The Bitcoin Goldrush


Written by James Read
20 Monday 20th June 2011

If only it were that easy. My first stop,, takes me through exactly how the concept works. It's an entirely decentralised form of cash that can easily and instantly be transferred through the internet (each ‘coin’ is just a string of numbers). No paper, no banks, no fees. Great! No single institution or country controls the release and distribution of Bitcoin, so your money can't be frozen or traced.

So where does the money come from? You mine it. With my axe? No, with your computer. By doing complex problem-solving, eventually your computer will 'discover' bitcoins. Woo, free money! But alas, as more coins are generated the problems become harder to solve, in order to limit supply. I looked into setting this up, but the office computer wouldn't play ball (firewall issues), so I set about looking to buy some with cold, hard cash.

There are loads of exchanges, and the most popular seemed to be mtgox [Ed - currently offline due to security compromise - see below], so I tried to find how I could give them my money. This seemed to require an account with any one of a number of cash transfer agents that I'd never heard of, who would charge me commission and take days to process my transfer and/or create my account. Paypal was formerly a mtgox deposit option, but has been removed as scammers kept on reversing payments. Carrying by bag of pound coins I knocked on the door of every exchange I could find, but the story always seemed similar.

Perhaps mining wouldn’t be so hard after all. Back home I easily configured my  computer to chip away at the internet goldmine like some kind of digital Gimli. As my cooling fans whined under the strain, I discovered a method by which I could use limited Paypal funds (~£50) to purchase intermediary Second Life currency (SLL) and then convert these into Bitcoins at an exchange called Virwox - finally, sweet success! The market value had dipped a little, now to around $25 - not a sign of a saturated market reacting to a bubble, thought I, but an opportunistic dip before an ever more meteoric ascent. As you can probably foresee, dear reader, this did not happen.

Historic trading price for BitCoins to USD on mtgox exchange. My purchase falls somewhere shortly after that big spike.

After two days, I had managed to purchase one bitcoin, and mine a further 0.5 coins. And the price had yet to shoot above $30. This wasn't the moneymaking rocket ride I'd imagined. Now I'd done a bit more research into the currency, finding some articles that drew analogies with a Ponzi scheme - early investors who'd purchased when Bitcoins cost $0.05 were now reaping thousands of bucks from poor saps like me, eager to buy them at an overinflated price. But surely it wasn't so scammy - I had actual currency that I could use to make real purchases. But it seemed like (beyond really expensive weed) my market was limited to e-cigarettes, web hosting services and this badge.

Although the anonymous, decentralised nature of BitCoin is pretty appealing, it’s still pretty experimental at the moment, and could easily go the same way as a number of electronic currencies before it (Flooz, e-gold, e-bullion - I’m looking at you guys) unless adoption goes beyond speculation and blackmarket purchases. It has plenty of hurdles to jump, especially to do with trust and security. Just yesterday, mtgox (the currency's largest exchange) was hacked, causing a massive crash in value and leaking the details of all 61,020 users. Many have panicked, naturally, and it will take some time for Bitcoin economy to re-establish itself and for investors to come back. It could be a great time to buy, or it could be the first nail in the Bitcoffin.

What a bubble looks like. Compare to mtgox exchange value above.

As for me – well, with my cash now trapped in bitcoins (two earned, two mined), the only route to profitability seems to be to try and inflate the price back up to its former levels of hype. And what better way to do that than by writing a glowing article promising great riches to all investors. Hurry, buy now!








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  • Guest: janus-comment
    Mon 27 - Jun - 2011, 16:45
    Tip people at Buy coffee at Buy food at Buy t-shirts at Get rewarded for forum posts at Sure it's early days, welcome to the Internet and all that. But the exciting value of Bitcoin is nothing to do with the speculation and hype.
  • Sorcerer
    Wed 22 - Jun - 2011, 00:09
    interesting but was over my head at the sametime S:
  • Guest: mustaphamary
    Tue 21 - Jun - 2011, 00:07
    so if they're worth around £25 each then that's £100 there. for a couple days / technically hours work. maybe not so bad!
  • Guest: mustaphamary
    Mon 20 - Jun - 2011, 23:10
    That's a good article. Was wondering about the bitcoin thing, did you hear about the guy who had 7 strong rig right by his head in his tiny dorm room? the heat and exhaustion gave the guy brain damage and he died. first bitcoin mining related death. there are some sick rigs out there. if you use a high powered graphics card (for some reason gpu's are better than cpu's for mining) you can still be earning around £500 per machine per month. but the whole thing could go belly up, who knows. but if you have a gaming rig or summat with a good gpu (v1 PS3 running linux) you could probably turn a bit of a profit if you sell soo enough... enjoyed the piece anyway, hard to write about this sort of thing without descending into incomprehensible psychobabble really...