Using the Power of Compound Interest to Invest and Grow Your Bitcoins

There's a classic thought experiment in the investing world that goes something like this...  If I were to offer you a choice between receiving $1 million dollars today or a single penny that will double in value every day for the next 30 days, which would you choose?  I'd take the million bucks, at least until knowing better.  What about you?

If you took the penny and doubled the value every day for an entire month, the results start out lackluster at best but then quickly become astounding... you would be a millionaire multiple times over within 30 days!  Here's how it breaks down...

That's the power of compound interest!  Of course, this example is insanely exaggerated and the chance of consistently doubling your money every day forever probably willl never happen but there are a couple very noteworthy lessons here.

The first point to remember is that when you choose a profitable investment, your money WILL GROW OVER TIME.  It takes a long, long time, but if left alone, you will end up with quite a bit more money than when you started.

Second, the amount of time this takes can be significantly reduced AND the final dollar value can be significantly increased with one simple principal... by earning some form of cash flow (interest, dividends, etc) from your investment and immediately re-investing those profits.  When this is done, you earn interest on your interest, and the results start compounding as in the example above.  The more often you receive and re-invest profits, the faster your money will grow.

Third, and just as important, is the amount of time it takes before the full effects of compounding interest start to surface.  In the example above, we see that after an entire week of money doubling, we've managed to grow our penny to a whopping 64 cents.  Pocket change, quite literally.  After two weeks, we're still well under $100, and the $10,485 made after week 3 seems a far cry from the $1,000,000 turned down on day 1.  But then something magical starts to happen and in another 4 days our money has increased over 15 fold!  From there it gets a little silly as the money grows so fast we have trouble keeping up with it.
The point is this... the hardest and most time consuming part of growing an investment through compound interest is building up a respectable nest egg in the first place.  Imagine you started the example above with $10,000, instead of starting with a penny.  It would only take 7 days to become a millionaire.  That's over 4 times faster to reach the same goal and the only thing that changed is the amount of money we started with.

I could keep rambling about the benefits (and pitfalls) of compound interest but this article would never get finished.  Instead, let's see how the ideas above can be applied to investing with Bitcoins in order to make your Bitcoins earn more Bitcoins.

There are countless ways to "invest" your Bitcoins, some are legit, quite a few are not.  One method of investing with Bitcoins is to lend your Bitcoins to someone else for a length of time and then earn interest on the loan.  It can be risky, but there are companies that will mediate the loans and help alleviate some (or all) of the risk.
So it's possible to loan out your extra Bitcoins and make money for doing so.  Then, to do it again, only this time you make money on a bigger pile of money.  The next time you make more money on an even bigger pile of money, and on and on and on.  It just takes time, patience, and discipline.

Over the past couple weeks I've been playing with a couple sites that allow you to loan/invest Bitcoins in this way.  Yes, my profits are starting out small, but I am re-investing ALL of them along with the principal, and I'm repeating the process as often as possible, all while protecting the initial investment.

Now that you've got a primer on the power of compound interest and see how it can be applied to generating Bitcoins, the next article will cover some of the Bitcoin lending services I've tried and my thoughts on the best ways to earn compound interest by lending out your Bitcoins.

Until then, keep letting those pennies add up!

Bitcoin Mining Reward Cut in Half – July 9th, 2016 – What this Means for Bitcoin's Future

The virtual currency Bitcoin hit another milestone a couple days ago when the reward for generating new Bitcoins was cut in half. Previously, when a new block was generated, the miner (or mining pool) responsible for generating the new block was awarded 25 Bitcoins for the efforts. Now with the reward halving come and gone, the same amount of effort produces only half the rewards, 12.5 Bitcoins (it actually takes more effort now as the difficulty for solving a block increased at the same time the reward decreased).

All of this and the Bitcoin price remains relatively flat, trading around $650 USD per Bitcoin as of this writing.

Many expected the price of Bitcoin to double when the reward was cut in half, and in many aspects, this makes a lot of sense. After all, the electricity cost and maintenance/upkeep of mining equipment hasn't changed – it still costs roughly the same to generate a new Bitcoin block, but since the reward is less, the price should be more to compensate, right? Well, maybe, maybe not.

Let's rewind to the end of last year when talk of the Summer 2016 Bitcoin halving first started hitting a fever pitch. At the time, Bitcoin was trading at $300-350 each and mining enthusiasts were snatching up and setting up Bitmain's Antminer S7 just as fast as they could.

Since then, the price HAS doubled. And for the last several weeks the price of Bitcoin seems stuck at approximately double the price of Q3-Q4 just last year.

So has the doubling in price already happened and we just missed it because it was slow and gradual and happened over months instead of overnight? Or is the price increase of the previous months just a glimpse of what is to come? At this point it is still too early to say, and the Bitcoin markets appear indecisive with most traders still sitting on the sidelines.

As mentioned in my previous posts, the Bitcoin price is being squeezed sideways. It'll move up a little or down a little, there's some panic selling here and some fickle buying efforts there, but overall the price is just kinda bouncing along in a sideways trading range with signs of trepidation and indecision. I don't know what the market is doing and I don't think it knows yet either. Hopefully a better trading pattern will emerge soon.

Is Now a Good Time to Invest in Bitcoin?

One recurring theme that has been popping up along with the reward halving chatter, is whether or not now is a good time to buy and/or invest in Bitcoin. Those bullish on Bitcoin say that it is now more rare than ever and more difficult to earn new Bitcoins. Those who are bearish on Bitcoin say the market is in a bubble, is too fickle/volatile, and that whales are waiting to dump their Bitcoin hoards and beat the price down.

Both Bitcoin bears and bulls have valid arguments, but the Bitcoin markets and price are on the fence so until that changes, I'm on the fence and undecided as well.

Points to Consider Before Buying or Selling Bitcoin in Today's Market

Before dumping your life savings into Bitcoin or trading your hard earned coins for cash, here are a few points to consider:

• In the last several years, the price of Bitcoin has been much higher than it is today, with a stretch of time in the $1,000+ range.
• In the last several years, the price of Bitcoin has been much lower than it is today, substantially lower. The market is volatile, offering high risks and high rewards. Don't invest more in Bitcoin than you can afford to lose.
• With recent events, Bitcoin markets remain undecided in a sideways holding pattern. Indecisive markets can mean big swings up or down... Making an investment decision right now means significantly higher risks, but also potentially huge rewards.
• It will take time for the full effects of the reward halving to be felt. New blocks (and Bitcoins) are generated approximately every 10 minutes while maintenance and electricity bills are usually paid on a bi-monthly or monthly basis.
• If the Bitcoin price doesn't go up soon, entire hordes of mining equipment will either be operating at a loss or taken offline due to an inability to run profitably. This would lead to a DECREASE in the difficulty of generating a new Bitcoin block, or at least keep the difficulty relatively flat for one or more adjustment periods.
• Antminer recently released their newest SHA-256 ASIC miner, the S9. This miner offers a huge leap in efficiency and mining power and is being unleashed in bulk on the mining community. As more S9's come online (as well as next gen miners from other companies), more Bitcoins will be generated quicker until the difficulty rises to slow them down. Yet another factor playing on the Bitcoin price.

At this point it's tough to say exactly what will happen with Bitcoin's future but one thing's for certain, Bitcoin use is increasing worldwide and it isn't going anywhere anytime soon.