Bitcoin Introduction

Bitcoin is a p2p decentralized crypto currency. The system is decentralized, however, so the database is stored on every participating computer simultaneously.  The bitcoin was first introduced in Satoshi Nakamoto’s 2008 whitepaper, and the original open source project itself was founded on January 3, 2009.

Bitcoin is the first such distributed currency and it is not controlled by any organization or government. Bitcoin architecture has no middlemen to take fees from every transaction you make.

Gmail lets you send messages free anywhere in the world. WhatsApp does the same for telephone conversations. And now there’s Bitcoin, allowing you to send money from anywhere to anywhere with no national borders.

For its first two years, it slowly expanded its user base until it was mentioned in an article on Slashdot in late 2010, beginning a sudden influx of new users and media attention and a rapid increase in prices as Bitcoin was for the first time truly exposed to the real world. Since its inception, it has grown to a size of over a million users and its 8.5 million currently existing units are altogether worth tens of millions of dollars.

The price of bitcoin first two years was great for early investors, just remember about the most expensive pizzas in history, but after the article on Slashdot in late 2010, something change and beginning an influx of new users, investors so this could not go unnoticed by the media as a result a rapid increase in prices as Bitcoin was for the first time truly exposed to the real world.

Bitcoin’s decentralized database secures transfers between addresses using a math algorithm known as digital signatures. This method prevents a problem known as double-spending sending because transactions are broadcast to the entire network and synchronizing this information across all participating machines.

One thing often overlooked is that bitcoin is most useful in chaotic economies. Bitcoin likely will not replace the Euro, Dollar, Yen, or Yuan for very long time (if ever). However many economies suffer from poor economic planning and gross manipulation by central banks.

Take the Zimbabwe hyperinflation scenario. If bitcoin existed and was easily used by 3rd world country as the Zimbabwe dollar collapsed due to rampant printing of money people would move to another store of value such as bitcoin. While the Z dollar would still have collpased the material affect on the economy would be less significant.

Thus the first world (providing most of the hashing power) could provide a launch pad for more stable economies in developing nations and greatly increase the use and legitimacy of bitcoin.

Bitcoin “Mining”

Bitcoin mining is the process of using computer power to solve a mathematical problem and be rewarded with bitcoins. Miners need software and hardware to mine. Hardware has traditionally come in the form of a PC but more recently in the form of a ASIC.

Miners connect their hardware to the bitcoin network (internet) and with the help of the mining software help resolve the math problems and add their solutions to the bitcoin block chain which is a reference for all the bitcoin transactions.

In the beginning, what some would call the good old day, bitcoin mining was done on a PC (computer) via the CPU. Initially, Bitcoin miners simply ran Satoshi’s (Bitcoin creator) mining code on their computers and would simply add more computers to improve their mining output. Eventually the program was migrated to use graphics cards and the mining difficulty algorithm rose so much that mining on a CPU became obsolete. The cost of electricity was more than you could mine via a CPU Bitcoin Mining rig. The biggest problem that GPU miners had and still have is keeping their rigs cool. A hot rig can run slow but more importantly it can overheat and ruin the hardware itself. Heat is the number 1 killer of electronics so keep your rigs cool anyway you can.

Eventually the bitcoin mining world would progressed to using Field Programmable Gate Arrays (FPGA) as another alternative mining hardware rig. While FPGAs did not provide a huge increase in mining speed over GPUs, they did use a lot less electricity. A typical 600 MH/s graphics card can use about 400w of power, whereas a typical FPGA mining device would use about 80w of power while processing at the same hash rate. Power efficiency is a crucial element in any bitcoin minors profitability calculator.

The bitcoin mining arena is now migrating over to ASICs or Application Specific Integrated Circuits. An ASIC is a computer chip that is designed specifically for one task. The fact that an ASIC can only perform one job is countered by the fact that an ASIC can offer a 100x increase in hashing power and at the same time reduce power consumption.

There are several start up companies rushing to the market to get the fastest least expensive bitcoin ASIC mining rig to the bitcoin miners. Unlike the CPUs or GPUS, the ASICs appear to be here to stay. There is no foreseeable technology coming along to supplant the ASIC as the bitcoin mining rig of the future. What ASIC manufacturing companies are doing now is trying to reduce power consumption while at the same time, increasing hash rate.

Avalon was the first ASIC to actually hit the market and the frenzy was so great that some of these were selling upwards of 30 to 40k on the secondary market. Avalon was scheduled to release 3 different batches of ASICs but to date have only released 2. Butterfly Labs struggled greatly getting their ASICs to the miners but eventually were able to get their smallest box, the Jalepeno released in the summer 2013.

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