THE Cryptocurrency Play for Big Money

When Bitcoin debuted a few years ago, it seemed little more than a novelty for cryptocurrency enthusiasts.

The value of a bitcoin was a small fraction of a cent in value.

But the idea spread — and kept spreading. Bitcoin drew attention as a way to do this thing called “money” in a way that didn’t involve central bankers or even physical access to precious metals like gold.

And Bitcoin’s underlying accounting technology, called blockchain, might not just be the future of money. It could revolutionize everything.

Blockchain-based systems can be used to transparently account for, and immutably record, just about any transaction.

The impact on our lives could one day rival the impact the internet has made over the past 20 years.

That potential of cryptocurrencies and blockchain hasn’t been lost on buyers of Bitcoin. Today, one bitcoin is worth more than $2,800.

Competing currencies using similar technology have emerged. One popular alternative, Ethereum, is up over 2,000% year to date.

Back when I first learned about Bitcoin, it was still very cheap. And you could go out and grab as much as you liked — if you were willing to do the work.

Regular money like dollars and euros is created out of “thin air,” so to speak. The central banks do this, and it’s unpredictable when or how much. In the old days, money creation was largely a matter of printing more bills or minting more coins. Today, central banks do most of this money creation digitally.

There is no central anything, however, with Bitcoin. The system is distributed and transparent. And there is no unpredictability with creating new units of value, either.

That’s one of the selling factors for cryptocurrencies. They are inherently better stores of value than the depreciating currencies we’re used to using.

But there are more bitcoins in circulation all the time. Cryptocurrencies like Bitcoin follow a carefully defined protocol for creating new units of accounting. It’s called mining.

Like gold mining, cryptocurrency mining is hard. However, it doesn’t take place in the earth, using heavy machines tearing up the ground. It’s all digital and virtual.

Bitcoin miners use computer hardware to perform computationally intensive “work.” Once enough units of work are completed, a unit of money is created — which goes right into the miner’s account.

With Bitcoin, mining gets harder and harder over time as the money supply grows. This is by design. And the harder it gets to make a new bitcoin, the more processing power you need.

From the start, miners have been using graphics processing units (GPUs) to mine for bitcoins. This specialized computer hardware was originally invented to enable rich, immersive 3-D gaming environments.

GPUs have become much more than gaming chips. They’ve become a general-purpose technology used anywhere high-powered parallel computing tasks need to be performed.

GPU-accelerated computing is at the heart of the artificial intelligence revolution. It’s powering autonomous driving. And performance is being boosted to support exploding virtual reality applications.

While these hot tech markets will continue to power growth for GPU chipmakers, cryptocurrencies are also going to become increasingly important to these innovators’ bottom lines.

This potential isn’t lost on these companies either. Mining is driving more and more GPU sales, and the companies are even releasing special versions of their chips designed to extract more bitcoins (or ethereums, or whatever) with less cost.

Storing crypto-cash in digital vaults and performing transactions is also computationally intense. This is driving growth in data centers — another market for GPUs.

The emergence of cryptocurrencies like Bitcoin and the spreading use of blockchain are yet more reasons I recommend stakes in GPU producers.

That’s because these companies are the epitome of pick-and-shovel plays for the cryptocurrency boom. GPUs are, essentially, cryptocurrency mining equipment. For us, they are a way to profit from the cryptocurrency boom without actually having to touch them.

I admit I am of two minds when it comes to Bitcoin and blockchain technology. I’ve struggled with the fervor of speculation Bitcoin attracts compared with its real-life utility today. There will certainly be bumps in the road for this incredible technology, and I’ve pointed many of them out in the past. But that doesn’t mean the future isn’t promising.

To a bright future,

Ray Blanco
for The Daily Reckoning

The Daily Reckoning