Although I am a little late to the Bitcoin mining game, last week I began a mining operation. Although Bitcoins have been around since 2009 and I have a fairly good understanding of concept of the currency I was hesitant to get involved. There were numerous uncertainties about its future and the legality of the process itself. Online commentary was calling it a gold rush and in many ways, there is still a gold rush to harvest the remaining Bitcoins.
In its simplest terms, Bitcoins is a crypto-based currency with no central authority. The argument being that with no central control over Bitcoins there is no political entity able to manipulate the value of the currency. The identity of the inventor of the Bitcoin process is secret and thus it has led to numerous conspiracy theories about it. The individual credited with inventing Bitcoin is generally accepted as being Satoshi Nakamoto. However, it is unclear at this point, if Nakamoto is an individual, a pseudonym for an individual or a group of individuals.
Rather than get into the complete details of Bitcoins, I suggest that those that want to learn more about the cryptocurrency should Google Bitcoins for full details. Instead, I want to focus on why I decided to get into mining for Bitcoins. Before I do that, I will give a very superficial overview of the Bitcoin concept.
Bitcoins are “created” by miners who are basically nothing more than an individual who owns a computer, computing power, if you will, who allows it to be used to manage a running “ledger” of the transactions of the currency. In other words, it is keeping a credit and debit tally for all of the worldwide currency transactions that can be referenced anytime a transaction occurs.
Bitcoins are “earned” when you allow your computing power to be used to keep the running ledger. Initially, the currency needed to be “created” and thus the miner is awarded a Bitcoin as part of the earned revenue for allowing their computing power to be used for the ledger. Another revenue stream are transaction fees for usage of the computing power to update the running ledger.
The Bitcoin supply is finite at which point the miner will generate revenues only from transaction fees for “managing” the public ledger. The supply of Bitcoins will never exceed 21 million. As of March 12, 2015, there are approximately 13.9 million Bitcoins available. That leaves about 7 million to be “mined.”
Before you get too excited, mining for Bitcoins isn’t about running to the nearest mineral deposit and digging for Bitcoins. In its simplest form, it is adding an encrypted code to a running block of code that is the basis of the running ledger. It takes computing power to process the algorithm and as the ledger grows, the number of computations takes longer and thus more computing power is needed. The closer we get to the finite number of Bitcoins the harder it is to uncover a new Bitcoin.
As explained on the onset, I did not want to spend the resources to implement a mining operation. I was skeptical of the adoptability and viability of exchanging the Bitcoin for something tangible. I was also not clear on the legalities of the Bitcoin.
As of 2013, many large companies began to accept Bitcoins as payments. Microsoft started accepting Bitcoins in December. This cemented the viability of Bitcoins in my mind, in terms of acceptance and more importantly as to their legality. Additionally, the United States government auctioned off almost 30,000 Bitcoins last June as a result of its Silk Road seizures, in essence legitimized the crypto currency. As far as I was concerned, my two primary reasons for my reluctance to get involved with Bitcoins had been resolved.
There are two avenues available for acquiring Bitcoins, buy them from an exchange or mine them to acquire new Bitcoins. The second option seemed intriguing to me because it is conceivable to get a new Bitcoin, albeit difficult, but it is an opportunity to generate “new” money without spending any money. Of course, I could accept Bitcoins as payment for my services but that is the same as paying for them.
The expense in mining Bitcoins now outweighs their value unless you are lucky enough, like me, to have free access to the two major expenses – electricity and computing power. Having to pay for either would make any Bitcoins I mine more expensive then what they are worth. Fortunately, for me, I have space in a datacenter for my business that incurs the exact same fees regardless of the number of computers connected. The fee includes electricity. I also have excess computing power because we have been systematically moving our operations to the cloud for the last couple of years. Without having to pay for electricity and excess computing power, it just makes sense to put the computes to work for mining Bitcoins.
There is basically no out of pocket expenses for me and thus it makes sense, in my case.
Will I hit it big? No because the Bitcoin ecology has been created to progressively get more difficult as the number of Bitcoins increases. As with any speculative venture there are numerous entities employing significant investments in computing power to acquire as many Bitcoins as quickly as possible.
In my case, it is a project derived from interest in something new and because to do so does not incur any out-of-pocket money. It just costs my time, but I learn from it. I figure, I will keep my mining operation going until the machines either breakdown, the need for the datacenter is no longer there or the Bitcoin ecology suffers a serious meltdown. If I make a fraction of a Bitcoin for putting some machines to work it would be nice but the learning I derived from the project makes it successful for me, nonetheless.