There’s a gold rush going on these days, or a Bitcoin rush, at least. Driven by the recent swings in the value of a Bitcoin, more and more people are learning about and becoming interested in the currency. While they could just buy Bitcoins at the current market rate, others are looking to try their luck at mining Bitcoins. And like prospectors who traveled west during the Gold Rush of the 19th century, many Bitcoin miners will find that they spend more on chasing the Bitcoin dream than they’ll ever hope to win back.
As explained here, Bitcoins are “mined” by unlocking blocks of data that “produce a particular pattern when the Bitcoin ‘hash’ algorithm is applied to the data.” It seems simple enough, but the cost of Bitcoin mining is greater than one might expect. The more Bitcoins are mined, the more difficult it becomes to find the next block. Unless the miner is using the latest specially-designed mining rigs, the computers used often sport high-end graphics cards (since the GPUs are more efficient than CPUs for mining application). And running those computers requires a lot of power.
Blockchain.info, which tracks Bitcoin-related data, estimates that miners are using 1,005.59 megawatt hours of electrical consumption each day in their pursuit of new blocks of Bitcoins. That ends up costing about $150,000 in power costs each day to mine the currency. [Hat tip to Bloomberg for reporting on the data.]
That may sound like a lot, but miners on average are making money. According to Blockchain, miners are generating $470,000 in Bitcoin-related revenue per day. In fact, due to the recent interest in the virtual currency and its popularity, operating margins for Bitcoin miners are close to record highs.
While it might be easy to look at those numbers and think it’s NBD to just like, extract value out of thin air, Bitcoin mining isn’t as lucrative as it seems. Regular users hoping to use their regular computers to mine shouldn’t expect to just start making money by setting aside a few compute cycles to dig up Bitcoins. That’s generally reserved for special mining computers that do nothing BUT mine for Bitcoins using custom encryption processors.
As Biggs points out in his article, “While you could simply set a machine aside and have it run the algorithms endlessly, the energy cost and equipment deprecation will eventually cost more than the actual Bitcoins are worth.” That’s been confirmed by my colleague Matt Burns, who wrote in our internal message board that “after mining for a few days, the energy required to run my computer at full tilt was far greater than the Bitcoins I mined.”
Even if you do choose to pool your resources to mine, it’s a fairly complicated process, even for tech-savvy users. Check out the aforementioned article by Biggs for how he connected his home PCs into a Bitcoin-mining pool.
The alternative is to just buy specialty hardware designed to do nothing but mine for Bitcoins. Like any other investment, the return isn’t assured, and likely will be based on how Bitcoin market takes shape as time goes on. But right now, as with most gold rushes throughout history, it’s those who are supplying the miners that are finding the real riches.
RYAN LAWLER
As for who doesn't know what is Bitcoin, I will give you a little glimpse of enlightment..;)
About Bitcoin
A bit of history
Bitcoin is one of the first implementations of a concept called crypto-currency, which was first described in 1998 by Wei Dai on the cypherpunks mailing list. Building upon the notion that money is any object, or any sort of record, accepted as payment for goods and services and repayment of debts in a given country or socio-economic context, Bitcoin is designed around the idea of a new form of money that uses cryptography to control its creation and transactions, rather than relying on central authorities.
In 2009, the first Bitcoin specification and proof of concept was published in a Cryptography mailing list by a member under the pseudonym of Satoshi Nakamoto. Towards the end of 2010 Satoshi left the project saying he had moved on to other things. The creator of Bitcoin never revealed his identity and simply left his invention to the world. The origin and the motivation behind Bitcoin is still today a great source of mystery.
Since 2010, the Bitcoin community has grown with many developers working on the project. During June and July 2011, Bitcoin suddenly gained media attention leading to a massive buy rally. The resulting bubble slowly deflated through the latter part of 2011 and the value of Bitcoin has since slowly climbed once again back to its 2011 heights.
On September 27th 2012, the Bitcoin Foundation was created in an effort to standardize, protect, and promote Bitcoin. Today, the Bitcoin economy is developing quickly with new users joining every day.
Technical features
These are the basic features of any Bitcoin-like network.
Bitcoins can be transferred between arbitrary nodes on the network.
Transactions are irreversible.
Double spending is prevented by using a block chain.
Transactions are broadcast within seconds and verified within 10 to 60 minutes.
Transaction processing and money issuance are carried out collectively through mining.
Transactions can be received at any time regardless of whether your computer is turned on or off.
Economic rules
These rules are enforced collectively by the network. While they will not change for Bitcoin, other digital currencies using the same technology may change them to suit their needs.
Hard limit of about 21 million bitcoins.
Bitcoins are divisible to 8 decimal places yielding a total of approx. 21×1014 currency units.
Transactions are cheap, and mostly free.
Statistics
The network has been running for more than 45 months, yielding some impressive security features. There has been especially significant growth over the last year. As of February 2013, here are some statistics.
Long block chain (more than 220,000 blocks).
A lot of processing power securing transactions - estimated at over 25 terahashes/s.
Over $1 million USD of daily trade volume distributed across 40,000 transactions.
Total value of all bitcoins in circulation is over $300 million
Only one major security incident in the protocol (fixed in August 2010).
bitcoin
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