Bitcoin Virtual Mining in the Real World

Bitcoin Virtual Mining There is a whole other side to the virtual Bitcoin world that often doesn’t get spoken about. It’s not often publicised because of the level of complexity that is involved when one starts to venture into how the coin is actually created and mined.  The word “mined” can also be confusing as mining Bitcoin is also a virtual process done in a real-world setting.

One won’t see mine shafts descending to the depths of earth, nor will anyone see open pit mining devastating our real world environments. There are no tools, no men with lights on their hard hats, and no heavy diesel powered equipment involved when mining Bitcoin. Instead, Bitcoin mining operations consist of very specialized custom-built, rack-mounted computers that are housed in server farms and linked to Bitcoin’s network with fast big-pipe connections to the internet. These “mining machines” are constantly running complex algorithms 24 hours per day, seven days per week, against an ever-changing organic cryptic code or password that once unlocked will deliver a block of Bitcoin, or another crypto-currency to the successful miner.

What most have read about in the news on Bitcoin is how they are bought and sold on the market and how their prices fluctuate wildly when events in the real world step in and interfere with Bitcoins virtual world. Recently, China made a decision that deflated the price of Bitcoin to nearly half of what the price was at in November. This price fluctuation in Bitcoin was recently highlighted in the article, Bitcoin Ups and Downs.

A homemade Bitcoin rig.
A home-built Bitcoin crypto-currency mining rig.

The New York Times recently released an article on Bitcoin mining where they visited a mining company’s location in Iceland, where electricity costs are lower due to the abundance of geothermal and hydroelectric power. In Iceland, the cold arctic air is also used to cool the specialized computers as well. However, Iceland is not the only place where you may find a crypto-currency mining operation.

The Guardian Liberty Voice found one such virtual mining operation in Canada. Unlike the U.S. where income from Bitcoin and other cypto-currency mining operations are considered to be capital gains and taxed by the government, Canada has been slow to regulate these mining operations. Hence mining operations now exist in some backyards and closets hidden away from plain view where mining computers whirl away running complex algorithms aimed at cracking passwords while consuming large amounts of electrical energy.

The Canadian virtual mining operation that the Guardian Liberty Voice talked to can be considered an underground business that currently only takes investments from family and friends that are interested in gambling their hard earned cash and possibly making some extra income that for now, can be considered tax free.

Mining crypto-currency by a single mining machine is now near to impossible. A single mining machine has to constantly compete with other bigger mining operations with networks of cloud computing linked mining machines that are often called “Guilds.” These guilds use the computing power of all those miners that joined in their guild to add extra computing power to cracking passwords quicker.

Mining investors can make contributions of any size as the money is pooled and split in shares among all the investors. When a password is finally cracked by their mining computers or by members of their associated guild, the miners receive a split of the currency. The mining company will almost always reserve a percentage of the take – they likely reinvest in more specialized mining hardware or computers – just like a trading house would charge a percentage fee in the stock exchange business.

Bitcoin mining computer
A home-built Bitcoin mining computer.

When a password on a virtual currency is decrypted, the mining machine that cracked the code will receive the entire block of the virtual currency as a reward. Those that had single machines working on the same code will get nothing for their efforts, other than a hefty electrical bill. The guilds will split the blocks of currency that they are awarded among all those members in their guild. For this reason, most mining outfits will join guilds to ensure they are receiving at least a split of the spoils.

To help provide integrity to the cryto-currency networks, a guild will sometimes try to deter new members from joining their guild. If one single guild controls over 50 percent of the computing power currently working to crack the cryptic password on a specific block, then the guild may start to risk attracting hackers that will try and hack their way into their network to try and trick the network with fake blocks of currency.

Mining Bitcoin could possibly take the next hundred years. Currently, just over half of the maximum of 21 million Bitcoins have been released.  The blocks of cryto-currency released have already started to slow. The faster the cryto-passwords are cracked by mining computers, the harder the password cryptography on the blocks become. The harder and more advanced the cryptography gets, the more time and money it will take to pay for the specialized and expensive mining hardware and the massive amounts of electrical energy consumption that is required to run the mining computers.

Crypto-currency mining has created a whole new market in the computer manufacturing industry. The type of mining or the type of currency being mined often depends on the type of hardware being used to mine it. Bitcoin has one of the highest requirements for hardware with needing very specialized processors that are designed especially for their purpose. These mining machines require a large-dollar investment in hardware to be able to successfully mine virtual coin.

Other virtual currencies can be mined less expensively than Bitcoin. Some of the less complex currencies can be mined with entry-level mining computers that can start around the 3K price, sometimes less. However, a serious Bitcoin mining machine can cost upwards of 20K or even much more.

If mining crypto-currency is done intelligently and successfully, miners can sometimes pay-off the expensive hardware in a reasonably short amount of time. Some miners can recover their initial output costs in as little as a month or so. Some miners have recovered their investments so fast that they’ve quickly quadrupled their profits over and above their initial investment within just a couple short months.

The ever-increasing numbers of crypto-currency mining operations provide the link to the virtual world where these digital currencies are born and thrive. That virtual world is complex for anyone to understand even for the brightest IT expert. However, with Bitcoin continually in the news lately, awareness of digital currency will continue to rise sharply. So will the numbers of crypto-currency mining operations.

By Brent Matsalla

Sources:
New York Times
Times of India
Examiner
Bitcoin Examiner

5 Responses to "Bitcoin Virtual Mining in the Real World"

  1. Alan Miner   March 3, 2014 at 5:09 pm

    Bitcoin was launched five years ago, and they have burned through 50% of the 21 M coins that were supposed to me the limit on the coins. Projecting that it would take 100 years to burn through the rest of the coins doesn’t make sense to me. At best, given an order of magnitude increase in the complexity of the codes, I would get that it wouldn’t take more than 50 years to burn through the remaining coins. As a former press agent, I am sensitive to the use of the word publicized. Since you use the word “heard” suggesting the auditory channel in the first s I would have suggested “It is not often spoken about because…” BTW, can we make corrections to articles after they have been published? And I gotta tell you, the thing about not using contractions is driving me nuts. Your second sentence leads off with one. Can we get away with it sometimes?

    Reply
  2. Halldor Fannar Sigurgeirsson   March 2, 2014 at 9:25 pm

    Regardless of what one might think of the concept, the article has informed me more than anything I’ve ever been exposed to on the topic… and all that in only 2 minutes.

    Reply
  3. Anthony Alfidi   December 24, 2013 at 9:39 pm

    Bitcoin is a joke. Anonymous digits are not trustworthy as currency. Crypto-currencies invite criminality online and don’t work in the real economy. http://alfidicapitalblog.blogspot.com/2013/12/the-serious-disadvantages-of-bitcoin.html

    Reply
  4. Dave Edmonds   December 23, 2013 at 10:22 am

    I had always wondered about this the article helped quite a bit (pun not intended) Thank you

    Reply
    • Brent Matsalla   December 23, 2013 at 10:24 am

      Thanks for your kind comments and for reading the article Dave, it is a very complicated process that is for sure.

      Reply

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