The Mining Challenge

Bitcoin mining is no longer an individual task, but alternative cryptocurrencies could be an option

Alexander Borschel
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For the respective individual there are a number of ways to get involved in the emerging cryptocurrencies market, but the most direct means to obtain Bitcoin and other cryptocurrencies is via "mining." This is done primarily through decryption, unlocking a blockchain to be used for coin generation and coin transactions. However, for many of the major cryptocurrencies, especially Bitcoin, unless one has a data farm with hundreds (if not thousands) of computers running at a very cheap power cost, this is an uneconomic means to obtain cryptocurrencies. This is still the optimum method for emerging alternative cryptocurrencies, but their volatility leaves this a potentially risky option.

Mining itself is essential because it is the only way to release new cryptocurrency for use in the market. However, it is a balancing act. Because it requires an assembly of equipment as well as processing power, it also requires a high amount of energy. In this case, a person will find no matter how much Bitcoin they will try to mine on their own, without many computers at work (also known as a farm, or mining farm) simultaneously, they will most likely not be able to produce more than what they spend on electricity. Home computers and graphics cards are not enough at this point to mine Bitcoin, but other cryptocurrencies are still absolutely viable.

The alternative is for a prospective miner to join a mining pool where the users pool their efforts together in decrypting portions of the block being mined at the time. One problem is whichever user solves the block gets all the coins and no other users receive any. If it is a pool then the amount of coin given is proportional to the amount of work minus a pool fee given to the pool manager.

Similar strategies have been used by nefarious persons who create a botnet using malware to infect thousands to millions of unsuspecting computers which then harness each computer to mine tiny amounts for solving the blockchain. When mining, purchasing, and storing cryptocurrencies, security is paramount. Theft does occur, and so in addition to mining, securing what has been accrued is essential.

 In order to produce a Bitcoin now, a much more powerful computer devoted to the decryption must access the Bitcoin network and solve a complicated math problem- this is the process known as “mining.” But there are a finite number of Bitcoins that can be mined—21 million, to be exact—and as more Bitcoins are mined, the math problems get more challenging, creating a scaling issue. It is also flexible, and the more people mining the harder the algorithm to solve - ensuring it takes a certain amount of time to solve. Thus, computers must work harder—that is, process more information—in order to solve the problem and mine a Bitcoin. Also requiring an increase in power consumption to scale with the processing required.

There are many new cryptocurrencies emerging, and mining lesser known cryptocurrencies is a good way to raise the money to transition to higher level coins. So if I have mined 100 litecoin, perhaps I could trade them for 10-20 ethereum tokens, which I can then exchange for 1-2 bitcoins. There is, effectively, a tier system innate to how much value each cryptocurrency has. As of now, bitcoin are out of the reach of an everyday user looking to get into mining and get an actual return compared to what they will be paying for concerning energy.

Around the time when Bitcoin was first introduced, personal computers were powerful enough to do the processing and thus mine Bitcoins, particularly back when it was still only worth $2. Now, nearly a decade later because the math problems are so complex, computers must use specialized hardware called Application Specific Integrated Circuit, or ASIC, which are designed to specifically solve the encryption algorithm and can do nothing else.

There has been an enormous amount of effort as well to design chips to be energy efficient using state of the art semi-conductor micon level circuitry, permitting the packing of millions of circuits onto a tiny chip. Boards are assembled using multiple chips. But, because the algorithms become increasingly difficult it requires more and more computing processing power to decrypt the blockchain. In many ways, as a byproduct of the harnessing of cryptocurrencies we're seeing the advancement of certain technologies that can be applied elsewhere in other fields. One of the greatest examples is the potential for improving the environment by applying the algorithms and processing of Bitcoin for those alterior purposes.

So, despite using efficient technologies the increasing demand for more powerful processing creates a need for multiple systems linked together and managed by a central computer directing each set of ASICS to solve a portion of the block being mined. These mining machines are often large and produce a lot of heat throughout the process. In the early days, a computer running the mining process required running on the kilo to mega-hash rate, but as of now a Peta-hash rate is necessary for productive mining.

And for those who use them—either Bitcoin mining companies or Bitcoin enthusiasts working together—massive amounts of electricity are consumed. Companies and organizations that mine bitcoin will sometimes have thousands of these machines packed into expansive warehouses, and it is very rare in 2017 for a single individual to reliably produce a bitcoin on their own. Five to eight years ago, absolutely, but today it simply wouldn't be viable due to the energy consumed in the processing. And this is a global phenomenon, from the USA to Hungary to Africa and the Middle East to virtually every other nation in the world, which should be expected from such a decentralized network.

The best way for the beginner entrepreneur to obtain large amounts of bitcoin is via direct investment. In this sense, one can consider the various cryptocurrencies to be akin to stocks, and like stocks one must research what they are investing in to best determine which cryptocurrency is the best fit for the individual. Of all the cryptocurrencies the three most currently stable are Bitcoin, Ethereum and Litecoin. And it is integral when investing in any cryptocurrency to do so through the most secure platforms possible, such as Coinbase or Kraken, for example.

By mining or investing in alternative cryptocurrencies, which often are also respectively growing, one can trade upward to higher grade cryptocurrencies until they have bitcoins of their own. This requires less energy, less time spent mining, and directly delivers the cryptocurrency to the allocated place.