Mining of a different kind

Johan Bezuidenhout. Photo: Hancu Louw

MBOMBELA – “When people hear that we mine, they think we’re outside somewhere digging up dirt, or down a mine shaft looking for physical things,” says Johan Bezuidenhout of the work that he and his team at Leetpro do.

In three rooms at their offices at Sonpark Centre and four other locations across the city, Leetpro houses and manages an array of highly specialised machines designed to mine cryptocurrencies.

Bezuidenhout and his team of four assemble hardware which consists of mid- to top-range graphics cards using open-source software to solve elaborate digital equations and algorithms that are connected to an international block-chain network.

Read more: Australia says Bitcoin not taxable as currency

Rayno Kriel, Candice Street, Johan Bezuidenhout, Quintin Bennetts and William Uys. Photos: Hancu Louw

Bitcoin and a variety of other currencies, such as Ethereum, function as international cryptocurrencies which rely on a decentralised digital payment system with no single administrator.

Bitcoin, the first on the market, was invented by an unknown individual or group of people using the name Satoshi Nakamoto and was released in 2009.

According to Bezuidenhout, who has been mining for bitcoins and other similar currencies since 2012, it’s not a simple case of guys fiddling with computers in their spare time.

“We use machines which are optimised to do this kind of work to run an algorithm which is geared to solve a variety of equations which then releases a set number of coins per hour or per day depending on the availability of coins as determined by the algorithm. The results are logged on a ledger of all the machines that are working to solve these equations, which is then confirmed via a block-chain system that requires between three and six confirmations from other machines that are connected to the network,” said Bezuidenhout.

Read more: Bitcoin nears record high as it becomes ‘safe haven’ asset

The reward for expending the processing power to solve these equations is translated as a percentage of the value of a bitcoin or similar currency.

“There’s a difficulty level associated to this kind of work, so the more machines that people have working to solve the problems the more difficult it becomes to solve. At the moment bitcoin releases 12,5 bitcoins every 10 minutes, so everyone is competing to get their percentage share of these virtual coins,” he said.

“In 2012, using two or three machines, I would easily mine 0,1 bitcoins per day which was worth about R200, now I need 20 machines that are almost 20 times as powerful to retrieve a similar percentage share, but the value of bitcoins has grown so much that it amounts to R6 000,” said Bezuidenthout.

“The difficulty level increases, but the payout does too,” he said, and describes Mbombela as the silicon valley of South Africa when it comes to bitcoin mining.

Read more: New virtual ‘bilur’ currency, tied to oil, takes aim at bitcoin

As with any share trading or other form of international monetary trading, there will always be a risk, but at the moment cryptocurrencies are growing and the prices are increasing with bitcoins trading for approximately R65 000 per coin.

“A rig currently costs anywhere between R20 000 and R100 000, and depending on the scale of your operation and the price at which coins are trading for, you might be able to pay off your investment within a couple of months to a year,” said Bezuidenhout of this burgeoning industry.

Six-card rigs used to mine cryptocurrencies. Photos: Hancu Louw

Besides the initial capital investment used to build the six-card rigs, the greatest monthly expense for Leetpro is an electricity bill which amounts to roughly R30 000 per month.

According to economist, Mike Shussler, many people misunderstand what it is about, and do not take into account the huge expenses associated with setting up a mining venture.

“What people have to remember is that you can’t make money from nothing; the cost of electricity in South Africa alone is enough reason to think carefully before embarking on a mining endeavour; but if a person has the money or is looking to get into mining or cryptocurrency trading they should proceed with caution, as the market is very volatile and should definitely not invest all their life savings,” he said.

If the effort and expenditure of mining for cryptocurrencies does not seem like a worthwhile endeavour, the fastest, but riskiest method of getting into the market is to buy bitcoins by exchanging physical currency for the digital alternative.

By using services provided by Mt. Gox or Bitstamp, intermediaries for currency transactions, you can convert wealth from fiat currency to digital.

Bezuidenhout concluded, “It’s becoming mainstream as more and more people get involved by joining the network, but overall I would recommend anyone with the know-how and start-up capital to give it a go, because it can really become very profitable in a short space of time.”

Hancu Louw

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