Bitcoin the crypto currency

Crypto currency and its main specimen, bitcoin is gaining much attention nowadays.

The currency already had it’s highs and lows, but now the exchange rate show stable growth. And what is more important, bitcoins become more and more accepted online by hosting operators, domain registrars, game servers and other cyber services providers. The biggest achievement so far is that you can spend your virtual currency on bying some real food. This is for the US only for now, but the trend is awesome. Some argue that crypto currency is fiction. Well, all money in the world is fiction. They are not gold standard anymore, since the world’s gold supply is not sufficient for steady economic growth. So every currency is a fiction. And as for US dollar, it is also a debt obligation to the Federal Reserve, which despite the name, is a privately owned firm, like Federal Express – FedEx is a private business, even though having “federal” in its name. The lack of central issuer – government or central back is exactly what makes cryptocurrency so much better than ordinary money. Central banks and governments have full control over money printing, and use this power to increase the amount of money. According to laws of demand and supply, the more something is there on the market, the lower it costs. This is the exact reason for continuous inflation, as governments print more and more money, increasing total amount of money and thus decreasing their value. And this newly printed money are supported by nothing at all. This is not so with crypto currency. As the name suggests, crypto currency relies on very strong cryptographic algorithms, almost impossible to crack. Well, something like the ones that are used to encrypt your files when you archive them with a password. Bitcoin network is decentralized and created by the users themselves, very similar to BitTorrent network you are probably familiar with. This network stores and distributes the list of all transactions, which are called blocks, and once in ten minutes 25 new bitcoins are mint. To earn one of these, you need to do some serious and very specific calculations, in a sense, to break that crypto protection. The first one to do it gets the bitcoins into his or her electronic wallet. Everything was relatively easy at the beginning, but the algorithm itself is not only very computationally intensive, but also gets more and more complicated with every bitcoin mint. All of these deliberate measures prevent the amount of money from growing too fast. In essence, each bitcoin is effort used to earn it, in this case computational power, and resources, in this case processors and electric power, which these processors consume. So to some extent, a bitcoin is even less ephemer that common currency. In modern world any money is just a number on the account, but with bitcoins you have to put in some resources for the number to increase. On the contrary, government’s just order central banks to print more money, no effort attached. This is exactly why bitcoins gain in popularity during economic crises like the American subprime mortgage crisis or the more recent Cyprus decision to rob people of their deposits. Or as in any other case when people are just sick and tired of governments increasing control and regulation of money that does not even belong to them. Bitcoins are decentralised and out of governments reach, since it doesn’t have a single printing mint. As of now, bitcoin liquidity is too low to interest serious investors. Well, it’s okay for personal fortunes equal to tens of thousands of dollars, but for major corporations with multi-million dollar cashflows the liquidity is just not enough. For now. Officially, bitcoin is not recognised as currency, and is just an experiment with unknown results. By the way, the anonymity of bitcoin transactions made it the only accepted currency at the worlds biggest, if not only digital black market, which specializes in highly demanded goods like pornography and drugs. In theory, terrorists may use bitcoin to launder money, as regulation and control is against the very nature of cryptocurrency, but hey, risk is the price you pay for freedom. So, what do you need to get your own electronic wallet? In fact, not much. Download a client application for your platform, install it and wait until it loads all transaction blocks since Bitcoin first appearance in 2008. Currently, the transaction database is over 8 Gigabytes and may take a whole day to download, especially on slow connections. After the database fully syncs, the program will create your wallet automatically. The wallet file and the database is stored in your Windows profile. You really should make a backup of wallet.dat and keep it safe. If you loose it, you will loose all your bitcoins. They will be gone from the network forever. Special services exist to print out your wallet on paper. Look for one with good reputation and print out your wallet, just in case. If you don’t like the data being kept in your Windows profile, run the client application with a special key specifying your data directory of choice. Well, that’s all. If you don’t turn off your computer and you have the ability to receive incoming connections, configure your router to do so. This is how you can support Bitcoin network, well, like seeding a torrent. Now when you have a wallet, the time is right to know how to get some bitcoin in it, right? The easiest way is to exchange bitcoins for some other currency, like euro or US dollar. There are quite a few exchanges, pick the one with positive reviews and go for it. But how do you get new bitcoins? As I already said, the network releases 25 new bitcoins every 10 minutes. In the future, this amount will be lowered, and the algorithm will become harder, until the total number of issued bitcoins reaches 21.000.000. This is the limit which bitcoins can’t exceed by design. It’s not exactly clear how they are going to support economy growth and investments with limited money supply. But as any bitcoin allows to be split in infinite number of fractions, perhaps as a single bitcoin values more and more, less and less fraction will be used for transactions. Well, something like that At this point it is still feasible to solve the algorithm and get a bitcoin, and this process is called mining. However, even as of now the computational power required to do that is enormous, and most probably you’ll end up paying more in electricity bills than you actually earn. For instance, even if you have a complete farm of 8 servers, your total mining speed will be around 400-800 M/hash, and a week of 24h mining will earn you an equivalent of 5 USD. Calculate the expenses of a datacenter on your own. It’s clear that since new bitcoins are becoming rare, more and more people want them, the algorithm is harder, and you need more and more resources, your odds of successful mining are close to a lottery win. If you can’t grasp the chances, many online calculators can help you in that. But if you still would like to try, here’s how. Just to make it clear – I will be using Far Manager. Don’t be afraid, this not the best looking file manager is way more convenient to use than those freaking windows and other faggotry like Apple interfaces. First thing you need to do is to find the directory with bitcoin client data, which I talked about earlier, and create bitcoin.conf file inside. You need to enter only two lines to the file – the first one sets username, the other one – the password. Now run the client with -server parameter, that means run it as a server. You will also need a program to mine bitcoins, which is called miner. There are many of them, but cgminer is considered the best. Run it and enter the address to the server we just started – certainly it will answer at localhost, and the bitcoin standard port is 8332. Enter the username and password and… the program crashes. It turns out to mine on the PC you need a video card with one of the ATI chips supporting OpenCL, which so many of my readers struggle to get operational. NVIDIA will also do, but it has a different architecture: where GeForce have one complex shader, Radeon has many simple ones. You don’t need complex shaders for mining, and that’s why ATI beats NVIDIA by 4 times in mining applications. Special mining farms exist, which are basically a number of ATI cards working simultaneously to generate bitcoins. Of course you can mine in the CPU – you have to use guiminer for that. As you can see, with almost full processor load, the performance is only one mega hash per second. For comparison, NVIDIA card gives around 12 mega hash, and ATI video card will get you around 40 mega hash. You can also mine on the PS3, if yours can still boot Linux. Unfortunately, Cell processors from IBM which are the heart of previous generation game consoles like PS3 and Xbox360 have poor performance in floating point operations, which are crucial in modern cryptography. So PS3 will give you around 21 mega hash and consume around 100 watts of energy. Any 40-dollar ATI video card will get you twice that. But even this is too slow, and solo miner is doomed: chances of mining a bitcoin are close to zero. That’s why miners join pools and mine bitcoins collectively. This decreases the number of players thus increasing chances of winning. Mined bitcoins are divided between pool members according to their effort and transferred to their wallets. So if you decided to join a mining pool, do not forget to turn off your solo miner: you won’t get anything there anyway, but keeping it on decreases your pool’s collective winnings. Maybe now the saying that you can’t earn all the money will fade into history. When money supply is not infinite, you have a chance to earn all of it. A very shallow chance.

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