Now that you are privy to some of the Bitcoin basics, it’s time to become a savvy entrepreneur and get down to the Bitcoin business. Not interested in capitalizing on the latest internet folly, but curious how the discovery and exchange process works? Either way, you’ve come to the right place. In the second installation of Setuix’s Bitcoin Series, we’ll break down how Bitcoins are “released” for public use and learn how to pocket some newly carved out money. Before you start making your millions though, we’ll begin with some key concepts in the currency exchange.
The Exchange (in a nutshell)
Before we get too heavy into details, lets review briefly what happens when a purchase is made with Bitcoin currency. In summary, two parties exchange payment using wallets. The wallets give access to unique, one-time Bitcoin addresses, using a set of private and public keys. The wallet could be hosted on your PC, mobile device, or even in the cloud (see our review in part 1).
The exchange is often verified by other users (i.e. miners) on the network, ensuring the same address is not double-spent. This verification is closely related to mining for new blocks, where miners use heavy duty processors (or work in pools) to chip off new Bitcoin chunks. For a more graphic account of a Bitcoin exchange, see this visual.ly link.
Brand new Bitcoins are discovered through a process called mining, carried out either solo or in pools of multiple individuals. While the algorithm is a complex mathematical process, your computer—alongside others in a pool—tries to solve an incredibly hard puzzle, which validates a block(s) of Bitcoins (see hashcash). Each block discovered currently contains twenty-five Bitcoins, a quantity that halves every four years.
A block may also contain any number of transaction fees, which are added voluntarily from other Bitcoin users when they pay a tiny amount to validate their exchange. After some time, more and more blocks are released into the public by mining enthusiasts, and fees comprise a more significant portion of the bounty.
Paradoxically, the more people that mine coins, the more difficult it is to find new Bitcoins (i.e. the algorithm gets harder to solve). Difficulty relates to the complexity of Bitcoin discovery and adjusts according to how many miners are digging for the bit-gold.
Mining for Bitcoins is measured in hash/second (H/S). Powerful processors are required since finding a new block of BTC takes some Gigahash strength. To find out if your device stands any chance of discovering a block, visit this site and enter your machine’s “hash rate” specs.
Depending on your device, you are likely to spend more money on your utility bill than you’ll discover in Bitcoins on your own. If you can’t wait to start unearthing newly minted crypto-coins, joining a pool is likely your best bet. A pool is simply a group of workers who’ve joined their hardware forces to mine collectively, then divvy up the Bitcoins generated among the group. A user can have multiple workers under their account, so that each of your devices can contribute to the pool.
To register with a popular mining pool, select the Bitcoin option on this site. For other resources and comparison, try:
After you gain access to a Bitcoin wallet, you’ll want to start mining to fill this wallet with coins! Whether you’re mining solo or in a pool, you’ll need software to do the hard work for you. 50Miner is a popular option available for Windows, while CGMiner is good for Linux users (CGMiner has no GUI and is instead a command prompt software; download here). For other options in mining software, try this site. Once you settle into one, go ahead and input your pool and worker account information to get started mining.
If you are looking to beef up your Bitcoin collection quick, fast and in a hurry, you’ll need more than some passive software running on your home device. There are three types of hardware devices that are likely to multiply your chances of success:
- ASIC, or “Application-Specific Integrated Circuit”
- FPGA, or “Field-Programmable Gate Array”
- and GPU, or “Graphics Processing Unit”
Generally, these are also in order of strongest to weakest miner, with ASIC being the most equipped to uncover blocks. To compare the performance of these three types of devices, visit this wiki site. To shop for available miners, visit this site, which also lists some specifications and prices.
Spending & Trade
With your wallet full of virtual coins, there is plenty you can spend your new-found money on. Lucky for you, 2014 is going to be a good year to have stacks of this particular currency…you can:
- Buy pizza with Bitcoins here or you buy food from here
- Explore a list of retailers accepting them here or page through the wiki list of vendors here
- Trade Bitcoins for gold and silver
- Trade Bitcoins for dollars, Euros, and other things:
With the value of Bitcoins being so high, these links should keep you busy spending your Bitcoin bounty. In the third and final part of the Setuix Bitcoin Series, we’ll look at some of the future implications of this volatile, virtual currency.