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Bitcoin: Is It Worth Mining Bitcoins?

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The Bitcoin cliff – your house and the mad max currency

In the seminal 1979 Aussie flick, Mad Max, the world was pitched into an oil shortage armageddon. The predictability of shortages and the increasing value of the last major commodity led to social and economic chaos, as well as some interesting leather punk fashion.

While Bitcoin may never change our fashion, it will also never take a realistic foothold as an emerging currency.

Bitcoin (BTC) is a digital currency which was launched in 2009 by an anonymous programmer using the moniker, Satoshi Nakamoto. Bitcoin currency is primarily traded online and can be obtained though bitcoin mining, direct transfers or online trading. It has no central bank, nor is it backed by anything of real value. It is free from government control and its supply only slowly increases to a capped amount of 21 million Bitcoins by the year 2140 (yes, year 2140, that isn't a typo).

Rates last updated November 21st, 2017
Details Features
CoinSpot Cryptocurrency Marketplace
CoinSpot Cryptocurrency Marketplace
CoinSpot is an Australian marketplace that allows you to easily buy, sell or exchange multiple cryptocurrencies using AUD.
  • Buy/sell Bitcoin Cash & Bitcoin Gold
  • Fees: 1-3%
  • Supported countries: Australia & New Zealand
  • Payment methods: BPAY, POLi, cash
Go to site More info
Bitfinex Multi-coin Exchange
Bitfinex Multi-coin Exchange
Spot trade all of the major cryptos on this full-featured exchange and margin trading platform. View a demo before you get started.
  • Trade Bitcoin Cash & Bitcoin Gold
  • Fees: Range from 0%-0.2%
  • Supported countries: Worldwide
  • Payment methods: Cryptocurrencies
Go to site
CEX.IO Cryptocurrency Exchange
CEX.IO Cryptocurrency Exchange
Use your dollars, euros or rubles to buy and sell bitcoin at competitive exchange rates and with high maximums for verified accounts.
  • Buy/sell Bitcoin Cash
  • Fees: Varies by transaction
  • Supported countries: Worldwide
  • Payment methods: Wire, Credit/Debit, AstroPay
Go to site
HitBTC Multi-currency Exchange
HitBTC Multi-currency Exchange
Buy crypto with fiat (USD/EUR) and trade over 150 other digital assets on this Europe-based exchange platform.
  • Buy/sell Bitcoin Cash & Bitcoin Gold
  • Fees: Varies by transaction type
  • Supported countries: Global, with exceptions
  • Deposit methods: USD/EUR/Crypto
Go to site
Binance Cryptocurrency Exchange
Binance Cryptocurrency Exchange
Trade 60+ cryptocurrency pairs on this up-and-coming exchange based in China. Multi-language support.
  • Trade Bitcoin Cash & Bitcoin Gold
  • Fees: 0.1% trading fee
  • Supported countries: Worldwide
  • Deposit methods: BTC, ETH, LTC, NEO & BNB
Go to site
Changelly Crypto-to-Crypto Exchange
Changelly Crypto-to-Crypto Exchange
Access competitive crypto-to-crypto exchange rates for more than 35 cryptocurrencies on this global exchange.
  • Buy/sell Bitcoin Cash
  • Fees: 0.5% + networking fees
  • Supported countries: Worldwide
  • Payment methods: USD, EUR, 35+ cryptos
Go to site
Coinbase Digital Currency Exchange
Coinbase Digital Currency Exchange
Buy and sell bitcoin, Ethereum and Litecoin on one of the world's most renowned cryptocurrency exchanges.
  • Fees: Varies by transaction
  • Supported countries: 190 countries
  • Payment methods: Bank transfer, Credit/debit card, Wire
Go to site
LocalBitcoins P2P Exchange
LocalBitcoins P2P Exchange
Trade fiat currency for bitcoin in person or online with this peer-to-peer exchange offering competitive fees and wide delivery options.
  • Fees: 1% commission for each completed operation
  • Supported countries: Exchangers in 248 countries
  • Payment methods: PayPal, Credit/Debit and more
Go to site
Indacoin Cryptocurrency Exchange
Indacoin Cryptocurrency Exchange
Use your credit or debit card to buy bitcoin and other cryptocurrency without having to verify your identity.
  • Fees: Varies by transaction
  • Supported countries: More than 100 countries
  • Payment methods: Payza, Credit/Debit cards (USD) and more
Go to site
Paxful Bitcoin Marketplace
Paxful Bitcoin Marketplace
Connect with bitcoin buyers and sellers through this peer-to-peer marketplace that accepts cash, credit and more than 300 other payment methods.
  • Fees: Varies by transaction, and PayPal no fees
  • Supported countries: Worldwide
  • Payment methods: Western Union, PayPal and many more
Go to site
BitMEX Bitcoin Trading Exchange
BitMEX Bitcoin Trading Exchange
Trade cryptocurrency derivatives with high liquidity for bitcoin spot and futures, and up to 100% leverage on margin trading.
  • Fees: Varies by trading type
  • Supported countries: Worldwide with exceptions
  • Deposit methods: BTC only
Go to site
Bitbond P2P Bitcoin Lending
Bitbond P2P Bitcoin Lending
This global P2P bitcoin lending platform offers competitive interest rates for lenders and flexible financing for bitcoin borrowers.
  • Fees: Varies for lender/borrower
  • Supported countries: 50+ countries
  • Payment methods: Bitcoin, US dollars, euros, Kenyan shillings
Go to site
VirWox Virtual Currency Exchange
VirWox Virtual Currency Exchange
Buy bitcoin through PayPal on one of the oldest virtual currency exchanges in the business.
  • Fees: Varies by transaction
  • Supported countries: Worldwide
  • Payment methods: PayPal, Skrill, paysafecard, uKash
Go to site
eToro Social Crypto Trading
eToro Social Crypto Trading
Copy the trades of leading cryptocurrency investors on this unique social investment platform.
  • Fees: Spreads
  • Supported countries: Worldwide (some exceptions)
  • Payment methods: Credit card, PayPal, bank transfer
Go to site
Coinmama Bitcoin Marketplace
Coinmama Bitcoin Marketplace
Use USD/EUR to buy bitcoin and Ether with credit card or cash on the Coinmama cryptocurrency exchange.
  • Fees: 5.5% + 5% for credit card
  • Supported countries: 226 countries worldwide
  • Payment methods: Credit/debit card, cash
Go to site
xCoins P2P Bitcoin Lending
xCoins P2P Bitcoin Lending
Buy bitcoin instantly with credit card, PayPal or bank account on this peer-to-peer lending platform.
  • Fees: Varies by transaction
  • Supported countries: 40+ countries
  • Payment methods: Credit card, PayPal, bank transfer
Go to site
Cryptex24 Exchange
Cryptex24 Exchange
Buy and sell crypto and other digital currencies on this global fixed-rate exchange.
  • Fees: Varies by transaction
  • Supported countries: Worldwide
  • Payment methods: Western Union, MoneyGram, Perfect Money & more
Go to site
24/7 Cryptocurrency Exchange
24/7 Cryptocurrency Exchange
Easy, safe and instant way to buy, sell or exchange bitcoin and other popular altcoins like Litecoin and Namecoin.
  • Fees: Varies by transaction
  • Supported countries:Local payment options in 110+ countries
  • Payment methods:Credit/debit card, money transfer and more
Go to site

The Winklevoss brothers, made famous by their depiction in the Facebook-based movie, The Social Network, have been revealed as some of the largest known holders of a Bitcoin portfolio. Their portfolio is claimed to be as large as 1% of the total digital currency.

Tyler Winkelvoss was quoted in the New York Times saying, "we have elected to put our money and faith in a mathematical framework that is free of politics and human error."

They'd do well to sell the speculative stock before the world realises, as admitted on the Bitcoin community page, that "the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used."

The predictability of currency shortage inbuilt into Bitcoin's money supply is the fatal flaw in an otherwise highly plausible global digital currency. There may be a similar currency in future which could garner sustainable traction. But Bitcoin, for one, is doomed to catastrophic collapse.

Did you know?
The Bitcoin Economy

The money supply in the real world rose around 12% in 2011 (unweighted) according to figures from the World Bank. And for 2011, the global inflation rate was 5% according to the C.I.A. World Factbook. But under the fixed framework of Bitcoin, from 2032 onwards, money supply increases by less than 1% every year until 2140.

If the world decided to adopt Bitcoin as a global currency from today, the cummulative deflation by 2032 (using a simple economic model, while ignoring the economic impacts of speculative trading, hoarding from patently deflationary expectations and the impact of the whole world flooding into the currency) would be 66%. That is, a Bitcoin in 2032 would buy more than one and a half times what it does today. That sounds good right? Wrong.

Deflationary expectations crush borrowing and sink investment which relies on businesses borrowing. A Bitcoin world would destroy a global economy faster than you can say 'credit default swap'.

Bitcoining your Home Loan?

Don't believe me? Think this is all snide-nosed hogwash? Well, let's take the example of taking out a home loan in a world where Bitcoin is the sole currency.

Loan particulars

Loan termLoan amountStarting household incomeInterest rate
30 years4262.67 Bitcoin (A$400,000)1278.98 Bitcoin (A$120,000)6% p.a.

Repayments with a Bitcoin home loan

YearYear of mortgage* Yearly Repayments converted from Bitcoin to AUDHousehold annual income in Bitcoin (adjusted for inflation/deflation)Household annual income converted to AUDInfIation per yearMortgage as percentage of pre-tax wage

2013

1

$28,773

1278.98

$120,000

5%

24%

2017

5

$28,773

1466.61

$137,636

11%

21%

2022

10

$28,773

1215.80

$114,099

-10%

25%

2027

15

$28,773

917.18

$86,074

-37%

33%

2032

20

$28,773

684.56

$64,244

-66%

45%

2037

25

$28,773

490.09

$45,994

-68%

63%

2042

30

$28,773

343.07

$32,196

-70%

89%

*Note: Yearly repayments are calculated at 306.6 Bitcoin units
These calculations are based on an estimated exchange rate as at 15/04/2013 | 1 Bitcoin buys in AUD: 93.84679

In this example, the exchange rate for 1 Bitcoin bought approx AUD: 94 - a Bitcoin home loan would result in the borrower being crushed under the weight of fixed mortgage repayments and a falling household income (which is what happens in a deflationary environment).

So who in their right mind is going to take out a loan which will constitute 89% of their pre-tax income in the final year of the mortgage? Nobody. That's who.

Which is why the premise that Bitcoin will take on an increasing important role as a major currency is wrongheaded and perhaps dire for the many real people who are investing large sums in the currency in anticipation of its rise and eventually increasing real-world usage.

There'd be more intrinsic value in selling all your assets in exchange for Somali shillings, or even Timezone tokens.

Whether by fault or by design, Bitcoin is a ponzi scheme.

True currencies are a means of exchange. Yet the manufactured scarcity of Bitcoin creates vast incentives for early adoption and hence mutes any attempts to exchange for goods and services. The currency itself would be hoarded in order to reap future value out of the currency itself. By definition, it doesn't make for a very useful currency.

Bitcoin a ponzi scheme

And while I'll be ribbed (fair enough) for going through the effort to crunch a very basic economic model to disprove Bitcoin as a currency, which many readers will rightfully think is just a bit of fun, the current market value of the currency is just under one billion Australian dollars. People are taking this thing seriously and big money is flowing in and out.

Yet, failure is hardwired into the Bitcoin currency due to pretty basic economics.

At a conceptual level and from the admiration flowing from programmers, Bitcoin is a brilliant invention. But it is more curiosity than currency. Unless you want your finances to meet a Mad Max fate, keep your paws clear of Bitcoins.

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3 Responses

  1. Default Gravatar
    ChrisAugust 15, 2013

    If deflation harms the economy, how did the industrial revolution happen in a deflationary environment?

  2. Default Gravatar
    CommonSenseAugust 15, 2013

    Why would you borrow Bitcoin for a home loan?

  3. Default Gravatar
    TomasAugust 15, 2013

    I am not sure I understand your table. Are you suggesting that the household income would be constantly adjusted to the purchasing power of a bitcoin, but the repayments are not?

    Wouldn’t it be fair to assume that different mortgage contracts would arise for such a different type of currency?

    I can see that the example you provide isn’t really attractive but I don’t see how that disqualify all types of loans.

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