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Bitcoin spurred on a few an advances in social and technical engineering. In the beginning when solving these problems was easy, bitcoin was still minuscule and limited in use. There were very few transactions that needed to be validated and stored in the Blockchain, so it didn't require much horsepower to handle. But as the currency grew in popularity it's value started to raise, pretty soon it was worth a dollar, then two, then twenty-five dollars. (Hell, when my wife and I mined our first BTC I think it was still hovering around $30.00 per coin.) As the reward started increasing more and more people started joining the growing number of miners and the overall power of the network increased right along with it. As I mentioned above, the Bitcoin software is always watching the total strength of the network and increasing the difficulty of the problems which the miners must solve to get the reward. So, the mathematical problems got harder and harder to solve and each individual miner made less and less cash until they upgraded their systems to make them better at solving bitcoin problems.
Fun History:
Once traditional CPUs proved insufficient at solving the encryption problems that Bitcoin presented, Miners did a few things to try and address the problem. Some of them figured out that specialized high end Video card GPUs were much better at solving these particular types of mathematical problems then regular CPUs - which tend to be more general purpose in nature. So they downloaded special software that would allow them to preform the calculations directly on their GPU and this initially provided a huge increase in the amount of problems that they could solve over time.
Other's decided to band together and to form giant mining pools of computers, where individual problems were broken into smaller parts and distributed among the participants - if the pool was successful in being the first to solve a problem the reward was then divided up among the participant at a rate based on their contribution. The more power you contributed - the bigger reward you got. These pools are still a big force in bitcoin mining today - you can see their distribution at Blockchain.info.
In Bitcoins's current state, the difficulty of solving even a single block is so high that you can only really be competitive if you spend a great deal of money on hardware specifically designed to do just one thing - solve Bitcoin math. That's it... that's all it's good for. These machines are commonly called ASICs (Application Specific Integrated Circuits) by the mining crowd. And even then - you still have to either put down several million dollars to have enough computational power (commonly referred to as hash rate) to be competitive, or you have to join one of the mining pools that I mentioned above.
And to make things even more risky - the technology is still advancing at such a quick pace that the equipment you spent thousands of dollars on last month may be worth nothing, 3-6 months from now. Granted the past 6 months have seen a bit of a slow down and even a stalling of the mining network difficulty - this is most likely due to Bitcoin's recent price drops - from over $1000 per coin to it's current state hovering between 200 and 300 dollars per coin. The reward decreased, so some players simply got out of the market - which had the overall effect of decreasing the rise in difficulty. If you are interested some of the better known manufacturers of this equipment, they include: Bitmain's Antminer Line, and KNCMiner.
It's pretty safe to say that profitable Bitcoin mining at this point has moved out of reach of the typical hobbyist.
I want to believe in the promises bitcoin holds, but am also fully aware of all the challenges it has to overcome, so I limit my investment, purchases, and risk to something that I can personally accept.
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[–] Woodsap 0 points 1 point 1 point (+1|-0) ago
So why or how do people keep on mining?
Bitcoin spurred on a few an advances in social and technical engineering. In the beginning when solving these problems was easy, bitcoin was still minuscule and limited in use. There were very few transactions that needed to be validated and stored in the Blockchain, so it didn't require much horsepower to handle. But as the currency grew in popularity it's value started to raise, pretty soon it was worth a dollar, then two, then twenty-five dollars. (Hell, when my wife and I mined our first BTC I think it was still hovering around $30.00 per coin.) As the reward started increasing more and more people started joining the growing number of miners and the overall power of the network increased right along with it. As I mentioned above, the Bitcoin software is always watching the total strength of the network and increasing the difficulty of the problems which the miners must solve to get the reward. So, the mathematical problems got harder and harder to solve and each individual miner made less and less cash until they upgraded their systems to make them better at solving bitcoin problems.
Fun History:
Once traditional CPUs proved insufficient at solving the encryption problems that Bitcoin presented, Miners did a few things to try and address the problem. Some of them figured out that specialized high end Video card GPUs were much better at solving these particular types of mathematical problems then regular CPUs - which tend to be more general purpose in nature. So they downloaded special software that would allow them to preform the calculations directly on their GPU and this initially provided a huge increase in the amount of problems that they could solve over time.
Other's decided to band together and to form giant mining pools of computers, where individual problems were broken into smaller parts and distributed among the participants - if the pool was successful in being the first to solve a problem the reward was then divided up among the participant at a rate based on their contribution. The more power you contributed - the bigger reward you got. These pools are still a big force in bitcoin mining today - you can see their distribution at Blockchain.info.
In Bitcoins's current state, the difficulty of solving even a single block is so high that you can only really be competitive if you spend a great deal of money on hardware specifically designed to do just one thing - solve Bitcoin math. That's it... that's all it's good for. These machines are commonly called ASICs (Application Specific Integrated Circuits) by the mining crowd. And even then - you still have to either put down several million dollars to have enough computational power (commonly referred to as hash rate) to be competitive, or you have to join one of the mining pools that I mentioned above.
And to make things even more risky - the technology is still advancing at such a quick pace that the equipment you spent thousands of dollars on last month may be worth nothing, 3-6 months from now. Granted the past 6 months have seen a bit of a slow down and even a stalling of the mining network difficulty - this is most likely due to Bitcoin's recent price drops - from over $1000 per coin to it's current state hovering between 200 and 300 dollars per coin. The reward decreased, so some players simply got out of the market - which had the overall effect of decreasing the rise in difficulty. If you are interested some of the better known manufacturers of this equipment, they include: Bitmain's Antminer Line, and KNCMiner.
It's pretty safe to say that profitable Bitcoin mining at this point has moved out of reach of the typical hobbyist.
[–] Woodsap 0 points 1 point 1 point (+1|-0) ago
Closing thoughts:
Bitcoin has had quite an interesting start in life:
It's open source nature and the disruptive way it approaches currency attracted the techies, investors, and speculators
The fact that anyone in the world with only a smartphone and an internet connection can send or receive it - with no banks or money transfer services involved, provide an opportunity for the billions of people on the planet that don't have access to a modern banking system to participate in a global economy.
It's decentralized and uncontrolled nature tended to attract people who don't like central governments meddling in a nations monetary policy - in the US Libertarians.
It's unregulated status was pretty sweet looking to the people wanting to launder money or to outright sell illegal goods and services to the public.
It's novelty and complexity opened the door for rip off artists, con men, and incompetents.
In response to all of the reasons listed above and Bitcoin's continuing popularity, governments across the world are now starting to take a look at it, and are beginning to impose their own regulations on the use and exchange of the currency. Some are choosing to restrict the anonymity inherently provided by the currency, while some want to limit it's use and potential impacts on their own state run currencies, and others would prefer to ban it out right, while some have decided to embrace it, and still others are sitting back and taking a wait and see attitude.
You can see a neat summery of Bitcoin legality by country here.
I want to believe in the promises bitcoin holds, but am also fully aware of all the challenges it has to overcome, so I limit my investment, purchases, and risk to something that I can personally accept.