Mining is a distributed consensus system that is used to confirm
waiting transactions by including them in the block chain. It enforces a
chronological order in the block chain, protects the neutrality of the
network, and allows different computers to agree on the state of the
system. To be confirmed, transactions must be packed in a block
that fits very strict cryptographic rules that will be verified by the
network. These rules prevent previous blocks from being modified because
doing so would invalidate all following blocks. Mining also creates the
equivalent of a competitive lottery that prevents any individual from
easily adding new blocks consecutively in the block chain. This way, no
individuals can control what is included in the block chain or replace
parts of the block chain to roll back their own spends.
Mining bitcoins – a process that helps manage bitcoin transactions as
well as create new “wealth” – is the new Beanie Babies. Luckily for us,
however, bitcoins seem to be going up in value and should maintain
their value over time, unlike your mint condition Tiny the stuffed
Chihuahua.
But how do you get bitcoins? You can begin by buying them outright,
but the market is currently wild. At $188 per coin, the direction of the
bitcoin is anyone’s guess right now and, unlike equities, these things
don’t split. In short, you should probably mine. But what is bitcoin
mining?
Think of it as work done by groups of people to find large prime numbers or trying keys to decrypt a file. You can read a lot more about it here
but just understand that for every block mined you get 25 coins or, at
current rates, $4,722.25. Currently a single bitcoin is valued at $188,
an alarming result that is probably caused by money movements related to
Cyprus and a general bubble-like excitement over the platform in
general. In fact, many wager that the DDOS attacks on many
bitcoin-related services are direct action by hackers to inject
instability in order to reduce the price.
As it stands, mining solo is very nearly deprecated. The process of
finding blocks is now so popular and the difficulty of finding a block
so high that it could take over three years to generate any coins. 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.
Pooled mining, however, is far more lucrative. Using a service like
“Slush’s pool” (more on that later) you can split the work among a
ground of people. Using this equation:
(25 BTC + block fees – 2% fee) * (shares found by user’s workers) / (total shares in current round)
While this is simplified, it is basically how the system works. You
work for shares in a block and when complete you get a percentage of the
block based on the number of workers alongside you, less fees. Using
this method, I have been able to raise about $1.50 over the weekend by
running a dormant PC. The astute among you will note that I probably
used twice that amount of electricity.