Bitcoin is thriving. Over a year after many pundits declared it dead, the virtual currency is holding its value and now being accepted as payment everywhere, from casinos to WordPress to stripper subreddits to drug markets. And what's even more interesting is that a new industry is emerging to support the crazy nerds that mine Bitcoin.
The first thing they need: microchips.
Anybody can create Bitcoin. Per the rules of its mysterious creator, "Satoshi Nakamoto," all it takes is a piece of free software that can be downloaded from the web and a computer powerful enough to run it. Just like our currency essentially consists of pieces of paper that the government promises is worth money, Bitcoin are unique codes that must be generated using a complex mathematical formula that basically amounts to brute force. Distributed in computers across the world, the software keeps track of all of Bitcoin's anonymized transactions; the computer that can complete the next block of the log is rewarded with a fresh batch of Bitcoin (currently l25, or about $316). The software will take care of the math for you, but it will also render your computer useless while it's running.
This is where the microchips come in. The standard Intel or whatever that's running your home computer works fine for writing that novel you'll never finish or stalk your ex on Facebook, but it's hardly designed to do heavy duty processing necessary to mine Bitcoin. A standard desktop computer can do it, but it might take weeks to generate a single block of the currency. (A single block is 25 Bitcoin). With the right kind of equipment, though, you could ostensibly make hundreds, if not thousands of dollars a day worth of the stuff. Simply put, the more processing power you have, the more money you can mint.
Naturally, some people got really into this challenge and started building computers, specifically designed to mine Bitcoin. Some of them filled an entire room and gulped thousands of dollars worth of electricity a month. At first, they were just cramming as many CPUs onto their motherboard as they could. Then, they upgraded to supercomputer-grade GPUs and eventually to field-programmable gate array (FPGA) circuits. The only option for an upgrade after that are the ultra-incredible application-specific integrated circuits (ASICs) that are custom-built for specific tasks and can cost tens of thousands of dollars a piece. But you know what could drive ASICs prices down? Demand for hardcore Bitcoin mining tools.
One of the companies that's started making Bitcoin-specific ASICs is Butterfly Labs in Kansas City. Butterfly says they're going to start shipping the new chips early next year and plans to sell them for anywhere from $149 to $29,899. (If you order one, be careful not to lose it; they're only 7.5 millimeters long.)
It's a great racket, actually, because the unique Bitcoin codes are only getting harder and harder to generate. See, the original design for Bitcoin allows for only 21 million to be mined and released. So if miners want to continue to make a profit from running their energy-gulping rigs, they'll need to have the most efficient chips possible. If everything works out, the expensive ASICs will pay for themselves.
In the end, everybody gains from this new cottage industry. The Bitcoin mining proposition is giving chipmakers a unique opportunity to sell directly to consumers, giving them more incentive to innovate and a less convoluted path to market. The miners get to make some money — literally! And the rest of the world gets a stateless and anonymous currency, which happens to be perfect for buying drugs, beef jerky, and blogs.
Images via Butterfly Labs