Bitcoin Mining
Without getting into the technical details of the Bitcoin protocol and algorithm (which are fascinating topics it their own right), Bitcoin mining is an area of pursuit which generates tremendous interest.
The Bitcoin network consists of peer nodes which maintain the ledger of Bitcoin transactions. The idea is for all nodes to maintain the entire ledger by validating each block of Bitcoin transactions which involves computationally intense hash function calculations. The first to complete the validation process is rewarded with 25 Bitcoins at present. The number of reward Bitcoins handed out is halved every 4 years. In 2017, 12.5 Bitcoins will be given out to the first to complete the validation exercise.
Bitcoin mining success comes down to who has the most computing resources operating at the cheapest electricity rates. In the early days of Bitcoin (circa 2009), standard PCs were enough for the task. Then it was realized that graphics cards had computational characteristics which favored Bitcoin hash function calculations. In January 2014, multiprocessor computers with ASICs which specifically perform the SHA-256 hash function applied with parallelism are superior and will be first to complete.
It boils down to a Bitcoin computing arms race to solve complex mathematical puzzles faster than others, with Bitcoin rewards earned for the work done.
Here is a story to give an idea on a Bitcoin mining system. Joel Flickinger in Oakland California spent more than $20,000 on his system which runs 24/7 to consume $400 worth of electricity per month. He cites having earned 100 Bitcoins in the past few months. He estimates his two fastest computers will earn him $150,000 each year. But what if others come up with faster ASICs and systems? Of if a larger pool of computing resources is amassed through sheer capital expenditure? So much for the projected earnings. What if Bitcoin drops to $5 each? So much for the business case ROI.
Bitfury cites an array of specially designed rigs capable of generating 100 to 300 Bitcoins a day. In addition to mining and keeping the Bitcoins which Bitfury believes have upside, Bitfury arrays are being offered to Bitcoin enthusiasts for upwards of $1M for a mine that can harvest $150,000 in Bitcoin per day. So much for Joel Flickinger's estimates and plans.
These are but two examples from a large list of highly financed projects chasing after Bitcoin mining. Whereas the intention was to democratized mining to the masses, it has now turned into a game for the elite of the elites (i.e. wealthiest players). What else is new?
The people who are promoting to sell these Bitcoin mining rigs have it right. I'm not so sure about the buyers. There was a fortune made in selling picks and shovels in the gold rush of the 19th and early 20th centuries, far greater than the yield of gold found.
See related page on Bitcoin Money and pictures of Bitcoin Mining Rigs.
