Scrap the Shovels -- 21st-Century Mining Uses Computers
Dec 6th 2013 2:09PM
Updated Dec 6th 2013 2:10PM
Sadly, one MacBook Pro hooked up to a desktop won't get the job done. Successful bitcoin mining operations involve thousands of computers working together. This computing power is then focused on cracking codes and solving equations, all for the betterment of mankind.
Time well spent
Miners (pools of computers) get paid in bitcoins (usually 25 to 50) after cracking codes and solving equations that could lead to medical and technological advancements. Mining bitcoins can be a good way to keep any computer out of trouble during its downtime. Organized crime rings have been known to steal idled computing power, using it to commit crimes such as identity theft and DDoS attacks for ransom. One software company has already been fined $1 million for installing code onto customer computers that instructed them to mine bitcoins without prior consent.
Swimming with sharks?
When computing power isn't enough, successful multi-level marketers (and miners) must have a few good jokes and stories under their belts. Tales of getting rich quickly aren't only exciting, they can really be motivating for new recruits. The best Bitcoin "easy pathway to riches" story I've heard so far is about a man who traded his time and skill for $27 worth of bitcoins a few years ago. Remembering the purchase just recently, he discovered that the same $27 was now worth $886,000! What a pleasant surprise.
Super duper mining equipment
Currently, the top 100 miners own 20% of the 11 million or so bitcoins in circulation. At around $1,000 each, that's a nice chunk of crypto currency. If this new generation of miners reinvests into heavier equipment, Cray and D-Wave should be expecting some new customers soon: These companies manufacture high-performance computing systems (supercomputers).
Banking on Bitcoin or selling it?
Bitcoins could be worth their digital weight in gold someday, so if you're not a seller, you should make sure those thumb drives (bitcoin wallets) are kept safe. Banks would be a solid choice, or else keep to other valuables. Losing your bitcoin wallet (via computer crash) would be like dropping your keys into a river of molten lava; if it happens, they're gone. On average, people will not be capable of mining bitcoins without first making a significant investment into computing power (here's a profitability calculator). Therefore, bitcoin bugs who still want to buy will have to click their way over to Mt. Gox (one of the largest trading platforms) and pay up with real digital money.
Faith and confidence
Without a central banking system in which to place faith and confidence, the Bitcoin ecosystem must rely on itself to manage the crypto currency supply (21 million fully diluted.) Built into the scheme, milestones (problems that only computers can solve) become progressively harder. This is Bitcoin's strategy for not flooding the market. The billion-dollar question: Will the Bitcoin pioneers continue to store their newly mined riches in thumb drives (which are kept somewhere safe), or will their financial advisors recommend they diversify crypto-currency with fiat, PowerShares DB US Dollar Index ?
Greater fool theory
Historians of financial market bubbles have remained fully employed over the past decade or so. Over that time period, irrational exuberance has popped in dot-com stocks, real estate, Chinese stocks, and commodities. Out with the old and in with the new crypto currencies. Nothing will be different this time. Market history proves that someone always gets left holding the bag. On the bright side, unlike with art and gold, bitcoins will never fade or lose their luster.
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The article Scrap the Shovels -- 21st-Century Mining Uses Computers originally appeared on Fool.com.Daniel Cook has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Mini-Mutual Funds are offered through Daniel T. Cook & Partners, LLC, registered with the State of Florida as a (RIA) Registered Investment Advisor.