of money or central governments verify the creation money via their computers, Bitcoin does the same thing via a series of “miners” which effectively undertake the same process for us. The ledgers though are huge and do take a fair bit of computing power. So for Bitcoin, all you need is cheap energy and you can do quite well from mining.
How would Solar Crypto Farms in Australia going to work?
In terms of cheap power sources, we see a lot of Crypto mining up in Iceland where hydro and geothermal power provides seemingly limitless amounts along with cooling for the server farms. Here in Australia, we have an abundance of solar opportunities (see our home solar option here). I have always wondered what it might cost to buy a block of land somewhere like Broken Hill where there is next to no rainfall and thus a solid flow of sunlight. From this, a solar farm would be able to be set up and a small server farm could be done to be able to mine the cryptocurrency. Battery technology these days is becoming cheaper and could therefore keep the operation running through the night. Years ago this would have been tricky however at home now I have two fairly high-end graphics cards in my home PC and I’ve noticed that the price I am getting per day has increased 40% simply due to the fact that the Bitcoin price has gone up by this much. I can’t help but think that this is really starting to drive the viability of looking at a larger operation like this.
How profitable will it be?
Setting up these kinds of operations wouldn’t have a huge amount of impact on other investments. To execute this we would need land, solar panels, a building for the server farm, batteries and servers. A low maintenance operation would also be key to minimize labour and hopefully, the operation can just hum with little in the way of overheads. A payback period would be a little more tricky to do as the price of crypto continues to get stronger and stronger. I’ll update this article in a few more months once I have completed the calculations around the proposed operation however the numbers initially look sound. My current PC at home is making a profit per year of $1500 and that’s after power. My card cost $2300 meaning that the hardware would be paid off in less than 2 years and this isn’t even scaling yet.
Bitcoin or cryptocurrency is still a high-risk investment. It is purely driven by the human psychology of trust around the store of value. That being said I am far more worried about politicians being left in charge of the money printer with seemingly no consequences. In recent years it has been central banks buying up government debt bonds and not other countries. To translate this into easier terms countries are effectively now writing IOU’s to themselves in that I’ll print it and promise to pay it back. How long do we think it will be until a country simply chooses to not pay it back and simply cancel it instead? This I see as a far higher chance rather than people just walking away from the trust that the cryptocurrencies bring. These can’t be manipulated as easy and can’t be controlled as easily as governments either.
For myself, Bitcoin and Etherium as referenced in my other article continue to be my main investments which I am watching and keeping an eye on. Bitcoin over the recent 6 months has earnt the trust of wall street as a viable store of wealth. Many firms there have bought up the asset and thus it’s moving into the same field as gold. The other is Etherium. Think of Etherium as perhaps the Windows of the Crypto world. It’s effectively acting as the blueprint or platform that many of the new Crypto assets are built on and every time someone uses them they collect a transaction fee thus as it grows so will this asset. If you are going to look at this as a viable investment start small prove out the platform then start to scale. This is still a fairly new field in terms of investment however Australia has a massive amount of potential due to our abundance of solar energy, this is just a new way to make money from it.
11th January 2021