For all the attention that Bitcoin receives in the news, the most interesting peculiarity of this crypto-currency has largely been ignored. Sure, we'd all like to know whether the currency will ultimately succeed without any ties to a real-world economy. And Bitcoin's rapid fluctuation in value over the past six months has certainly turned some heads.
But how Bitcoins are actually created is all too often overlooked. The currency isn't minted at will in a factory setting. Bitcoins don't just magically appear out of thin air. Instead, they're the products of complex software algorithms that run day and night on incredibly powerful computers. So who, exactly, has the pioneering spirit to "mine" the virtual currency, converting CPU and GPU cycles into something of real-world value?
Part of Eric's GPU-based mining rig.
It takes time, dedication, and an extraordinary amount of water-cooled PC hardware. Meet Eric. He's one of the converted. (Eric's name has been changed by request to protect his identity: "I'd rather not broadcast to the world that I have that much liquid currency under my control," he said.)
"Most people approach mining with the hopes that they'll turn a profit, but to me, it's more about creating a freestanding currency," Eric said. Luckily for him, profit came with the package.
Eric has been mining Bitcoins since 2010, and at one point quit a high-paying job as a software engineer to devote all of his time to, figuratively speaking, extract gold from silicon. His move was bold and risky, but yielded an awesome reward: To date, Eric has accumulated 2500 bitcoins, which is worth a cool $191,900 as of this writing. (At Bitcoin's highest exchange rate, that amount was $665,000.) He doesn't trade them and has no immediate plans to cash out. Instead, he's hanging on to them, and waiting to see how their value changes.
With Bitcoin gaining traction as a viable currency, more and more people are interested in mining for a piece of the digital pie. However, mining for profit is more difficult than just loading up some software and watching the cash flow in. As Eric's experience vividly shows us, Bitcoin mining requires a considerable investment (and intestinal fortitude) just to get started.
Number crunching for gold
To understand mining, you have to understand Bitcoin itself. Roughly put, Bitcoin is an electronic currency that isn't tied to any country or economy--it's decentralized. Its value is constantly changing (just like any other currency), and saw an all-time high back in April of $266. It's currently resting at $76.75 USD per single Bitcoin.
Sign up for CIO Asia eNewsletters.