Computers which are awarded fresh bitcoins in return for processing blocks of the latest bitcoin transactions is central in the world of the web-based digital currency and it is not central banks that add new money to the system.

Such computer systems are like the one that belong to Marco Streng for example, as reportd CNBC, and is based in south-western Iceland where he keeps tens of thousands of computers running 24 hours a day in fierce competition with others across the globe to earn bitcoins.

Accepted by several major online retailers and using individual bitcoin addresses, free of charge with no need for third party checks, bitcoin can be used to send money instantly around the world.

The computer systems earn new bitcoins for the work they do – steadily increase the currency in circulation, currently worth around $10 billion and record and verify the roughly 225,000 daily bitcoin transactions. These are the two purposes that is sevred by the work of Streng’s computers.

Since the process involves reaping a gradual reward in the same way that minerals such as gold are mined from the ground and is slow and intensive, it has come to be known as “mining”.

However the reward for miners was slashed in half as of Saturday. In a step designed to keep a lid on bitcoin inflation, the measures was a result of a rule dictating that the prize would be halved every four years and written into bitcoin’s code when it was invented in 2008.

There will be just 12.5 bitcouns instead of 25 bitcoins up for grabs globally every 10 minutes, worth around $16,000 at the current rate from around 1700 GMT on Saturday.

Hence survival and profit earning would only be possible for those mining ocmpaies with the leanest operations.

“The most important thing is to be the most efficient miner,” said Streng, the 26-year-old co-founder of German firm Genesis Mining. Apart from Iceland, the company has “mining farms” in Canada, the United States and eastern Europe.

“When the others drop out, that means that they leave the market and give you a bigger share of the pie,” said Streng.

Satoshi Nakamoto, whose real identity has not been established, was the founder of the currency eight years ago. It is not yet clear whether the founders were an individual or a group. Instead relying on a decentralised global network, it was set up to operate independently of any single authority.

It is hard to track their numbers and size since the bitcoin miners operate autonomously. The network is 43,000 times more powerful than the world’s top 500 supercomputers combined, it was estimated last year, in terms of computing capacity.

To help secure each block of transactions and keep the bitcoin network safe from hacking or manipulation, computers like Streng’s solve complex, automatically generated mathematical puzzles. That security is one of the currency’s main attractions for bitcoin users.

Bitcoin mining has become more specialized as bitcoin usage expands even though it started out as a hobby for tech geeks using their home computers in the early years of the virtual currency.

As the computers have become so specialised that they can only perform the function of bitcoin mining, a whole industry has emerged and as transaction numbers have grown with the rise of bitcoin price.

To keep expenses low and make profits, it is important to reduce costs of running these machines, which cost around $1,800 each, and it is also expensive to keep them cool.

(Adapted from CNBC)

Categories: Economy & Finance