Thursday, April 18, 2013
My Insane Bitcoin Rollercoaster Ride
Apologies to my online gaming friends as my extended absence from gaming and blogging was somewhat unexpected. But Ive been on one of the craziest rollercoaster rides of my life in the past couple months. As many of you know, I got interested in Bitcoins last year, and started buying them for around $10-12 each on Coinbase.com - just because the entire concept of a decentralized cryptocurrency fascinated me. But soon enough I realized that there was an entire online economy based around them - and most importantly you could play poker with them!
It didnt take long for me to head on over to Seals With Clubs and start playing. I deposited 7 Bitcoins - at the time 7 Bitcoins had a combined value of roughly $100USD. I was just happy to be able to play online again and playing for superlow stakes with monopoly money was a fine form of entertainment. But then... then some crazy shit happened. Pretty much in unison, I started winning on Seals With Clubs at an incredible clip, and the value of Bitcoins started to skyrocket. My bankroll on SWC doubled, then tripled, then doubled again (I was using a very aggressive bankroll management strategy), and Bitcoins went up in value to $20, then $30, $40, and before I knew it they were worth $100 each. Then $150. Then $200! $250!!!
Soon I had almost 200 Bitcoins in my Seals With Clubs account, and I was playing against the website's in house pros and rich Bitcoin investors who could afford to play at the highest stakes: 25-50 and 50-100 (Buy-in of 5 or 10BTC respectively). I had gone from a $100 investment, playing for fun, to having a $50,000 bankroll in the span of a couple of months. As you could imagine, I could barely contain my enthusiasm for Bitcoins and was grinding online for several hours a day - and sometimes putting in 24-36 hour weekend sessions fueled by epic quantities of Adderall, cappucino, and Monster Energy ReHab.
I also became extremely interested in the process of Bitcoin creation known as mining. Bitcoins are generated by computers running a proof of work algorithm based on SHA256, which is a resource intensive process that utilizes a computers GPU (graphics processor) for parallel processing. I had a pretty powerful GPU because Im a PC gamer so I tried it out, and low and behold, after a couple days of hashing for a pool, my computer had generated a fraction of a bitcoin. Cool! So I bought another graphics card, and doubled my hashrate.
Then I thought, well, Im good at building computers and its been a while since I made one, and it looks like it could pay for itself in a matter of months if I choose the right components - several high end GPUs bought used on ebay and a cheap motherboard, RAM and CPU - no case required. Then I started buying used machines on Craigslist and jamming ATI 6950s in them, and before I knew it I had 6 mining rigs and a maze of power supply wires, extension cables, PCIE extenders, and ATX leads all over the floor of my place. I took some of my profits and preordered several custom, high end ASIC Bitcoin mining machines from a shady company known as Butterfly Labs (no, they still havent shipped yet). The whole notion of mining some digital currency seemed like something out of William Gibson novel and was utterly fascinating to me - and still is.
So I was accumulating Bitcoins through playing poker and mining, and although I did cash out a few thousand dollars worth through Coinbase, for the most part I had made up my mind to let it ride. This is gambling terminology for leaving your winnings on the table and doubling down your bets. Go Big or Go Home. This is how I play poker, and this was my approach to investing in Bitcoins. And it was working in both areas - spectacularly.
Until, the Great Bitcoin Crash of 2013. You see, there had previously been a big Bitcoin crash. Back in 2011, there were a couple of very well publicized pieces (particularly the one by Salon.com) trumpeting Bitcoins which sent the value from $2 to $30 almost overnight, but shortly thereafter a few major Bitcoin related companies and exchanges were hacked, resulting in the loss of tens of thousands of coins. This resulted in a major loss of confidence in the currency itself, panic set in, and the value plummeted back down to $2. Bitcoin itself hadnt been hacked, but the difference to the common investor was inconsequential.
It took over a year for the price to go back up to around $10. And this time, the fundamentals were better. There was a whole economy based on Bitcoins by late 2012. You could actually buy things with them. You could cash them out to $USD almost instantly. The number of google searches for Bitcoin had gone up exponentially. There was a real awareness and excitement about Bitcoins this time around, and they had gone from something only esoteric computer geeks knew about to something you might see in the chat of World of Warcraft or a piece by a financial journal about emerging markets. It was different now.
But then... BOOOOOOOM!!! All at once, a few people started taking profits around $250-270, and so many people started creating accounts and logging into the #1 exchange, Mt. Gox, that it actually crashed completely. Then they restarted it, but with so many people trying to log in and check the prices, their balances, and trade back and forth with the $USD, it created a huge amount of lag which rendered all trading almost impossible. Panic set in, and soon everyone started selling. The price plummeted. As I watched in realtime in absolute horror, the price of Bitcoins fell from $270 to $60 in a matter of hours. Over 75% of the value of my investment had evaporated. Im still up overall because I bought in so cheap - but ask any poker player - when you rack out winning a dozen big blinds after being up half a dozen buyins - it sure doesnt feel like winning. During last week, my luck in poker also turned for the worse, and I lost about 30% of my bankroll in just a few nightmarish sessions where every turn and river card was the worst possible card in the deck.
So that brings me to where I am now. The price has since recovered a little bit, as of this writing, its a little bit under $90, and really I have absolutely nothing to complain about or bad to say about this whole experience other than it has been just a totally insane rollercoaster. Ive always looked at my Bitcoin investments as a freeroll - something which costs nothing or almost nothing - where you can only win and never lose. If the value ever drops to $0 I can always sell my mining rigs for parts and use my 6950s and 7950s to play Battlefield 3 with (which it looks absolutely amazing on running at 60FPS/1900x1200). The tens of thousands of hands I played on Seals, well, I enjoy poker and I first got back into it 7 years ago through a love of strategy gaming and playing for fun with my friends on Xbox Live. Poker taught me to love gambling - not the other way around. I joined Seals to play for fun in the first place, so nothing lost there.
So I know by now you are probably wondering, Chronic, should I buy some Bitcoins? Should I get into mining or poker on SWC? Well my advice is this. Only invest what time and money you are perfectly comfortable with losing. If you look at the whole thing as a freeroll in this way - Bitcoins could one day become very, very valuable, or be worth nothing - you are investing responsibly. Do I think buying at $100 or mining at the current difficulty is worth it? Yes, but only if the money you invest is an amount that doesnt mean that much to you. It is a high risk, high reward proposition, but if you have libertarian leanings like myself, the whole experience of creating and using a digital currency outside of the scope of any corporation or government entity is extremely rewarding - if not always profitable.
Just as a postscript, speaking of non-profitability, check out this Bitcoin miner made from a Nintendo Entertainment System! The Bitcoin community is pretty amazing - its a group of highly intelligent, tech savvy non-conformists who share a common distaste for fiat currency. If you want to learn more about Bitcoins, I highly recommend you create an account on the Bitcoin Talk Forums and start browsing around. Just be careful about what to believe and who to trust - use your head, and its an incredible resource.