Bitcoin Millionaires: How Did They Do It?

Bitcoin has made many millionaires since its launch in 2009. The cryptocurrency's stratospheric rise has created a diverse set of millionaires (and billionaires). The price of Bitcoin is volatile, ranging from under $10 in 2010 to a high of $77,000 in June 2024. Many people who bought and held their bitcoins early on have made millions. For example, Erik Finman, a 19-year-old bitcoin millionaire, invested money from his grandmother into bitcoin and became a millionaire. Changpeng Zhao, the founder of Binance, the world's biggest cryptocurrency exchange by trading volume, is also a billionaire thanks to his early investment in Bitcoin.

Early investors and advocates

Another early advocate, Roger Ver, is known as 'Bitcoin Jesus' in cryptocurrency circles due to his outspoken support for Bitcoin's ability to offer economic freedom from traditional fiat currencies and banking systems. Ver's heavy investments in Bitcoin-related start-ups have resulted in a fortune of $520 million.

Charlie Shrem, often regarded as the most influential bitcoin millionaire, also made substantial investments before the cryptocurrency's price surge. Shrem's investments, combined with his founding of BitInstant, earned him $450 million.

Dave Carlson, a former Microsoft engineer, recognised Bitcoin's potential early on and founded MegaBigPower to mine coins. At its peak, Carlson's operation was earning around $8 million per month, resulting in a total fortune of $350 million.

Jered Kenna, a former US Marine, made his first Bitcoin purchase when the coins were only 20 cents each. When the price rose to over $200 per coin, he made a significant profit and went on to pioneer dark bitcoin mining pools, enabling individuals to invest anonymously. Kenna's Bitcoin investments are estimated to have earned him $300 million.

These individuals exemplify how early investment and advocacy of Bitcoin have created substantial wealth, with the potential for high returns on relatively low initial investments.

Investing large sums

If you are considering investing a large sum of money in Bitcoin, it is crucial to recognise that the market is unpredictable. While some people have made significant profits, others have lost substantial amounts. Therefore, it is generally advised that you should only invest what you can afford to lose.

• Consult a financial expert: Before making any decisions, it is highly recommended that you seek personalised advice from a qualified financial advisor. They can provide guidance tailored to your specific circumstances and help you navigate the complex world of cryptocurrency investments.
• Understand the risks: Investing in Bitcoin carries significant risks. The value of Bitcoin can be extremely volatile, and it is subject to various factors that can cause rapid and unexpected changes. Be aware of the potential for substantial losses, and ensure that you fully understand the risks involved before committing any funds.
• Diversify your investments: Diversification is a crucial strategy when investing large sums. Consider allocating your funds across multiple cryptocurrencies, such as Bitcoin, Ethereum, and Litecoin. This approach can help mitigate the impact of price fluctuations in any single cryptocurrency and potentially reduce overall risk.
• Choose a reputable exchange: When investing large amounts, it is essential to select a reputable and secure cryptocurrency exchange. Look for exchanges with a strong track record, robust security measures, and adequate liquidity to handle large transactions. Examples include Binance, Coinbase, and Kraken.
• Implement security measures: Protecting your investment is critical. Ensure that you have a secure digital wallet to store your Bitcoin, such as a hardware wallet or a wallet provided by a trusted exchange. Additionally, consider enabling two-factor authentication and using a strong password to enhance the security of your accounts.
• Monitor the market: Stay informed about market trends, news, and developments that can impact Bitcoin's value. While it is impossible to predict the market's direction with certainty, staying informed can help you make more timely investment decisions.
• Be prepared for regulatory and tax implications: Depending on your country of residence, there may be regulatory and tax considerations when investing large sums in Bitcoin. Consult with a tax professional to understand your specific obligations and ensure compliance with the relevant laws and regulations.
• Manage your expectations: Remember that past performance does not guarantee future results. While some people have achieved significant wealth through Bitcoin investments, it is important to manage your expectations. Don't invest solely based on the prospect of getting rich quickly, as there are no guarantees in the highly volatile cryptocurrency market.

In conclusion, investing large sums in Bitcoin requires careful consideration and a thorough understanding of the risks involved. It is a highly speculative investment, and it is essential to proceed with caution. Consult financial professionals, conduct thorough research, and only invest what you can afford to lose.

Mining bitcoins

Bitcoin mining is the process of creating new bitcoins by solving extremely complicated math problems that verify transactions in the currency. When a bitcoin is successfully mined, the miner receives a predetermined amount of bitcoin.

Bitcoin is a cryptocurrency that runs on a decentralised computer network or distributed ledger that tracks transactions in the currency. When computers on the network verify and process transactions, new bitcoins are created, or mined. These networked computers, or miners, process the transaction in exchange for a payment in Bitcoin.

Bitcoin is powered by blockchain, which is the technology that powers many cryptocurrencies. A blockchain is a decentralised ledger of all the transactions across a network. Groups of approved transactions together form a block and are joined to create a chain. Think of it as a long public record that functions almost like a long-running receipt. Bitcoin mining is the process of adding a block to the chain.

In order to successfully add a block, Bitcoin miners compete to solve extremely complex math problems that require the use of expensive computers and enormous amounts of electricity. To complete the mining process, miners must be the first to arrive at the correct or closest answer to the question. The process of guessing the correct number (hash) is known as proof of work. Miners guess the target hash by randomly making as many guesses as quickly as they can, which requires major computing power. The difficulty only increases as more miners join the network.

The computer hardware required is known as application-specific integrated circuits, or ASICs, and can cost up to $10,000. ASICs consume huge amounts of electricity, which has drawn criticism from environmental groups and limits the profitability of miners.

If a miner is able to successfully add a block to the blockchain, they will receive a reward in bitcoin. The reward amount is cut in half roughly every four years, or every 210,000 blocks. As of April 2024, a miner earned 3.125 bitcoins as a reward for successfully validating a new block on the Bitcoin blockchain. At the time, this was worth $196,875.

Bitcoin mining is usually a large-scale commercial affair done by companies using data centres with purpose-built servers. Mining farms can have many mining computers held in warehouses. However, it is possible to mine Bitcoin at home, although the high costs of the required hardware put home miners at a disadvantage to institutional miners.

Creating products for the ecosystem

For example, some have created exchanges for trading cryptocurrencies and the derivatives that have emerged from them. Brian Armstrong, for instance, founded Coinbase, North America's biggest cryptocurrency exchange by trading volume. He reportedly has a 19% stake in Coinbase and was estimated to be worth $11.4 billion by Forbes in June 2024.

Another example is Changpeng Zhao, who founded Binance, the world's biggest cryptocurrency exchange by trading volume. According to Forbes, Zhao's net worth was $33 billion in June 2024. Zhao's interest in cryptocurrency was sparked by a poker game with friends, after which he went all in on cryptocurrencies, even selling his apartment for Bitcoin in 2014.

Other examples of products and services that have been created to grow the Bitcoin ecosystem include:

• Eidoo: a non-custodial wallet, a hybrid exchange, and a platform to participate in and launch token sales.
• Enjin: a mobile cryptocurrency wallet with a dApp browser, supporting various cryptocurrencies and tokens.
• ImToken: a digital asset wallet enabling multi-chain asset management, dApp browsing, and the exchange of value.
• Bisq: an open-source, peer-to-peer desktop application that allows users to buy and sell cryptocurrencies.
• MoonPay: a fiat on-ramp that enables web and mobile developers to let their users purchase virtual currencies using a credit card.
• Lightning Network: a decentralized network using smart contract functionality in the blockchain to enable instant payments across a network of participants.
• Money on Chain: a bitcoin-collateralized and dollar-pegged stablecoin.
• PTokens: the ERC-20 token version of other, non-Ethereum blockchain currencies that enable liquidity to freely move from one blockchain to another.
• Wrapped Bitcoin (WBTC): the ERC-20 token backed 1:1 with Bitcoin.

In summary, creating products and services for the Bitcoin ecosystem has been a lucrative venture for many individuals, with some becoming billionaires as a result.

Holding for at least one halving cycle

Bitcoin's performance is often analysed in relation to its halvings. Halving occurs approximately every four years and reduces its inflation rate by half. These halvings serve as easy landmarks to break Bitcoin's existence into natural cycles.

Bitcoin analyst Willy Woo found that holding Bitcoin for at least one halving cycle, or roughly four years, has never resulted in a negative return. Over this period, Bitcoin has shown an average annualised return of 30%. This means that even if investors bought at the peak of a bull market, they would still see a 30% annualised return if they held for at least four years.

Assuming an annualised return of 30%, one would need to invest around $85,500 annually for five years to hit millionaire status. Over 10 years, this number falls to approximately $18,250. For a 20-year period, you would only need to invest about $1,225 per year.

If you expand your viewpoint beyond the four-year mark, the potential for wealth creation increases significantly. Considering Bitcoin's average annual return over its entire history (not just a four-year halving cycle) is roughly 170%, the timeline accelerates, and the required investment amount decreases considerably.

With a finite supply of 21 million Bitcoins and the ongoing reduction of Bitcoin's issuance rate through halvings, supply and demand dynamics increasingly favour price appreciation over time. As a result, the long-term trajectory of Bitcoin's value is anchored in its scarcity and increasing utility.

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