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Archive: January - 2014 (1)

  • So You Want to Mine Bitcoin

    Bitcoin has been all over the news recently with its fluctuating value, increased acceptance by online marketplaces, and moneymaking opportunities. This cryptocurrency became popular in the underground online market because it cannot be duplicated and can be exchanged between parties safely and anonymously without the use of a third party like Paypal. The Bitcoin network is a public ledger that includes the history of every Bitcoin transaction, adding new ones to the end of what is called the “block chain”. The block chain is maintained and supported by the power of a globally distributed computing network made up of all Bitcoin participants. Transactions are added through hashes within nodes and verified to be legitimate by hashing pre-existing nodes. This action is called a “proof-of-work”, and once enough transactions have been proofed, they are grouped together and added to the chain, completing a block. As blocks are completed, new ones are discovered, rewarding the finder(s) with newly minted Bitcoin in return for the use of their computing power. Unlike Paypal, who charges a fee for its verification and transactional services, the Bitcoin network incentives its members, as they are required for it to opperate. It is important to note that Bitcoin itself is backed only by supply and demand and that there is a finite amount of Bitcoin that can eventually be minted. The rest of this article will be about how ANYONE can get started mining for free, so if you are interested in learning more about the system, check out Bitcoin.org and the original spec document by the creator.

    A Bitcoin “miner” is simply a device connected to the Bitcoin network that is contributing computing power. To access the network, simply click this LINK and download the client for your appropriate operating system. Make sure you have enough memory (12-14K MB) and time (~24 hours based on your bandwidth) because the client will download the entire history of the block chain to your computer. Once you are caught up to the end of the chain, the client will let you set up a new “wallet”. Your wallet is an encrypted account within the network obtainable and recognized by a character address. For example, mine is: 1B2tNjrB78siE6D9kVi6zhguStiFrrcodR (feel free to send me Bitcoin!). To receive/send Bitcoin, a user simply exchanges this number with another user, setting up a transaction allowing for anonymity with one another if they choose. All of this is done within the client, which is simple and easy to use. From the client, you can view your current balance, transaction history, and even save addresses of other users’ accounts for reference.

    Once your wallet is created and you have your address number, it is time to contribute to the network! This is done through a separate minting application linked to your wallet. Bitcoin itself is open-source, so developers have written their own applications for computing additions to the block chain. (Personally I use the application BitMinter for Mac which I will explain in the next paragraph). Mining is based entirely on computing power. The more power a miner has, the quicker it can complete blocks and be rewarded with Bitcoin. As an individual miner accessing the network through your PC or laptop for the first time, computing power is delivered by your graphics card. To increase power, you can purchase an Application-Specific Integrated Circuit (ASIC) designed for Bitcoin mining or build your own. These devices are pieces of hardware sold in a variety of shapes and sizes advertised by a numerical representation of how quickly they can process hashes and validate transactions. Price correlates to speed, but other factors to consider are the electricity needed to run the device, cooling, and noise.

    Unless you have a massive Bitcoin mining hardware farm already put together, chances are you won’t find any Bitcoin by letting your mining application run solo. You are competing with all other participants, so a good way to increase your chances is by joining a mining pool. Here, a group of participants link up to combine computing power into one focal point. When a block is discovered, the rewarded Bitcoin is divided up by the amount of computing power each member individually generated. Members are typically rallied around one central mining application developed by the creator(s) of the pool who sometimes take a small cut of the rewarded Bitcoin for putting everything together. The application I mentioned above, BitMinter, is part of a pool and I’d definitely suggest it to anyone curious about getting started mining for free. The website and associated client are very informative and kept up-to-date with real time data on the amount of power being generated by all members, the time and difficulty of the last block discovered, the percentages paid out, and historical information of the pool.

    Now that you know the basics of Bitcoin, how to access the ledger, and contribute to the block chain, it’s up to you to determine your method moving forward. This is a way to get started for free, but it takes money to make more money through the purchase of hardware or buying space in cloud-based Bitcoin mining operations. Also, stay current with news on Bitcoin. Each day, new companies form around mining, opinions are shared on the future of Bitcoin, and innovators discover a new way to use this awesome currency.

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