Saturday, May 4, 2013

Please Sir, I Want Some More
(bitcoins episode 2)

In a previous post I said I was thinking about acquiring some additional bitcoin. One way of acquiring bitcoin is through a process metaphorically called mining. Mining means running a computer program that does the work necessary to record bitcoin transactions in an ongoing ledger called the blockchain. As an incentive to do that work, new bitcoins are created and awarded to the one who successfully completes the work and adds a new block to the chain.

The amount of work necessary to add a block is intentionally manipulated by the Bitcoin protocol, such that on average only 6 blocks an hour can be added. If I am the only miner, I will 'solve' 6 blocks an hour and earn all the bitcoin rewards for those blocks. If you decide you'd like some of that booty, you can fire up your own miner. Even though twice as much computer power is now in use, the mining difficulty is automatically adjusted such that only 6 blocks will be found each hour. But the probability is that you will complete 3 and I'll complete 3. That is, until someone else fires up their miner and starts completing some blocks too. It turns out that there are so many miners competing on the bitcoin network that the chances of an individual completing a block are minuscule. Instead, mining pools have been formed where all the pool members contribute some computing power, and share the bitcoin reward proportionately to their contribution.

So I installed a mining program on my computer and joined a mining pool. The pool is a pretty big one so their block finding probability averaged around 1 per hour. However, I was only contributing a small percentage to the pool, so my reward averaged about 0.01 bitcoin per day. The miner runs on the computer's graphics processor which generates quite a bit of heat and consequently causes the cooling fans to run continuously at full speed. The noise was annoying and I had concerns about the continuous heat affecting the life of my graphics card so after about 5 days I decided it wasn't worth it and shut off the miner, earning a little over 52 millys (0.052 BTC). Not exactly increasing my bitcoin holdings at the pace I'd like. Watch for episode 3 to hear about trading cash for bitcoin.

[End of episode 2]

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