My rundown of everything Bitcoin. Explanation, lots of reading, etc. Only guaranteeing 90%+ accuracy.

[Vitalius]

Questions by a member of the forum.

"Can you please explain this to me? I can't find out exactly what they are." (In regards to Folding @ Home, Bitcoin mining, etc.)

My answer:

I have literally no idea what Folding @ Home is beyond "It's a computer set up to do calcuations for the purpose of scientific discovery/understanding."

Example: If there's a DNA genome that needs to be sequenced, which would normally take a super computer to do, and the scientists lack the hardware to do it, they can use Folding @ Home groups as if they were one big super computer to sequence the genome for them.

That's at least how I understood it, though I could be very wrong about that. YMMV 

As for Bitcoin mining, I know a bit about that. But it's an essay almost. I'll put it in a spoiler.

Basically, Bitcoin is a crypto-currency, which means it's a currency based on a very complicated type of algorithm called Cryptography which is used as security for the currency so it can't be manipulated/stole/duplicated. This way it is regulated and can be used as actual currency without people worrying about their BTC (Bitcoin abbreviation) being stolen. 

Essentially, a Bitcoin mining pool is the equivalent of a Folding @ Home group. They combine their PC's to work out numbers trying to figure out solutions to the Cryptographical currency's algorithm which in turn gives them money (in the form of BTC). When a block of BTC is found, and one is found every 10 minutes, it is split between the group members who earned it. 

Various pools have different ways of splitting the profit, but most use the "by share" method which means that for every % of the total work you do, you get a % of the Block.

Blocks are about 25BTC Plus or Minus 0.5 BTC. At today's prices, that's the equivalent of $2,250. Very rarely, it can be randomly be bumped by up to 10 BTC (making it 35+ BTC or $3,150). 

The current "Difficulty" of BTC is a variable based on how much work is being done by the entire BTC network. The more PC power that enters the network, the higher the difficulty becomes to make it so that 1 Block is still found every 10 minutes. This prevents all BTC from being found fast and keeps the currency from inflating/deflating quickly. The Difficulty is essentially the Algorithm changing in complexity forcing computers to work harder to produce answers to it. 

These answers are very luck based as well. As you can crack a Block in under 1 second no matter the difficulty (due to luck), or it could take hours to days to weeks to months, even on the easiest difficulty. Though very unlikely, it's simply possible.

Every BTC user has to have a digital "wallet" to spend/receive BTC. It is usually an address of random characters and number about 35-40 symbols long. This is the equivalent of your Bank Account Number. People can use it to send you money/receive money from you, but they can't do so without your permission/access to your wallet which is on your computer or on a server at a place like www.mtgox.com (they handle 80+% of all BTC traffic). 

The wallet, if on your home PC, must download the entire Transaction history of BTC. This tells it who (based on address) owns what BTC. It's essentially the entire list of every single right answer there has ever been to BTC's algorithm. It's a file over 6+GB big and you download it via P2P encrypted connection. This is to further prevent people from attempting to "steal" BTC. It keeps a record of who owns what BTC and with this, it checks every BTC against who owns it to see if they have a right to sell/buy it. 

If your wallet has BTC allocated to it, and it is deleted with no backup, it's the equivalent of burning BTC. You literally have lost the BTC and there is no way to get it back. Yes, it is recorded that the BTC is allocated to your address, but there's no way to prove it's really "your" address for your wallet, so it's gone. Poof. Backups are important in this case, or you can just have an online wallet at MTGox or whatever. However, this requires you to trust the site in that they won't just up and steal your BTC since they hold the address/file that have it. 

There is a hard cap on the total amount of BTC. The algorithm has an "end" and eventually it will be reached. IIRC the total potential BTC is 21 million, and when that happens, the price will likely rise very fast since it will be a very finite resource that can't be mined anymore. However, BTC can but cut into very small portions. Even up to 0.00000001. Because of this, as BTC rises in value, smaller quantities can be traded for the same goods since those don't raise in value. 

BTC is like a stock. The price varies depending on the market. You can invest in it accordingly as well. BTC is partially used for nefarious activity because it can be used anonymously at almost no expense once purchased. You can buy drugs (there is an online store for this, literally), gamble, launder money, etc. 

What keeps it from being hammered on by the Government is that people like the idea of their transactions being anonymous to even the government (to an extent). And so even law abiding people (like me) use it for various things. There are PC part stores that accept BTC as currency, among a few other retail sites. 

When it comes to mining BTC with hardware, AMD's GPU's are the current best among the normal PC parts. Nvidia GPU's are about 1/10th the speed of AMD GPU's when it comes to mining. They are measured in the speed of "Hashes" which are essentially potential answers to the algorithm. A 6870 at stock clocks can get about 275 Megahashes/s. A GTX 680 will get about 30 Megahashes/s. CPU's will get anywhere from 1-20 Megahashes/s (even Xeon, i7, 8350, wtv). 

However, within the last year, specialized PC's for BTC mining have surfaced called ASIC's. Their precursors, FPG's, are about 2-4x better than an average gaming rig at mining BTC. They can push up to 1Ghashes/s or the equivalent of 3 7970's while not consuming much power in return.

BTC mining is a long process. Machines are usually left on 24/7, so energy consumption becomes a very real concern. ASIC's use anywhere from 30-100w I believe, and can push up to 50 Ghashes/s or the equivalent of 150 7970's (which would use a metric ton of power). People who bought them when BTC was $200+ for 1 probably made literally $100,000's. Possibly millions. 

The whole illegal aspect of BTC is what pumps money into the system allowing such profits to be made. Recently, BTC has hovered around $85-$100 per BTC and has consistently stayed there for quite a while. 

Remember how I said that the difficulty of mining BTC is based on the total power of the entire network? Well, once GPU mining started, CPU mining became pretty much pointless as it used lots of power and returned little, so you ended up burning money in the electricity bill. Well, that's what ASIC's are doing to GPU mining. Soon, very soon, it will be pointless to mine with a GPU as the power/difficulty will be so high you will be burning money rather than making it, if it isn't already like that now.

If you want to make money BTC mining, you'd want an ASIC, but the problem is that they are very slow to come out. Basically, people who ordered their ASIC's back in October of last year got them around July of this year. That's how long you will have to wait. And the prices have gone up since then on ASIC's. By the time you would get one, there would be so many in the market already, you would still make a profit (probably), but you wouldn't make one like the people who jumped on it some time ago (1+ years). 

There are other crypto-currencies. Litecoin (LTC), Namecoin (NMC), and many others (20+). They are all used for various things. LTC is made to be able to be mined with CPU's. GPU's are just as slow at mining them and ASIC's aren't much better. This is the "silver" to BTC being "Gold". Namecoins are for buying Domain Names. However, it isn't very popular. BTC is by far the most popular Crypto-currency with LTC in second but very far behind. All the others are very niche.

I think that's all I got. Not sure though. I probably know more but it isn't coming to me. Hope that answered your question. I guesstimate that 90+% of that is accurate. There are some things I'm iffy about but that's how I understand it. Feel free to correct me if I am wrong. 

I did for 6 months at Slush's pool which is the oldest BTC mining pool. Slush is the guy who first thought of pooling PC's together to mine and did the networking software for it (I believe). He's pretty awesome.

 

I have 0.5 BTC from all that time to show for it mining at 275 Mhashes/s on average. That's $45 right now and was $115 when I started.

Mining cost isn't related to the current price of BTC. You have to remember it's a stock and will change in price between now and when you sell it. Mining is an investment in the hopes that the price will be high enough in the future that your costs will be covered and you will make a profit. The easiest way to do this is to wait until BTC spikes in price, like it did over 6 months ago when everyone got into it. It's very popular now as a result (NEWS channels even mentioned it).

 

I wouldn't to anyone who isn't already rolling in money. It's plagued with the same problem all capitalist economies have. You have to have money to make (decent) money.
 

If you have money, buy an ASIC. You'll get it around January-March of 2014 and will likely make a moderate profit on it for a year at least. Probably much longer since they are so energy efficient.

Just don't expect quick money and don't expect it to be easy. Actually getting the real money from the BTC can be difficult in my experience. First you have to prove you are who you are (Driver's License + Proof of Residence), and then you have to hope the place you are trading with (in my case, MTGox) is able to use the processes that don't have high ($20+) transaction fees.

Right now MTGox isn't allowing the cheaper transaction processes and only allowing International Bank Wiring with the US from Japan. That costs like $20-$40 by itself. Which is pointless when I only will get $45 from it, leaving me with $5.

They aren't letting us use the cheaper processes because they are facing government opposition atm. Understandable but annoying.

So I'm just trading BTC like a stock. Buying when it's low, selling when it's high, until I can get my money out of it. Inching my way towards 1BTC.

 

[gauvinic]

Interesting. Not in that I learned a whole ton (I've done plenty of research elsewhere), but in that you mined around the time I was considering it. I didn't though. Out of curiosity, how is your sporadic trading of the .5 BTC going? I assume that you just used that instead of a bank transfer to MtGox to start trading. I invested in the Jalepeno, (not upgrading to 7 GH because I have 1st year of college coming up) and will get it soon, according to Jody's Blog. Hopefully It'll last at least long enough to pay for itself (unlimited internet and electricity at college). 

 

I've been thinking about password security a bit more, and this thought passed through my head: SHA256 isn't just used for Bitcoin mining. Not sure how many sites use it for password encryption, but from research, they do exist. What if someone were to make ASICs to break the SHA256 or other SHA algos? Is that possible? I'm beginning to think password encryption needs to be handled more silently. Maybe design an algo soo complex that to plausibly use it for password encryption online, you need special ASICs designed specifically for that algo just to keep up speed-wise. I dunno, just typing what comes to mind. Haven't really done good research and formulating of ideas.

 

Edit: Great post, by the way! Should be useful for newcomers.

[Vitalius]

Interesting. Not in that I learned a whole ton (I've done plenty of research elsewhere), but in that you mined around the time I was considering it. I didn't though. Out of curiosity, how is your sporadic trading of the .5 BTC going? I assume that you just used that instead of a bank transfer to MtGox to start trading. I invested in the Jalepeno, (not upgrading to 7 GH because I have 1st year of college coming up) and will get it soon, according to Jody's Blog. Hopefully It'll last at least long enough to pay for itself (unlimited internet and electricity at college). 

 

I've been thinking about password security a bit more, and this thought passed through my head: SHA256 isn't just used for Bitcoin mining. Not sure how many sites use it for password encryption, but from research, they do exist. What if someone were to make ASICs to break the SHA256 or other SHA algos? Is that possible? I'm beginning to think password encryption needs to be handled more silently. Maybe design an algo soo complex that to plausibly use it for password encryption online, you need special ASICs designed specifically for that algo just to keep up speed-wise. I dunno, just typing what comes to mind. Haven't really done good research and formulating of ideas.

 

Edit: Great post, by the way! Should be useful for newcomers.

Thanks. 

It's possible, I'd imagine. It'd take the knowledge to right your own OS and how to install it on an ASIC (if that's how they work, haven't touched one myself). 

I imagine the Jalapeno will make you a decent profit.