BitCoin Mining

Before we start to talk about this, I should point out that very few people mine for
BitCoins. You don.t need to mine to use BitCoins; people who mine usually either do
it for fun or are prepared to take a risk with a business that is very likely to make less
than invested.

What is BitCoin Mining?

Although BitCoin is a distributed, peer-to-peer currency, it has to have a set
capacity for it to retain its value. For this reason, there will be a total of just under 21
million BitCoins available for circulation.

However, if 21 million BitCoins were to become available all at once and there
wasn.t enough demand for them, the BitCoins would be essentially worthless. For this
reason, the rate of new BitCoins entering circulation must be tightly controlled so
that BitCoins do not flood the market, instead being introduced gradually over the
next 100 years or so. This is where BitCoin mining comes in.

BitCoin mining is the process of using a computer to generate blocks, which are
used to process and verify the transactions which occur between the time the block
was generated and the time the previous block was generated. Blocks contain data
from the previous block so as to create a block chain, which contains information
about every transaction within the chain.

Creating a block requires a lot of work, which translates to a lot of time and a lot of
computer processing power. So, as an incentive, anybody who successfully creates
a block is given a reward (currently 50BTC, worth roughly 500 USD at the time of
writing) as well as any transaction fees included in the transactions hashed in the
block.

Total BitCoins over time

There are a few catches, though. The network is designed to maintain a block 

production rate of a new block every 10 minutes (or 6 blocks an hour). As more 

people begin to mine with more powerful computers, the difficulty is adjusted so 

that it takes longer for a block to be produced (making it harder for each individual 

to be the producer of a block). 

The other catch is that the reward for each block produced is halved every 210,000 

blocks. Currently there are around 142,000 blocks in existence, so it will be a while 

before the reward amount falls. When it does reach 210,000 blocks, though, the 

reward will drop to 25BTC. When 420,000 blocks have been produced, the reward 

will fall to 12.5BTC, and so on and so forth. 

Once the 21 million BitCoins have been produced there will no longer be a reward, 

although the producer of the block will still receive all transaction fees for that block 

(which, by this point, will be significant enough to be a reward in itself). 

What do I need to mine BitCoins? 

At its most basic, all you need for BitCoin mining is a computer with a BitCoin mining 

application and an Internet connection. Having said that, there.s a difference 

between mining BitCoins and mining BitCoins well. The applications used for mining 

BitCoins make use of your graphics card, which can carry out many calculations at 

the same time (far more than possible with even the best CPUs). Put simply, more 

powerful graphics cards can carry out more calculations at once and carry them 

out faster. 

BitCoin mining performance is measured in hashes per second (hash/s), or the 

number of times the graphics card can convert the data supplied to it into a fixed-

length string of characters. When a hash is generated with the correct value a block 

is created, so the higher the hash/s value of the graphics card, the faster it is likely to 

create a new block. 

Most mid-range desktop graphics cards today (such as the AMD 6750 for $120) are 

capable of producing around 170Mhash/s (Megahashes per second) - that.s 170 

000 000 hashes per second. 

On the flip side, some people build servers made specifically for BitCoin mining. 

These may have 3 or 4 of the most powerful graphics cards currently available, 

which working together are able to produce over 2Ghash/s (Gigahashes per 

second) - that.s more than 2 000 000 000 hashes every second. 

Having said that, you can still successfully mine by using the graphics card in your 

computer, although upgrading it to a more powerful graphics card to improve 

performance can still be beneficial. 

To mine using a Mac you really want to be running Snow Leopard or later – earlier 

versions of OS X can.t make use of the graphics card and are too slow to be worth 

the hassle. 

How to use BitCoin

Getting a BitCoin wallet

The first step to getting started with BitCoins is to get yourself a BitCoin wallet. Just like
a real wallet, this is where your BitCoins are stored. It is far more tangible than money
stored in a bank account – the wallet file you create is a file just like any other
document. It can be moved around and stored on different devices. You can even
duplicate it to have multiple copies (obviously this doesn.t duplicate the money
inside, though!).
Your BitCoin wallet is comprised of two parts: the wallet file, which stores the BitCoins,
and the wallet application (also called the BitCoin client), which opens those wallet
files. This means that it is possible to store the wallet file on a USB drive (for example)
and open it on any computer that has the wallet application installed. As there is a
version for most operating systems, it.s possible to open the BitCoin file pretty much
anywhere.
You can download the official client from the BitCoin website (www.bitcoin.org).
There you can get the right version for your operating system.

For Windows and OS X, installing the wallet application is just like installing any other
application for your platform. I.ll assume that you already know how to do this.
Opening the application will generate the wallet file and assign you your first
receiving address (more on this in a bit).

 For Ubuntu, downloading the client gives you a .tar.gz file which contains four
different versions: the main application and the windowless server in both 32-bit and
64-bit flavours. You can put this folder anywhere and then click on bitcoin to start
the program.

 Alternatively, instead of installing the BitCoin client, you can choose to use an online
service such as Instawallet (www.instawallet.org). This site generates a wallet file and
ties it to a specific URL which you can save as a bookmark. This allows you to access

your BitCoins from pretty much anywhere, but means that you have to trust the
service with your BitCoins.

 Have a look at the BitCoin client window. This is the Mac version, but like most cross
platform applications it.s pretty much the same for every version.

 That.s all there is to it. Pretty simple, right?

BitCoin: The Virtual Currency ..

BitCoin: The Virtual Currency What is BitCoin? BitCoin is a new, all-digital, peer-to-peer (p2p) currency, which can be used to replace cold, hard cash when buying and selling goods and services online. Unlike most money online, which is stored in banks and transferred using payment processors like PayPal, BitCoin is completely distributed between its users and sent between users without the need for a middleman. Why should I use BitCoin? There are a few major advantages to using BitCoin in place of your normal currency for online transactions, most of which stem from how BitCoins are stored. First of all, BitCoin is a global, decentralised currency. This means that there is no country to which BitCoin specifically belongs, making it a viable currency to use all over the world. This makes international transactions simple; no longer does there need to be a discussion over whether the payment should be made in the buyer.s currency or the seller.s, nor at which exchange rate the transaction should take place. Another big advantage that decentralised currencies have is that a Federal Reserve or national bank does not manage the value of the currency. This means that the currency will retain its value regardless of the performance of the global economy, similar to the value of rare metals and commodities like oil. It has no single point of failure; the entire Internet would have to go down for BitCoin to fail. Second, because transactions are made directly from one person to another, there is no middleman, and therefore no fees. In a few years time there will be a slight charge for transactions due to the way that the currency is managed, but it should be much less than the standard alternatives. Third, because the BitCoins you own are stored in a wallet file on your computer, you have full control over your funds. Since the BitCoins are not stored in an “account” they cannot be frozen, meaning that you will never be left without cash. Furthermore, there is no “small print”, transaction limits, forms or other limits like you would have with a bank. Finally, while it does cost money to exchange fiat currencies to BitCoins and vice versa, it doesn.t cost anything to accept them, making it a great way to be paid online for goods or services. Some downsides to using BitCoin Of course, like all things, there are some downsides to using BitCoins, which may mean that using them is not for you. It.s worth giving it some thought before rushing in. First of all, because you hold on to the money and don.t store it in a bank, you won.t earn any interest on any money stored as BitCoins. While to most people this isn.t a major problem (since you.re likely only using BitCoins to send to somebody else), if you.re a merchant dealing in BitCoins, not collecting interest could have significant implications. Reliability is also a major issue. While in theory its internet-wide distribution should make the currency stable, it is still potentially susceptible to shocks in supply or demand, which could cause rapid changes in its value. It.s important to remember that BitCoin is a fledgling currency that has only been around for a couple of years and is one of the first of its kind, so there.s no real way to tell how successful it will be. Furthermore, while its decentralised nature can be advantageous, it does also mean that if something does go horribly wrong there.s no bank or government to back it up. Simply put: BitCoins could be worthless someday. Another problem is the way that money is sent from peer to peer. While it is possible to create more complex transaction systems for BitCoin, the simple transfers that make up the majority of BitCoin transactions have no set securities. That basically means that all transactions are final and there are no refunds, making it great for scammers; once the money is gone, it.s almost impossible to get it back without the other party returning it voluntarily. There is no bank or credit card company to appeal to. The other main downsides to using BitCoins come down to the disadvantages it shares with physical cash - its ability to be lost or stolen. As the BitCoins are stored in a simple file called a wallet file, they can be at risk to hackers and viruses that can transfer the money from your wallet to theirs (which, again, is almost impossible to reverse due to the nature of transactions). However, it.s a fairly simple and straightforward process to secure your wallet file - we.ll touch on that later. While it is quite difficult to “lose” the wallet file in the same way you might lose your real wallet, there are still the possible dangers of file corruption, hard drive failure and accidental deletion. Since the only record of the BitCoins you own is the wallet file that they.re stored in, losing the wallet means losing the BitCoins. Again, this is fairly easy to safeguard against, and we.ll be looking at a few different methods a bit later. So, now you know the risks involved. There are a few, to be sure, but most are easily avoided.