Bitcoins are a type of online, digital currency that first emerged in 2009. Since they are not physical, tangible objects, Bitcoins must be generated and this is done using a process known as ‘mining’. With this alternative, electronic money gaining more attention as of late, interest in mining has peaked but many people are still unsure of how it works.
Why is it called ‘mining’?
Most people believe it is a reference to mining for gold, due to similarities in the processes involved. Just like with gold, Bitcoins are valuable but are not easy to get your hands on and the more you find, the more elusive they become due to their relative rarity. The difference is that you are not digging for Bitcoins but rather using your computer to solve a number of complex mathematical problems. When your computer finds the correct answer, you are rewarded with Bitcoins. There is a cap on their numbers however; as there can never be more than 21 million of them in circulation. The more that are made, the harder the problems guarding them become; this stops overproduction.
What do you need to do it?
Bitcoins are stored in a ‘Wallet’; after all, they are a type of currency. You need to download the Bitcoin client from bitcoin.org, which will give you the address of your wallet that you will use when ordering or creating Bitcoins.
To actually mine for them, you can use either your CPU or a graphics card. Using your CPU is the easiest option, as you can simply use browser based miners like Bitcoin Plus; this way you do not need to purchase any additional software. If you are serious about your mining however and want to make as much money as possible, graphics cards can perform as much as 100 times faster. This also means we are often talking about fairly high processing speeds however and so the likes of a standard laptop may struggle to run effectively.
Alternatively, there are pre-made mining systems that are available to buy or rent online.
Work alone or in teams?
You have a choice when it comes to how you mine; you can either do it on your own, working hard but keeping all your rewards or you can join what is known as a pool. With pools, the Bitcoins generated are evenly split among the entire group, giving everyone a steadier, more reliable return on their investment. In exchange for this, you each give a small percentage of your intake to the operator of the pool.
What are the advantages and disadvantages?
Bitcoins work on a peer-to-peer system, where they are transferred from one computer to another via a network connection. This means the majority of people do not actually generate Bitcoins themselves; they purchase and share them. The actual mining programs can be pretty confusing for a casual user and so is often reserved for more experienced people who are used to working with complex systems. Also, since they are run solely using computers, your Bitcoins are subject to hacking or even complete loss if your system was to crash.
However, having Bitcoins could be a good investment for the future as they have been gaining much attention as of late. More websites are starting to take them seriously and accept them as a form of payment. With the current value (March 2013) of just one Bitcoin being around £40 (or $60) and rising fast, efficient mining can prove to be a very lucrative business; if you have the processing speed and patience to handle it.