Bitcoin: the mining of coins

 

As we saw in the first column of this series, bitcoin is a crypto-currency (an exchange instrument, bearer created on the basis of digital encryption) that meets all the conditions that must be met by the official currencies issued by the various countries. But, unlike national currencies, it is not issued by any monetary authority of any country.

So who emits bitcoin? Who controls your circulation?

The shortest answer would be "no one." That, while true, would give a false impression about the complexity and security of the system. So let's try to explain better.

Figure 1: Bitcoin symbol . (Photo: Reproduction / B.Piropo)

Bitcoins are not "issued" in the classic sense of the term: printed and marketed by a government that controls their circulation. The process by which bitcoins enter the market is more similar to what happens with gold, which, by the way, can also be used as currency. For much gold as the bitcoins are obtained by "mining" ( " Mining ").

We'll see how you can "mine" bitcoins. But before the explanation makes any sense, one must examine the reasons why gold can be used as money. The first of these is the fact that it is rare. Extremely rare. This prevents the financial market from suddenly being flooded with gold, causing chaos and overturning the price of the metal.

Imagine what would happen if, by chance, someone discovered a gold deposit so close to the surface that it was very easy to extract the metal and so large that its supply was practically inexhaustible. And that its owner began to exploit it by mining large quantities of gold and selling all its production as soon as the metal was extracted. The first idea is that this person would become very, very rich. But in fact, the opposite would occur: the uncontrollable abundance of gold in the market this would cause would make gold worth as much or less than any other metal, and that gentleman, as well as thousands of other owners of large quantities of gold, they would see with a lot of yellow metal, heavy and soft in their hands, worth little or almost nothing, not knowing what to do with it.

Therefore, what keeps the gold quotation high is its scarcity. Of course, this quote fluctuates according to the mood of the market, but always in a high range of values. Something similar happens with bitcoins: the quantity in the market is strictly controlled to prevent their quotation from falling apart.

Which brings us to the second point. Note that in the paragraph above I mentioned that the deposit should be not only large, but that the extraction of the metal would be easy. For if this same abundant deposit were almost inaccessible and required great effort and expense to extract the gold, the value of the metal would remain high, not because of its scarcity, for we know that the deposit would be practically inexhaustible, but at the cost of its extraction . For if it were necessary to spend, say, R $ 93.70 (the official quotation for the metal today), it would not make sense to sell it for less than that. For example, we all have access to an abundant and almost inexhaustible supply of gold: seawater which in just over eight billion cubic meters contains one kilogram of gold that can be extracted. The problem is that the cost of this extraction is much higher than the price at which gold can be sold at current prices. So he stays at sea. At least until someone discovers a simple and inexpensive way to extract it from there.

So what causes gold to be used as money is the combination of two factors: its scarcity and the cost of mining.

Well, with bitcoin, the exact same thing happens.

As I said before, it is not issued, it is obtained by a process called "mining". But how can you mint a virtual currency?

To mine bitcoins you need a powerful computer with the right software and networked to a set of other computers owned by other owners or organizations. This network, whose nodes, other than those dedicated to mining, are made up of computers of institutions that deal with the virtual currency, controls the whole process through the same software used for mining (soon this will be clearer; network does not have a "central" node that controls the process; on the contrary, it is a peer-to-peer network , which guarantees that there is no "authority" or "governance" which controls the issuance process and the quote value).

And what exactly is the "mining" of bitcoins?

Well, as we saw above, what makes bitcoins valuable and can be used as a bargaining chip is their scarcity and difficulty in obtaining them. The shortage is controlled by software installed on all nodes of the network, which control the rate at which bitcoins are mined (see below). The difficulty is created by the mining process itself. That is: for bitcoins to have value, the way to get them (or "mine" them) must not only have a high difficulty level but also cost some money. And the mechanism seen by the creator of the whole bitcoin system, which comes with the assumed name of Satoshi Nakamoto, is extremely ingenious (anyone interested in details can refer to the  original document that created the system ).

So I ask: what is the most labor-intensive activity you can do with a computer? Maybe each of us has a different idea, but everyone will agree that "breaking" a modern encryption code, created by a last-generation algorithm with a "strong" key, if not the hardest one is one of the hardest.

Well, this is the task proposed to bitcoin miners: from time to time, at intervals controlled by the software that manages the system and that is distributed by all the nodes, a hash is generated (sequence of bits generated by the algorithm of bitcoins) . encryption) containing a certain encrypted value. The difficulty in "breaking" this hash (that is, from it finding the encrypted value) is determined by the number of zeros contained in its beginning, so it can be adjusted. When a new hash is released , all the nodes dedicated to mining immediately try to decipher it.

The first to get receives as a reward a certain number of bitcoins. As soon as this occurs, that node announces to the whole network that it broke the code and that those bitcoins belong to it. Once this transaction is registered on all nodes of the network (which usually takes ten minutes or less) that happy miner can make use of his bitcoins.

Figure 2: Betterfly Labs bitcoins "Miner". (Photo: Reproduction / B.Piropo)

Well, that mining is laborious, there's no question: breaking encrypted codes gives a dog job (and look that the system can make the job easier by increasing the number of zeros at the beginning of the hash , otherwise the task would be virtually impossible; after all, the entire system of financial transactions via Internet depends on the security of the hash algorithms ). The second condition still remains to be verified: mining must involve some financial expense. And, in fact, it implies - an expenditure that has been growing over time.

If you're interested in details (not just the cost setting, but the entire assembly of a network node and the way it's operated) read Greg Ryder's article in Tom's Hardware Guide, "All About Bitcoin Mining : Road To Riches Or Fool's Gold? ". But if you're only interested in cost, a machine developed and crafted specifically for mining bitcoins costs $ 1,200 to $ 30,000, depending on processing capacity.

Yes, these machines exist. At first miners used powerful workstations. Then they discovered the facilities offered by certain video cards whose graphic coprocessors could be used to speed up the process and called for machines with several of these boards operating together. But recently, some companies (such as Butterfly Labs) have started to launch ASICS, that is, single task machines, and this task is to mine bitcoins. The unit shown in Figure 2, last generation, has a cost of US $ 22 thousand. So if your computer is powerful, the gamers dream, and you thought you could use it in the off hours to mine bitcoins, forget it. In front of ASICS your machine, no matter how powerful, has no chance.

But it's not just the cost of hardware that should be taken into consideration. Another important component of the cost is energy expenditure. Which, of course, varies from place to place. But according to Ryder's study in the cited article, with energy costs in California (where he lives), if bitcoin prices fall below $ 105, mining them in California will , for now, is out: bitcoin on Thursday (23), oscillated between $ 860.45 and $ 863.95 per bitcoin, if you are interested in knowing the quote at any time, see the CoinDesk website ).

Now that we have seen how bitcoins enter the market, we will see who controls the amount of coins issued and their circulation, preventing them from flooding the market and consequently losing value quickly.

Next week, of course.

B. Compliment