How To Get Into Bitcoin (via Litecoin)

Most of you have probably heard about the whole Bitcoin thing by now. I'm not here to explain it to you -- plenty of other people have already got that covered -- but a lot of people might be wondering whether or not they can get into it, and if so, how.

I myself have been dabbling in the cryptocurrency scene lately and have gotten to a place where I've managed to make a modest profit despite spending no money in terms of investment. So I thought I'd share it since I probably would have appreciated it if someone else had explained it in equally-simple terms a few months ago.

I had known about Bitcoin (abbreviated BTC) for a while, but it wasn't until last Summer that I actually had any real interest in it. However, I'm not a gambling man by nature, so I wasn't about to throw actual money into the ring. Truth be told, I wish I had because back then, Bitcoin was $100 per Bitcoin and now it's currently around $1000, so I could have made 10x what I could have put into it, but hindsight is 20/20.

Still, you don't need to buy Bitcoin in order to get Bitcoin. There are methods where you can mine Bitcoin using your computer. There's just one major problem. Bitcoin is really hard to mine. And I don't just mean the fact that you probably need a fairly decent working knowledge of computers to get it working, no, I mean that for a machine, mining Bitcoin is a lengthy and work-intensive task for all but the most over-powered computers. It didn't used to be that way, but in the past year, devices specifically designed to mine Bitcoin (known as ASIC miners) started to become popular and this increased the difficulty of mining Bitcoin considerably. I was not about to throw money away on an ASIC miner (and they're hard to find even if I wanted one), but I was mining Bitcoin too slowly to really expect to see any kind of return on my investment of time either.

That's when I discovered Litecoin (abbreviated LTC). Litecoin is an alternative cryptocurrency which is similar to Bitcoin in a number of ways, but it's biggest difference is that it uses a different algorithm for mining. This algorithm makes it pretty much impossible to make a dedicated device to mine Litecoin. The best way to mine Litecoin is to use a really good graphics card and/or CPU. Using the same personal computer at home, I can mine 1 LTC in about half the amount of time it would have taken me to mine 0.01 BTC. And while Litecoin is significantly less profitable than Bitcoin, it currently trades at about 0.035 BTC per LTC.

A decent number of people believe that Litecoin will one day stand alongside Bitcoin as an equal, but I don't find that terribly likely. Still, I do think that Litecoin has a future as a complement to Bitcoin since it costs less and allows for trading smaller amounts of USD than BTC currently allows in most exchanges. More importantly, it also functions as a decent entry level for people who are just looking to dabble rather than try and make a living on speculating cryptocurrency.

In general, people who are looking to get in on Bitcoin either try to just buy some or figure out how to mine it. My advice is to do neither. My advice is to mine Litecoin, which is much easier to mine for people who don't have the kind of money to spend on additional hardware, and then trade it for Bitcoin.

Here's my current process:

Step 1: Mine Litecoin

Using Coinotron.com as a mining pool, cudaminer to mine from my NVIDIA graphics card (you can use cgminer for AMD graphics cards, which tend to work better) and cpuminer for my CPU, I can mine about 0.05 Litecoins per day. The whole process of setting up a computer to mine cryptocurrency can be daunting, but if you run into problems, odds are good that someone on Reddit can help you out. 

The problem with mining pools is that you can only actually get your coins once you've reached a certain threshold. Under current Coinotron rules, I can payout Litecoin at the 0.3 threshold at the cost of 0.03 LTC, so we'll say that in 6 days, I get 0.27 LTC that I can actually use. For the sake of sanity, let's go with a full week before payout and get 0.32 LTC per week. Obviously, depending on whatever system you're using, you'll make more or less Litecoins per week, but if you've got a decent gaming PC, you can probably do about the same, possibly better if you've got a good AMD card. If you want an idea of what kind of results you'll get, check these charts: AMD charts, NVIDIA charts (more comprehensive than the other link).

Step 2: Transfer Litecoin to BTC-E

Rather than transfer the LTC to a wallet, I just transfer it directly to BTC-E to save on time and fees (and hard drive space since wallets take up a lot). BTC-E is an exchange service for various cryptocurrencies. There are a number of exchange services, and most of them are probably fine, but BTC-E has one of the highest LTC/BTC trading volumes. If you have a lot of faith in Litecoin, you could theoretically just ignore this step and all other steps and just get a Litecoin wallet and keep Litecoin indefinitely or until the prices get even higher (which they might), but odds are you're looking to turn this into money sooner rather than later, or at least turn this into BTC, so let's keep going.

Step 3: Convert Litecoin to Bitcoin

Once you've got some LTC in your BTC-E account, just sell it for BTC. As of writing this, the current LTC/BTC rate is about 0.035, so our 0.32 LTC is worth about 0.01 BTC.

Step 4: Move Bitcoin to Coinbase

Theoretically, if you just want to get some BTC and then sit on them, you're more than welcome to do so, but odds are, you're looking to turn Bitcoin into US dollars, and BTC-E is actually pretty lousy at withdrawing USD, which is why we converted to BTC instead of USD in the previous step. But now that we've got 0.01 BTC, that's the bare minimum amount needed to withdraw BTC from BTC-E, so go ahead and do that. Create an account on Coinbase.com, add and verify a checking account, and then transfer over your BTC from BTC-E. Now you have about 0.01 BTC on Coinbase. You can either let it sit there or if you want, go ahead and sell it. At current prices, it'll be worth about $10. I personally intend to let my BTC accumulate in Coinbase until either prices get truly ridiculous or I find myself in need of quick cash.

So yeah, $10 a week probably seems like peanuts, and it truly is, but considering I didn't spend any money on getting this whole thing setup, I'd say $10 a week is pretty cool.

And of course, this all assumes that BTC and LTC will still be worth a damn in the future. And that's fair. For all I know, Bitcoin's current price of $1000 is the highest it will ever go and all these digital coins will be about as worthless as Monopoly money in a few months. Well, if that's the case, all I've lost is idle computer time. That's why I haven't invested any actual money into this. Plus, a computer mining cryptocurrency can be a cheap substitute for a space heater during these colder months.

And hey, imagine how crazy it'll be if BTC rises even higher. If in a year it ends up being worth $10,000, by then I might have about 0.5 BTC, which will be worth $5000. That's certainly worth the effort, I think. It won't be enough to make me rich or anything, but money is money. And yeah, that's probably a really optimistic guess, but so far, those who've underestimated Bitcoin have done so at their own peril.

Now you might have some questions, and I'll do my best to answer them pre-emptively:

Why convert to Bitcoin? Isn't Litecoin also enjoying record-breaking price increases?

It's true that, like Bitcoin, Litecoin prices (both LTC/BTC and LTC/USD) have never been better. A lot of Litecoin fans will say things like "This is just like what happened with Bitcoin!" and "Soon Litecoin will become just as profitable." And maybe they're right, but as of this moment, I see no evidence to suggest that Litecoin is being bought for anything other than a means to make BTC and USD. Bitcoin, on the other hand, is being used for a number of high-profile online services. Bitcoin is an actual currency, albeit a rarely-used one. Yes, Litecoin's prices have been on the rise, but almost exclusively in direct proportion to the rise of popularity of Bitcoin. Until Litecoin becomes independent of Bitcoin, I see little reason to favor LTC over BTC. And frankly, I think it's a lot to assume that the mainstream economy is ready to accept one cryptocurrency, let alone two.

What about energy costs? Is it worth the money to mine when you factor in the amount of power used by your computer?

One common concern among cryptocurrency enthusiasts is whether or not they can mine efficiently. Whether the amount of money they make from mining justifies the increased power draw from their PC. CPU mining is specifically less efficient than GPU mining, and both are far less efficient than ASIC mining. And if you're looking as short-term gains, yeah, I'd say this is a reasonable concern. I personally haven't seen much of an increase in my energy bill and I certainly haven't crunched the numbers to see if it's worth it in the short-term. But honestly, I'm thinking more in the long term. Maybe I'm increasing my electricity bill by $12 a week to make $10 a week. I don't know. But I do know that over time, mining Litecoin will only get more difficult. Perhaps not as quickly as Bitcoin, but it's just the way cryptocurrency is designed. And if prices do continue to increase, I'll certainly be glad I maybe took a small hit regarding my energy costs.

Will it harm my computer to leave it running all the time?

Probably, yeah. At least to an extent. If you try to squeeze every drop of processing power out of a machine (particularly if it's a laptop) and leave it running all day every day, you're bound to wear out that computer faster than you probably would have normally. That's just common sense. But you don't have to run your computer into the ground. Most mining software lets you tweak how much you want to push your hardware so it isn't running at full power the entire time. Of course, if this is just a spare computer or something, you might care less. Or if it's a desktop PC, it can probably handle the workload better and replacing parts would probably be easier. Also, obviously, if you're using your CPU or GPU for mining, you'll probably notice a considerable performance hit if you try to play video games or something. So just turn off the miners if you plan to do something like that.

All this mining stuff is complicated. Can't I just buy Bitcoin and make a profit by trading?

Mining certainly isn't for everyone. Most decent mining software requires a certain amount of technical ability. Most require some working knowledge of how to use the command-line. Most require some troubleshooting or trial and error. If it's just too much trouble for you, then yeah, you're more than welcome to just buy some Bitcoin through Coinbase or whatever and then buy and sell as prices fluctuate in an effort to make a profit. That seems to be what most people are doing, otherwise the prices probably wouldn't be so high. But doing this is somewhat risky. It's hard to say if what we're seeing right now is the beginning of something or the end of something. If you buy into Bitcoin now, you could stand to lose quite a bit if it crashes. Just keep that in mind before you start throwing down hundreds or thousands of dollars.

And... well, that's really all I've got to say. I'm not going to waste my breath speculating on whether or not Bitcoin or Litecoin or whatever will continue to be worth something, whether or not they will become widely-used currencies, or whether or not different cryptocurrencies will enter the scene. I'm just sharing my method in case some of you are interested in getting into Bitcoin but aren't really sure how.

Best of luck.