Inside of Bitcoin Mining

Inside of Bitcoin Mining

On the edge of a tiny Chinese town is a strange building where you can get an insight into the future – and only a handful of people know what is happening inside.

I am on my way to visit one of the biggest bitcoin mines in the world: where up to $8m in digital currency is generated per year by solving complicated mathematical algorithms with computers.

The location is secret and I have been invited under the strict condition that I live onsite with the miners. The owners don’t want to broadcast their specific location, because while the Chinese government is neither officially pro or against bitcoin, the huge amount of money flowing from these mines is outside state control.

The town itself is so high up in the mountains that you have to bring your own cans of oxygen

The town itself is so high up in the mountains that you have to bring your own cans of oxygen. Mobile phone signals frequently disappear around the mountains and valleys that surround the township. But high speed wi-fi makes video calls and chat apps the main mode of communication.

Chandler Guo, the owner of Bitbank, operates a large bitcoin mine in China (Credit: Danny Vincent)

My guide is 30-year-old Chandler Guo, the co-founder of Bitbank, and a bitcoin entrepreneur. Guo is the very definition of Chinese new money. His family ran a beef farm, became rich and he decided to invest in bitcoin. He has transformed this sleepy town into a hidden bitcoin economy.

“In the past China manufactured simple things like clothes, shoes and things like that. But in the future we will use technology to make products,” says Guo.

In the film below, Guo showed me inside the mine he has built:

Within the mine’s walls stand hundreds of computers shelved on rows. A team of workers live onsite: predominantly male, and made up of former farmers and fresh graduates.They live around six to a room in dormitories. Computer parts are sprawled across their floors and Chinese boy band posters are stuck on walls above their bunk beds.

One of them, Fang Yong, is a 21-year-old graduate who has been working as a miner for around a year. He rides a moped around town and, despite his rural background, dresses as a young Chinese urbanite. He’s fully aware of bitcoin’s potential. “Everyone says this technology is going to have a huge influence on the whole world,” he says.

The miners are rewarded with bitcoins for solving cryptographic problems that verify other bitcoin transactions across the world. Each time an algorithm is solved, “blocks” are added to the “blockchain” – a type of virtual book-keeping that ensures that every transaction is authenticated.

Return Of Bitcoin Mining

Return Of Bitcoin Mining

When the virtual currency’s popularity was surging just a few years ago, almost anyone could set up a computer in their basement to mine bitcoins, a process needed to record transactions and ensure the propagation of the digital money, which exists as software. Miners who put their machines to work solving complex computational problems (and paying for the hardware and a higher electric bill) were rewarded with new bitcoins for their efforts. Some became paper millionaires as bitcoin’s price jumped to a peak of $1,137 in 2013 from $13 in less than two years.

Then, bitcoin’s price plummeted to a low of $183 last year, leaving only major miners with significant resources in the game. Many found it more profitable to join mining pools, or groups of miners that share computing power to harvest new bitcoins faster and more efficiently.

Now, there are signs that broader mining efforts are making a comeback, thanks to bitcoin’s price doubling since September. While that isn’t the only factor that determines whether mining is profitable, it’s an important one.

“When the price goes up, there’s more confidence in mining, and [mining equipment makers] go and design the next-generation chips,” said Bobby Lee, chief executive officer of BTCC, a bitcoin exchange based in Shanghai. “For people who already bought equipment, their ROI will increase.” BTCC also operates the world’s second-largest bitcoin-mining pool.

Genesis Mining, which has more than 130,000 people buying computing power on its mining hardware to participate the mining process, is seeing higher returns. An investment of $419 yielded a return of about $2.42 a day in November, up from $1.14 in September. At higher bitcoin prices, a speculator would be able to recoup his or her money in about six months, instead of more than a year.

“In a price-rising scenario, you can see demand that’s tripling,” says CEO Marco Streng. “And sometimes even higher.”

It’s a risky endeavor. Bitcoin prices are notoriously volatile. Also, this year bitcoin’s software is scheduled to reduce by a half the number of coins that get rewarded for mining activities (part of a built-in supply regulating systems). At the same time, more powerful, and therefore expensive, equipment will be needed to keep up with the processing power required to mine bitcoins.

For now though, the mining party is going strong. BTCC has seen the amount of computing power hooked onto its pool double in the past six months.

“Everyone in our pool is making money, because people who aren’t making money would not have their machines turned on,” BTCC’s Lee said.

Future of Bitcoins

Future Of Bitcoins

In recent months, we’ve begun to pay more attention to the alternative currency phenomenon that is Bitcoin, but as time goes on – and despite more coverage of the currency and its uses – most Americans still don’t know much about it, and that includes those who are trying to regulate its uses.

As reported by Wired, financial regulators in New York State recently held hearings on Bitcoin and other digital currencies. Unfortunately, perhaps, a number of businesses that seek to push digital currencies welcomed them. Many companies, such as Coinbase, which is a Silicon Valley startup that has $25 million in venture capital on hand, appeared eager to operate within guidelines established by federal and state regulators. However:

The problem is our financial regulators don’t understand Bitcoin well enough to regulate it. That became increasingly obvious during the hearings, and it’s not at all surprising. The five-year-old cryptocurrency is an unprecedented experiment in the power of peer-to-peer networking, open source software, and a certain kind of financial anarchy.

And that’s the problem in a nutshell, say experts: Before you can regulate something (if it even needs regulating), you first have to understand what it is you’re regulating.

Brett Combs of Bitcoin Coaches, an advisory firm, explains the concept behind Bitcoin in an email to Natural News:

You can think of Bitcoin as currency for the Internet. Although it can be used offline, its original purpose was to provide a digital currency and payment network where trust was not a factor in the transaction. It allows two people to transact business in different parts of the world and have confidence that the transaction is valid and not counterfeit. This is accomplished by a elegant payment network known as a peer-to-peer payment network.

Bitcoin Introduction

Bitcoin Introducition

What Is A Currency?

Traditionally, currencies are simply an established method of transferring a value of wealth in exchange for a product or service. Early on, people agreed that metals like Gold had certain properties conducive to holding value long enough to enable equitable trade between individuals. Eventually governments issued paper bills, representing an equal value of those metals, because the bills were easier to divide for change, transport, store, and protect.
An Introduction To Bitcoin

A exciting and innovative revolution is coming to the world of finance and it has vast implications regarding global trade and human rights. A digital method for transmitting a value of wealth has been created. In the way that paper bills replaced metals as a medium of exchange, this new digital currency has many new and traditional properties that make it much more desirable as a medium of exchange. This new digital currency has been built on peer-to-peer Internet technology so that no one person, business, or government controls it – It is literally enabled by the individuals that choose to use it. Complex math and strong cryptography are the foundations used to confirm valid, fundable transactions, prevent double spending, and deny inflation.

Bitcoin is a decentralized digital currency established in 2009. It is comprised of well established Internet technologies such as peer-to-peer networking, encryption, and digital signatures to enable global money transfers. What does “decentralized” mean? It means that there is no central authority that governs the issuance or transaction of the currency. It is truly the world’s first democratic money system.

Take a look at these properties of Bitcoin and see if you’re not at least curious about the potential for innovation and freedom that it affords us.
Transaction Fees

It literally costs nothing to participate in Bitcoin. The software is free and open source. There is no fee to join and there are no required transaction fees. Transaction feels are optional and can serve to reduce the confirmation time of your transfers. These transaction fees are determined entirely by you at the time of transfer.

Merchants: This means no more payment processor setup fees or recurring monthly fees to accept Bitcoin as payment.
Secure Transfers And Storage

Bitcoin is the first world currency that can guarantee delivery, resilience against theft or seizure, and survive where other currencies like USD and gold can succumb to natural disasters, wear, and destruction.

If properly cared for, using encryption and a smart backup strategy, you can virtually be guaranteed your Bitcoins can be safe over long periods of time.
World’s First Deflating Currency

Other currencies can inflate and deflate by toying with printing presses, finding new deposits of Gold, etc. These kinds of interferences are a thing of the past with Bitcoin. Never before has the world seen a currency that is guaranteed to deflate over time. Currently, Bitcoin is in an inflationary phase to distribute Bitcoins to early adopters. It is inflating at a rate of 50 Bitcoins per 10 minutes. Every four years this rate will half. For example, sometime in 2013, this rate will decrease to 25 Bitcoins per 10 minutes. Once 21 million Bitcoins has been distributed through a process called “Mining”, it will be impossible to add more Bitcoins added to the currency.

How does this make Bitcoin a Deflating Currency? Some Bitcoins are certain to fall victim to attrition over time because some people will forget their encryption passwords, hard drives will fail and there will be no backup, people will secretly “bury” their Bitcoins in the back yard and die of natural causes without telling anyone their secret.

Asic Bitcoin Miner

What is an ASIC Bitcoin Miner?

Since it’s now impossible to profitably mine Bitcoin with your computer, you’ll need specialized hardware called ASICs.

Originally, Satoshi intended for Bitcoin to be mined on computer CPUs. However, Bitcoin miners discovered they could get more hashing power from graphic cards. Graphic cards were then surpassed by ASICs (Application Specific Integrated Circuits).

Nowadays all serious Bitcoin mining is performed on dedicated Bitcoin mining hardware ASICs, usually in thermally-regulated data-centers with access to low-cost electricity. Think of a Bitcoin ASIC as specialized Bitcoin mining computers, Bitcoin mining machines, or “bitcoin generators”.
How to Find the Best Bitcoin Miner

There are some important factors to look at when determining which Bitcoin mining ASIC to buy:

Hash rate – How many hashes per second can the Bitcoin miner make? More hashes cost more, which is why efficiency is crucial…

Efficiency – You’ll want to buy the most efficient bitcoin mining hardware possible. Since miners use a large amount of electricity, you want to buy one that converts the most amount of electricity into bitcoins.

Price – How much does the bitcoin miner cost? Cheap mining hardware will mine less bitcoins, which is why efficiency and electricity usage are important. The fastest and more effecient mining hardware is going to cost more.

Don’t try to buy a miner based on only price or only hash rate. The best ASIC miner is the most effecient bitcoin miner. Aim for value.

Bitcoin and Banks

Bitcoin and Banks

I’ve recently come to understand how Bitcoin is a far more important breakthrough than I ever realized — a breakthrough with tremendous implications for your own future in a world where bank-created debt is collapsing by the day.

A quick backgrounder: I’ve always been 100% in support of peer-to-peer crypto currencies, but in early 2013 as the Bitcoin bubble exploded, it became obvious to me that Bitcoin was following an irrational, parabolic price spike headed for a crash. It was becoming a little too popular, and too many “tourists” were jumping in, pushing the price into irrational territory.

On April 9th, 2013, as a guest on the nationally syndicated Infowars radio program, I publicly predicted a massive Bitcoin crash, saying, “Eventually it’s going to crash hard. I bet my reputation on that, Alex. I am 100% sure we are going to see a massive Bitcoin crash at some point with an ultra-accelerated velocity. It will be the fastest crash of any currency in the history of human civilization. It will be a high-velocity crash. People are buying Bitcoins who don’t know what Bitcoins are and who have no use for them. These are speculators.”

Within 24 hours, Bitcoin crashed hard, losing around 50% of its value. Many people actually blamed me for the Bitcoin crash, but others thanked me for preventing them from losing their money by buying into a price frenzy.

After being blamed for the Bitcoin crash, I decided to keep my mouth shut on the topic as the next price frenzy unfolded in November, 2013. During that month, Bitcoin surged from under $200 to over $1100, seemingly headed for the stratosphere. You didn’t have to be a rocket scientist to realize this, too, was an irrational bubble (caused in large part by the sudden popularity of Bitcoin across Asia) headed for a certain crash.

Sure enough, the crash came hard and heavy, and by Dec. 17th, the price had crashed back down to $569. Since then, Bitcoin has suffered a slow, steady erosion of value, now settling into the $250 – $300 range, seemingly with less volatility.

The rise and fall of Bitcoin prices, however, does not take away from the astonishing technology driving it. Bitcoin prices are more a representation of irrational human psychology than anything else. Underneath the irrationality of human fads and fetishes, there’s a complex yet brilliant mathematical layer driving Bitcoin. That layer is what makes Bitcoin so far ahead of its time… and much more as you’ll see here.

Paying Online with Bitcoins

Paying Online with Bitcoins

If you shop online — and who doesn’t? — you might notice that some websites let you pay with bitcoins.Virtual or crypto currencies like Bitcoin can be a fast way to pay online, or in person with a mobile app.

But using virtual currencies comes with risk. Their value goes up and down — sometimes sharply — depending on demand. In addition, payments made with virtual currencies aren’t reversible and don’t have the same legal protections as some traditional payment methods. Once you hit send, you can’t get your money back unless the seller agrees. That’s why it’s important to know who you’re buying from and what policies they have regarding refunds, returns, and disputes.

In fact, the FTC has received hundreds of complaints involving bitcoins and other virtual currencies. The two most common problems? Online merchants who don’t deliver the product on time — or at all — and merchants who give refunds in store credit, rather than currency.

If you decide to use bitcoins or other virtual currencies as payment, here are some tips:

Know where you’re sending your bitcoins.

Check out the seller’s reputation. Make sure you know where the seller is located and how to contact someone if there are problems.
Find out whether the payment will go directly to the seller, or through a payment processor, which may offer you additional protections.
If you pay with bitcoins, the only way to get a refund is through the seller or payment processor, so it’s important to choose companies you trust.

Understand the refund and return policies.

If you receive something that’s damaged, how will the seller make it right? Will you get a refund in virtual currency, US dollars, or store credit?
How much will your refund be? The value of a bitcoin changes constantly so the seller should tell you before you buy what exchange rate will be used for refunds.
How will your refund be processed? To refund a credit card purchase, the merchant usually credits the account. However, because people can change their virtual wallet accounts, a seller can’t always send a bitcoin back to the wallet it came from.

Find out how your information is protected.

Bitcoin and other virtual currencies post transactions on a public ledger, which typically includes the amount and the wallet addresses of the sender and the recipient. Read the seller’s privacy policy to find out what other information might be collected and shared. If the seller uses a payment processor, check its privacy policy, too. A recent FTC report found that many shopping apps had privacy policies that included broad rights to collect, use, and share data.

Bitcoin and the new virtual currencies

Bitcoin and the new virtual currencies

Bitcoin, a peer-to-peer digital currency, operates without the involvement of traditional financial institutions and provides a direct digital alternative to physical currencies and commodities. Governments worldwide generally do not yet see it and other digital currencies as a destabilizing “threat,” and some scholars have argued that it may best be seen as a speculative investment. Bitcoin has certainly had its ups and downs: As of April 1, 2015, its value stood at $242 per bitcoin, after a Jan. 14 low of $177 and a March 11 high of $296.

The currency has also had a long run of troubles with hackers and fraud, most spectacularly in 2014 when the exchange Mt. Gox declared bankruptcy after bitcoins worth $460 million at the time were apparently stolen. Bitcoin’s decentralized model and degree of anonymity have also raised concerns over its use in illegal money transfers, fueling potential illicit commerce across the “dark web” and on sites such as Silk Road.

The organization Bitcoin.org, meanwhile, touts the currency’s potential for opening up a “whole new platform for innovation”:

Basic truths about Bitcoin can be hard to discern amid the hype and turmoil, but a 2015 Congressional Research Service (CRS) report, “Bitcoin: Questions, Answers and Analysis of Legal Issues,” provides key background information as well as an overview of major issues.

Bitcoin transactions take place online directly between the buyer and seller, with each having a unique encryption. Transactions are recorded on a decentralized public ledger available for network users to verify valid transactions. Special users on the network (“miners”) oversee this verification process. After verifying a block of transactions, miners are paid with 25 newly generated bitcoins and the transactions are processed and approved; this is how the total number of bitcoins grows. The number in circulation as of January 2015 was approximately 13.7 million, with the maximum set at 21 million. As of April 2015, their total value was $3 to $4 billion. This relatively small figure prevents bitcoins from having a significant effect on the Federal Reserve’s monetary policy (an argument that is frequently, and incorrectly, brought up as one of the dangers of Bitcoin).

The CRS report explores the following technical, functional and legal issues:

Bitcoin advantages:

Lower transaction costs: Because Bitcoin operates without a third-party intermediary, merchants are able to avoid the fees traditionally charged by payment systems such as credit cards.
The possibility of increased privacy: Bitcoin provides a heightened degree of privacy for purchases and transactions, though by the system’s nature, a complete list of all transactions is forever recorded to each user’s encrypted identity.
Protection from inflation: Since Bitcoin’s circulation is not linked to currency or government regulation, it is not subject to standard inflation. However, it more than makes up for this in volatility.

Bitcoin disadvantages:

Severe price volatility: The value of a bitcoin is determined by supply and demand, and as a result, can fluctuate rapidly. The value was as high as $1,100 in December 2013, then hit a low of $177 in January 2015. This extreme fluctuation is more characteristic of a commodity than a currency.
Not legal tender: Debtors are not required to accept it, and without any formal backing other than the computer program to which it is linked, Bitcoin can be seen as an “unattractive vehicle” for holding and accumulating wealth.
Uncertain security from theft and fraud: While the counterfeiting of bitcoins is allegedly impossible, the system has at times found itself vulnerable to large security breaches and cyber-attacks. Most recently, Bitstamp, a large European Bitcoin exchange, lost 19,000 bitcoins (valued at about $5 million) in a digital security breach. This follows the massive problems with Mt. Gox in 2014 and the collapse of other exchanges in 2011.
Vulnerability of Bitcoin “wallets”: Purchased or mined bitcoins are stored in a digital wallet on the user’s computer or mobile device, and digital keys can be lost, damaged or stolen. Paper or offline storage is an option, but not always practiced.

Bitcoin and Microsoft

Bitcoin and Microsoft

Microsoft has said it will continue to accept Bitcoin, after “inaccurate information” posted on its website caused many holders of the cryptocurrency to believe they had stopped taking it.

A post on the company’s official website earlier this week told customers that they could no longer redeem Bitcoins into their Microsoft accounts.

It said existing Bitcoin balances would still be able to be spent, but they wouldn’t be refunded – signifying the company was ceasing support for Bitcoin.

Bitcoin developer declares currency a ‘failed experiment’

However, the post has been deleted (but is still available via the Internet Archive), and Microsoft have released a statement assuring customers they’ll continue taking their Bitcoins.

Speaking to TechCrunch, the company said: “We continue to support Bitcoin for adding money to your Microsoft account which can be used for purchasing content in the Windows and Xbox stores.”

“We apologise for inaccurate information that was inadvertently posted to a Microsoft site, which is currently being corrected.”
Gadgets and tech news in pictures

The news came at a bad time for the Bitcoin community, which is currently split on whether the cryptocurrency’s infrastructure needs major changes in order to increase its capacity.

It’s not clear how the post inadvertently made it to Microsoft’s site, since it was given its own dedicated page on the Windows support site.

However, everything is now back to normal, and it looks like the few Bitcoin-using Microsoft customers will be able to continue buying apps with the cryptocurrency for the forseeable future.